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Saudi Arabia's tax system is administered by the Zakat, Tax and Customs Authority (ZATCA). It is unusual in one important respect: whether a company pays Zakat, income tax or both depends on who owns it. Add VAT at 15%, withholding tax on payments to non-residents and a phased e-invoicing regime, and there is a lot to get right — whether you are setting up in the Kingdom, investing from Pakistan or billing Saudi clients from abroad.
Zakat or income tax? It depends on ownership
| Who owns the share | Levy | Rate |
|---|---|---|
| Saudi and GCC nationals (and entities they own) in a resident company | Zakat | 2.5% of the Zakat base |
| Foreign (non-GCC) shareholders in a resident company | Corporate income tax | 20% of taxable profit |
| Non-resident doing business through a permanent establishment or branch | Corporate income tax | 20% of taxable profit |
| Oil and hydrocarbon production | Corporate income tax | Higher rates (50% to 85%) |
A mixed-ownership company pays both. If a Saudi investor holds 60% and a Pakistani company 40%, Zakat is computed on 60% of the Zakat base and income tax on 40% of taxable profit. Joint venture agreements should state clearly how these costs are borne.
The Zakat base
Zakat is not simply a tax on profit. The Zakat base is built from the balance sheet — broadly, equity and long-term funding less qualifying long-term assets and investments — so the way a business is financed affects the amount payable. New Zakat regulations apply to financial years beginning on or after 1 January 2024, and many companies needed to revisit their computations when they came in.
Returns and payment
Zakat and income tax returns are filed, and the tax paid, within 120 days of the financial year end. For a 31 December 2025 year end, that was 30 April 2026. The supporting financial statements are prepared under IFRS as endorsed by SOCPA (or IFRS for SMEs where permitted).
VAT at 15%
VAT was introduced in 2018 and rose from 5% to 15% on 1 July 2020. Exports and international transport are generally zero-rated; certain financial services and residential rent are exempt.
| Situation | Requirement |
|---|---|
| Resident business with taxable supplies above SAR 375,000 a year (or expected to exceed it) | Mandatory registration |
| Taxable supplies or expenses above SAR 187,500 | Voluntary registration available |
| Non-resident making taxable supplies in the Kingdom | Registration regardless of value, usually through a tax representative |
| Annual taxable supplies above SAR 40 million | Monthly returns (otherwise quarterly) |
Late registration carries a SAR 10,000 penalty, so monitor your rolling twelve-month turnover every month.
Withholding tax on payments to non-residents
A Saudi business paying a non-resident for income sourced in the Kingdom must deduct withholding tax and pay it to ZATCA within the first ten days of the following month. Domestic rates include:
| Payment | Domestic rate |
|---|---|
| Management fees | 20% |
| Royalties | 15% |
| Technical and consulting services | 5% (15% where paid to a head office or related party) |
| Dividends | 5% |
| Interest (returns on loans) | 5% |
Payments for services to a head office or related party are withheld at 15%, so intra-group recharges deserve particular care. Double taxation treaties can reduce these rates. Pakistan and Saudi Arabia have a treaty, signed in 2006, covering Saudi Zakat and income tax and Pakistan's income tax. Treaty relief generally depends on the recipient providing evidence of tax residence, so arrange a tax residency certificate before the first payment. A Pakistani firm billing a Saudi client should also price for any Saudi withholding and check how it is credited against Pakistani tax.
ZATCA e-invoicing (FATOORA)
Phase one: generation
Since 4 December 2021, every VAT-registered business has had to generate and store invoices and notes electronically through a compliant solution; handwritten invoices and invoices produced in word processors no longer qualify. Simplified (business-to-consumer) invoices carry a QR code.
Phase two: integration
From 1 January 2023, ZATCA has been connecting taxpayers' systems to FATOORA in waves, selected by VAT-able revenue in specified years. ZATCA notifies each business directly, at least six months before its integration date.
| Wave | Revenue threshold | Integration |
|---|---|---|
| Wave 1 | Above SAR 3 billion (2021) | From 1 January 2023 |
| Wave 2 | Above SAR 500 million (2021) | From 1 July 2023 |
| Waves 3 to 22 | Progressively lower thresholds | 2023 to 2025 |
| Wave 23 | Above SAR 750,000 (2022, 2023 or 2024) | By 31 March 2026 |
| Wave 24 | Above SAR 375,000 (2022, 2023 or 2024) | By 30 June 2026 |
| Wave 25 | Above SAR 187,500 (any of 2022 to 2025) | By 1 February 2027 |
Once integrated, standard tax invoices (business-to-business and business-to-government) must be cleared by ZATCA before they are issued to the buyer, while simplified invoices are reported within 24 hours. Each invoice is an XML file carrying a unique identifier, a cryptographic stamp, the hash of the previous invoice and a QR code — requirements most older invoicing systems cannot meet without upgrading.
Other points to plan for
- Transfer pricing: ZATCA's Transfer Pricing Bylaws (2019) require arm's-length pricing between related parties, with disclosure and documentation duties above set thresholds.
- Foreign investment: since February 2025, foreign investors register with the Ministry of Investment (MISA) under the new Investment Law, which replaced the former MISA licence, and obtain a commercial registration before trading. Some activities remain restricted or need prior approval.
- Records: keep books, invoices and supporting documents in a form ZATCA can audit, for as long as the law requires.
Your Saudi compliance checklist
- Ownership split confirmed and the Zakat and income tax positions computed for each year
- Zakat and income tax returns filed within 120 days of the year end
- VAT registration threshold monitored monthly; returns filed on the correct monthly or quarterly cycle
- Withholding tax deducted and paid by the tenth of the following month; treaty documents on file
- E-invoicing solution generating compliant invoices, and integration completed by your wave's deadline
- Related-party pricing documented in line with the Transfer Pricing Bylaws
How Veridian can help
Our Taxation and Related Advisory Services practice advises on Zakat, income tax, VAT and withholding tax for businesses dealing with the Kingdom, and our IT Consulting practice supports ZATCA e-invoicing readiness and ERP integration. Our Accounting & Financial Reporting practice prepares SOCPA-compliant IFRS accounts. See how we work across our four jurisdictions on the jurisdictions page, and compare the UAE position in our UAE Corporate Tax and VAT guide.
Entering the Saudi market, or preparing for your FATOORA wave? Book a consultation and talk to us.
This guide reflects our understanding of the rules as at October 2026. ZATCA updates its rules and wave schedule regularly — check ZATCA's latest announcements and any notice you have received, or ask us, before acting.
Frequently asked questions
Does a Saudi company pay both Zakat and income tax?
It can. Zakat applies to the share owned by Saudi and GCC nationals and income tax at 20% applies to the share owned by foreign shareholders, so a mixed-ownership company pays both in proportion to its ownership.
What is the VAT registration threshold in Saudi Arabia?
Registration is mandatory for resident businesses whose taxable supplies exceed SAR 375,000 a year, and voluntary above SAR 187,500. Non-residents making taxable supplies in the Kingdom must register regardless of value.
Which FATOORA integration wave applies to my business?
ZATCA selects each wave by VAT-able revenue in specified years and notifies businesses directly at least six months in advance. The most recently announced wave, Wave 25, covers revenue above SAR 187,500 in any of 2022 to 2025 and must integrate by 1 February 2027.
This guide is general information based on the law as we understand it on the date shown, not advice for your situation. Tax rules change often — please speak to us before acting on it. See our disclaimer.