Every business operating in Saudi Arabia is subject to one or more of three core obligations: Zakat, corporate income tax and value added tax (VAT). All three are administered by the Zakat, Tax and Customs Authority (ZATCA). This guide explains in practical terms who pays what, how each one is calculated, and which deadlines and penalties belong in your calendar, with a full worked example and a checklist to run before every return.
2.5%
Zakat on the Zakat base
20%
Income tax on the non-Saudi share
15%
Standard VAT rate
120
Days to file the Zakat and tax return
Key points
- A business pays Zakat on the share owned by Saudi and GCC owners, and income tax on the share owned by foreign owners.
- VAT is separate from ownership, and registration becomes mandatory once taxable supplies exceed SAR 375,000 a year.
- Wave 25 of e-invoicing covers every business whose taxable revenue exceeded SAR 187,500 in any year from 2022 to 2025, with integration required by 1 February 2027.
- The penalty waiver initiative has been extended to 31 December 2026, a chance to fix past violations before it ends.
1Who pays Zakat and who pays income tax?
The first question for any business is: who owns it? Saudi rules allocate the obligation according to the owners’ nationality, not only where the company is registered.
| Ownership structure | Zakat | Income tax | VAT |
|---|---|---|---|
| Fully owned by Saudi or GCC nationals | Yes, on the whole base | No | Yes, above the registration threshold |
| Fully foreign-owned | No | Yes, 20% of taxable income | Yes, above the registration threshold |
| Mixed ownership | Yes, on the Saudi and GCC share | Yes, on the foreign share | Yes, above the registration threshold |
| Permanent establishment of a non-resident (branch of a foreign company) | No | Yes, 20% | Yes |
What about oil and gas?
Oil and hydrocarbon production is taxed at special rates well above the standard rate, so the rates below do not apply to that sector.
2Zakat: rate, base and deadlines
Zakat is charged at 2.5% of the Zakat base for a Hijri year. For businesses that use a Gregorian financial year the rate is adjusted for the extra days to roughly 2.5778%.
The Zakat Implementing Regulations (1445H / 2024)
The new regulations apply to financial years starting on or after 1 January 2024 and changed the way the base is built in important ways. The main changes:
- The base is built from closing balances in the financial statements, adding Zakat items (such as equity and the sources that funded assets) and deducting non-Zakat items (such as fixed assets and investment properties not held for sale).
- The regulations introduce a minimum base linked to adjusted net profit, and a maximum base linked to equity and adjusted profit.
- Several items became deductible under conditions, including certain investments in sukuk, bonds and Saudi entities, raw materials and deferred tax assets.
- Non-current liabilities (such as end-of-service benefits and lease liabilities) are added to the base under specific rules, capped at the value of deducted assets.
- Transfer pricing rules for related-party transactions now also apply to Zakat payers.
Deadlines and the Zakat certificate
The Zakat return is filed and the Zakat due is paid within 120 days of the financial year end (around 30 April for a year ending 31 December). Once you file and pay, ZATCA issues a Zakat certificate, which you need to deal with government bodies, bid for tenders and for some banking services. A late return can stop your business before it ever costs you a fine.
Small businesses without proper accounts
Where no approved financial statements exist, ZATCA can assess Zakat on an estimated basis using available data such as sales. Keeping proper books usually gives you a more accurate and lower result.
3Corporate income tax
Income tax is charged at 20% on the net taxable income attributable to non-Saudi, non-GCC owners and on permanent establishments of non-residents. Taxable income is revenue minus deductible expenses, meaning actual, documented expenses incurred to earn that income.
- Losses: carried forward with no time limit, but the amount offset in any year cannot exceed 25% of that year’s taxable income.
- Return: due within 120 days of the year end. Businesses with mixed ownership file a single return covering both Zakat and tax.
- Advance payments: some taxpayers must make advance payments during the year based on the previous year’s tax.
- Transfer pricing: related-party transactions must be at arm’s length, with an annual disclosure form, and large groups (consolidated revenue above SAR 3.2 billion) must file country-by-country reports.
Withholding tax
When a payment from a Saudi source goes to a non-resident, the paying business must withhold the tax and remit it to ZATCA within the first 10 days of the following month, even if the business itself only pays Zakat.
| Payment to a non-resident | Rate |
|---|---|
| Management fees | 20% |
| Royalties, and services paid to a head office or related party | 15% |
| Dividends, loan interest, rent, technical and consulting services, air tickets and freight, insurance premiums | 5% |
Double tax treaties may reduce these rates, provided the treaty conditions and documentation requirements are met.
4Value added tax (VAT)
The standard VAT rate is 15%, in force since 1 July 2020. A business collects VAT from its customers on behalf of the state, recovers the VAT it paid on its purchases, and pays over the difference.
When must you register?
| Situation | Threshold | What to do |
|---|---|---|
| Mandatory registration | Taxable supplies above SAR 375,000 over 12 months (actual or expected) | Register within 30 days of the end of the month in which you crossed the threshold |
| Voluntary registration | Taxable supplies or expenses above SAR 187,500 | You may register to recover input VAT |
| Non-resident selling in Saudi Arabia | Usually no threshold | Register when making taxable supplies, unless the customer accounts for the VAT |
Zero-rated and exempt supplies
- Zero-rated (input VAT recoverable): exports outside the GCC, international transport, qualifying medicines and medical equipment, and investment metals.
- Exempt (no recovery): residential rent, certain financial services and life insurance.
Returns and payment
- Monthly if annual taxable supplies exceed SAR 40 million, otherwise quarterly.
- The return and payment are due by the last day of the month following the end of the tax period.
- Input VAT can only be recovered with a valid tax invoice showing your business name and VAT number.
- Keep records and invoices for at least 6 years, and longer for certain capital assets and real estate.
- Related businesses can register as a single VAT group under specific conditions, so supplies between them fall outside VAT.
5E-invoicing (FATOORA)
Phase one (generation) started on 4 December 2021 and required every VAT-registered business to issue electronic invoices from a compliant system. Phase two (integration) has been rolled out in waves since 2023 and requires your system to connect to the FATOORA platform: B2B tax invoices are cleared by ZATCA before they are shared, and B2C simplified invoices are reported within 24 hours.
| Wave | Who is covered | Integration deadline |
|---|---|---|
| Wave 24 | Taxable revenue above SAR 375,000 in 2022, 2023 or 2024 | By 30 June 2026 (passed) |
| Wave 25 | Taxable revenue above SAR 187,500 in any year from 2022 to 2025 | By 1 February 2027 |
Don’t wait for the notice
ZATCA notifies businesses in scope in advance, but the obligation applies as soon as you meet the criteria. Check your revenue for every year in the range and start working with your e-invoicing provider early, because integration and testing take several weeks.
6Worked example: a mixed-ownership company
A hypothetical trading company with a Gregorian financial year
Ownership: 60% Saudi partner and 40% foreign partner. Total Zakat base SAR 10,000,000; adjusted taxable income SAR 2,000,000.
| Item | Calculation | Amount (SAR) |
|---|---|---|
| Zakat (Saudi partner’s share) | 10,000,000 × 60% × 2.5778% | 154,668 |
| Income tax (foreign partner’s share) | 2,000,000 × 40% × 20% | 160,000 |
| Total on the annual return | Within 120 days of year end | 314,668 |
For VAT, if taxable sales for the quarter were SAR 1,000,000 (output VAT SAR 150,000) and purchases backed by valid invoices were SAR 400,000 (input VAT SAR 60,000), the VAT payable is SAR 90,000, due by the end of the month after the quarter ends.
This example is simplified for illustration. The actual base calculation requires applying the detailed regulations to your own financial statements.
7Annual compliance calendar
| Obligation | Deadline |
|---|---|
| Withholding tax return and payment | Within the first 10 days of the month after the payment |
| VAT return (monthly or quarterly) | Last day of the month after the period ends |
| Zakat and income tax return and payment | Within 120 days of the financial year end |
| Related-party disclosure form | With the annual return |
| FATOORA integration (Wave 25) | By 1 February 2027 |
| Penalty waiver initiative | Ends 31 December 2026 |
8Penalties and the waiver initiative
| Violation | Penalty |
|---|---|
| Failing to register for VAT on time | SAR 10,000 |
| Late VAT return | 5% to 25% of the tax due |
| Late VAT payment | 5% of the unpaid tax for each month or part of a month |
| Incorrect return, or an amendment that changes the tax | 50% of the difference |
| Late income tax payment | 1% of the unpaid tax for every 30 days of delay |
| E-invoicing violations | A warning first, then escalating fines for repeat violations |
Penalty waiver initiative until 31 December 2026
The Ministry of Finance extended the initiative for another six months from 1 July 2026. It covers fines for late registration, late payment and late filing, and penalties for amending VAT returns, provided you register, file all outstanding returns and pay the principal tax (you can apply for an instalment plan). It does not cover tax evasion penalties or fines linked to returns due after 30 June 2026.
9Common mistakes that cost businesses money
- Recovering input VAT on invoices that do not show the business name or VAT number.
- Ignoring withholding tax on digital subscriptions and services paid to foreign suppliers.
- Zero-rating a supply without keeping proof of export.
- Still using the old Zakat base method after the new regulations took effect.
- Waiting for the e-invoicing notice instead of checking your own revenue.
- Not reconciling VAT returns with revenue in the financial statements before the annual return.
10Checklist before every return
- Confirm the ownership structure and partner percentages in the commercial register.
- Reconcile sales in the books with the total of the year’s VAT returns.
- Review the purchase invoices you recover VAT on and check they are valid.
- List all payments to non-residents and confirm withholding tax was remitted.
- Calculate the Zakat base under the new regulations and compare it with the minimum and maximum limits.
- Prepare the related-party transactions file if you have any.
- Check that your e-invoicing system is ready and confirm your wave deadline.
- Put the payment date in the calendar at least one week before the deadline.
11Frequently asked questions
Can a business pay both Zakat and income tax?
Yes, with mixed ownership. Zakat is calculated on the Saudi and GCC share and income tax on the foreign share, in a single return.
Is VAT a cost to the business?
Usually not a final cost, because it is collected from the customer and the VAT on purchases is recovered. It becomes a cost if you lose recovery because of invalid invoices, or if your supplies are exempt.
What is the difference between zero-rated and exempt?
With zero-rating you charge no VAT but you recover VAT on your purchases. With exemption you charge no VAT and cannot recover VAT on the related purchases.
When do I need a Zakat certificate?
For contracts with government bodies, tenders and some banking and government services. It is issued after you file your return and pay the amount due.
Does FATOORA integration apply to me if my revenue is low this year?
It might. The Wave 25 test is revenue above SAR 187,500 in any year from 2022 to 2025, not just the current year.
How do I benefit from the penalty waiver initiative?
Register if you are not registered, file all outstanding returns, and pay the principal tax or apply for an instalment plan before 31 December 2026.
Learn Zakat and tax step by step
A practical course with quizzes and a certificate of completion.
Sources
- Zakat, Tax and Customs Authority (ZATCA)
- Implementing Regulations for Zakat Collection 1445H
- E-invoicing (FATOORA), ZATCA
This article is for general information and is not tax or Zakat advice. It is current as of October 2026 and regulations may change, so check ZATCA’s website or a licensed adviser before making decisions.