Zakat and Tax in Saudi Arabia: ZATCA, Corporate Tax, VAT, and Compliance Guide

Understanding Zakat in Saudi Arabia

Zakat is one of the five pillars of Islam and represents a mandatory form of charitable giving calculated as a percentage of a Muslim’s accumulated wealth. In Saudi Arabia, zakat is not merely a religious obligation but a legally enforceable fiscal duty administered by the government. Saudi-owned and GCC-owned businesses operating in the Kingdom are subject to zakat rather than corporate income tax, creating a distinctive dual-track fiscal system that distinguishes Saudi Arabia from most other jurisdictions.

Zakat is generally calculated at 2.5 percent of a company’s zakat base, which is broadly defined as the entity’s net equity adjusted for certain items such as provisions, retained earnings, and long-term financing. The calculation methodology is governed by the zakat regulations issued by ZATCA and is rooted in Islamic jurisprudence (fiqh) principles, though the specific computational approach has been modernized and standardized for corporate application.

ZATCA: The Zakat, Tax, and Customs Authority

The Zakat, Tax, and Customs Authority (ZATCA), formed through the merger of the General Authority of Zakat and Tax (GAZT) and the Saudi Customs Authority in 2021, is the primary fiscal authority responsible for the assessment, collection, and enforcement of zakat, taxes, and customs duties in Saudi Arabia. ZATCA operates under the oversight of the Ministry of Finance and the Board of Directors chaired by the Minister of Finance.

ZATCA has undergone significant digital transformation in recent years, launching electronic invoicing (Fatoorah), an integrated customs platform, and online portals for tax registration, filing, and payment. The authority processed over 14 million electronic invoices in its first year of mandatory e-invoicing, dramatically improving tax compliance and reducing the shadow economy. ZATCA’s revenue collection has increased substantially, contributing to the Kingdom’s fiscal consolidation and non-oil revenue growth.

Corporate Income Tax

Foreign-owned entities (non-GCC) operating in Saudi Arabia are subject to a corporate income tax (CIT) rate of 20 percent on net taxable income derived from sources within the Kingdom. This applies to the foreign ownership share of mixed Saudi-foreign ventures. The tax base is calculated according to Saudi tax law provisions, which largely follow international accounting standards with specific adjustments for items such as entertainment expenses, provisions, and related-party transactions.

Companies engaged in the production of oil and hydrocarbons are subject to a significantly higher tax rate, ranging from 50 to 85 percent depending on the level of capital investment. Saudi Aramco, the Kingdom’s national oil company, pays a unique tax rate structure that generates hundreds of billions of Riyals in annual government revenue.

Withholding tax applies to payments made by Saudi-resident entities to non-residents, with rates varying by payment type: 5 percent on dividends, 5 percent on interest, 15 percent on royalties, 15 percent on technical and consulting fees, and 5 percent on rent and insurance premiums. Saudi Arabia has signed over 60 double taxation treaties (DTTs) that may reduce or eliminate these withholding rates for investors from treaty countries.

Value Added Tax (VAT)

Saudi Arabia introduced VAT on January 1, 2018, at an initial rate of 5 percent, which was subsequently tripled to 15 percent on July 1, 2020, as part of fiscal consolidation measures during the pandemic. VAT applies to most goods and services supplied within the Kingdom, with certain exemptions and zero-rated categories including international transport, exports of goods outside the GCC, certain financial services, and residential real estate for first-time buyers.

VAT registration is mandatory for businesses with annual taxable supplies exceeding SAR 375,000 and voluntary for those with supplies between SAR 187,500 and SAR 375,000. Businesses must file VAT returns monthly (if annual supplies exceed SAR 40 million) or quarterly. ZATCA’s Fatoorah electronic invoicing system has been progressively implemented across the business landscape, with Phase 1 (invoice generation) completed and Phase 2 (integration with ZATCA’s systems) rolling out in waves through 2025 and 2026.

Other Taxes and Levies

Saudi Arabia does not impose personal income tax on individuals, making it one of the most attractive jurisdictions for expatriate professionals. However, several other fiscal levies apply. Excise tax is charged on tobacco products (100 percent), energy drinks (100 percent), carbonated drinks (50 percent), and sweetened beverages (50 percent). Real Estate Transaction Tax (RETT) is levied at 5 percent on property disposals, replacing the previous 15 percent VAT on real estate.

Transfer pricing regulations, aligned with OECD guidelines, require related-party transactions to be conducted at arm’s length, with documentation and reporting obligations for taxpayers meeting certain thresholds. Country-by-Country Reporting (CbCR) requirements apply to multinational groups with consolidated revenues exceeding SAR 3.2 billion.

Compliance for Foreign Investors

Foreign investors entering Saudi Arabia must register with ZATCA within 30 days of commencing business activities. Tax returns are due within 120 days after the fiscal year-end, and any tax liability must be settled by the filing deadline. Failure to register, file, or pay on time can result in penalties ranging from SAR 1,000 to 25 percent of the unpaid tax amount.

Foreign investors are advised to engage local tax advisors familiar with Saudi regulations, particularly given the ongoing evolution of the tax framework. Key areas requiring attention include transfer pricing compliance, permanent establishment risk assessment, withholding tax obligations, and VAT registration and reporting. The Special Economic Zones offer modified tax regimes that may reduce the overall fiscal burden for qualifying investors.

Key Statistics

ZATCA collected over SAR 600 billion in combined zakat, tax, and customs revenue in 2025. Non-oil tax revenue has grown from approximately SAR 166 billion in 2015 to over SAR 370 billion in 2025, reflecting the success of VAT introduction and improved compliance enforcement. The Kingdom’s tax-to-GDP ratio remains among the lowest in the G20, supporting its competitiveness as an investment destination.

See our VAT Saudi Arabia and Corporate Tax Rate Saudi Arabia guides for related insights.