Zakat vs Corporate Income Tax in Saudi Arabia: Who Pays What

Most finance teams start with one question about a company: do we pay zakat or tax? The answer is in the shareholder register, not in the accounting system. If you are comparing zakat vs income tax in Saudi Arabia, the split follows one line: Saudi and GCC ownership pays zakat, non-GCC foreign ownership pays corporate income tax in Saudi Arabia at 20%, and a company with both pays both, each on its own share. This post explains who pays which levy, how each is calculated, where the two bases differ, and how a mixed-ownership company splits the bill, with a worked example.

Last reviewed: October 2026

1Zakat and income tax in one table

Both obligations sit with the same authority, the Zakat, Tax and Customs Authority (ZATCA). Many companies file a single combined return that covers both, which is why the two get confused. They are calculated in completely different ways: zakat under the Zakat Implementing Regulations, income tax under the Income Tax Law, with different bases, different adjustments and different audit trails.

Not sure how zakat and income tax apply to your company? The Zakat, VAT and Corporate Tax course walks through both with worked examples.

2Who pays zakat

The rule follows from the Income Tax Law and its Implementing Regulations: zakat applies to Saudi and GCC-owned capital, and tax applies to everything else. You fall under zakat if:

• The company is owned by Saudi or GCC nationals, individually or through GCC entities.
• You hold the Saudi or GCC share of a mixed-ownership company. Only that share enters the zakat base.

A common misunderstanding: a company registered in the GCC but owned by, say, a Lebanese or Egyptian individual is not a GCC owner for zakat purposes. What counts is the nationality of the ultimate individual owners, not where the holding company sits. ZATCA asks for the shareholder register and, where relevant, proof of the ownership chain through any intermediate holding company.

3Who pays corporate income tax

Corporate income tax in Saudi Arabia applies to three groups, and the shareholder register decides which one a company touches:

• The share of profits belonging to non-GCC foreign shareholders in a Saudi company.
• Non-resident companies carrying on business in Saudi Arabia through a permanent establishment.
• Non-residents earning Saudi-source income not connected to a PE, mostly collected through withholding tax.

The standard rate is 20% of adjusted net profit, per the Income Tax Law as administered by ZATCA. The law frames it as income tax on the profits attributable to the foreign share. One sector exception worth knowing: income from oil and hydrocarbon production is taxed at special rates ranging from 50% to 85% under the same law. If you operate outside that sector, and almost every reader will, the 20% standard rate is the number that matters.

4How the zakat base calculation works

Zakat on companies is charged on a base you build, not on profit as reported. The opening lines are equity and retained earnings. Long-term liabilities join next: shareholder loans, provisions, financing the company actually uses. Fixed assets and certain investments come off. The result is the zakat base, and the 2.5% applies to it. The detailed adjustments sit in the section below, where the two bases are compared side by side.

5Mixed ownership: a worked example

Take Al Bina Trading Co., owned 60% by a Saudi national and 40% by a foreign investor. For the year:

• Zakat base: SAR 1,000,000
• Adjusted taxable profit: SAR 800,000

Step 1, the zakat side. The Saudi share of the zakat base is 60% × 1,000,000 = SAR 600,000. The company’s fiscal year follows the Gregorian calendar, so the prorated rate is 2.578%. Zakat due = 600,000 × 2.578% = SAR 15,468. Every figure here traces to a line in the financial statements, which is what the auditor will ask for first.

Step 2, the tax side. The foreign shareholder, a non-GCC partner, holds 40%. The foreign share of taxable profit is 40% × 800,000 = SAR 320,000. Income tax due = 320,000 × 20% = SAR 64,000.

Total payable: SAR 79,468, filed in one combined return within 120 days of year end.

Notice what the example hides: the zakat base and the taxable profit are different numbers for the same company. That difference is the next section.

6Zakat base vs taxable profit: why the numbers differ

The gap between the two numbers is where most of the confusion lives, and where the difference between zakat vs income tax in Saudi Arabia becomes real money. Zakat is charged broadly on net worth. The zakat base starts from equity and retained earnings, adds long-term liabilities such as loans and provisions, then subtracts fixed assets and certain deductible investments. Income tax is charged on adjusted net profit: revenue minus deductible expenses, with its own adjustment rules. ZATCA’s own zakat guides walk through the build-up line by line, and they are worth reading once before your first filing.

A mixed ownership company tax position is therefore two computations wearing one return. The Saudi share lives in the zakat world. The foreign share lives in the tax world. Neither borrows figures from the other without an adjustment.

1. Shareholder loans. Added back into the zakat base as a financing source, while interest paid on them to a non-resident related party generally cannot be deducted for tax.
2. Fixed assets. Deducted from the zakat base at net book value, but depreciated over time for tax purposes.
3. Provisions. General provisions are added back for tax; specific, documented provisions follow different treatment. The paperwork decides.

You do not need to memorise every adjustment. You need to know that the two bases are built differently, so the same company can show a profit for tax and a larger or smaller zakat base in the same year. The Zakat, VAT and Corporate Tax course dedicates separate modules to building each base, because mixing the two is a common calculation error in practice.

7Where withholding tax fits

Foreign shareholders rarely stay silent partners. They charge the company: management fees, royalties, loans. Each payment to a non-resident pulls a third obligation into scope. Withholding tax is separate from both zakat and income tax. When a Saudi company pays certain amounts to a non-resident, it must withhold tax at source, file a monthly return, and pay it over to ZATCA. The current rates under ZATCA’s Withholding Tax Guideline:

The return and payment are due within the first 10 days of the month following the payment, per the same guideline. If you pay a foreign software vendor or consultant, this is your obligation as payer, not the vendor’s. Missing it does not just create a liability; ZATCA can assess the tax on you years later, together with penalties. A practical control: reconcile the foreign payments account in your ledger to the WHT returns filed every month, before the mismatch becomes an audit finding.

8Filing the combined return: what the portal expects

The combined return is filed through ZATCA’s DERAYATI portal within 120 days of fiscal year end, per the tax return filing rules. In practice the workflow looks like this: prepare the zakat computation and the income tax computation as two separate schedules, agree each schedule back to the audited or draft financial statements, then enter the results in the return. The portal allocates amounts between the zakat section and the tax section, but it will not catch a schedule built from the wrong opening balances; that check stays with you.

Two documents save the most time at filing. The first is the shareholder register as at year end, with nationality and percentage for every line, because the whole split depends on it. The second is a reconciliation from the zakat base and taxable profit back to net income per the financial statements. When ZATCA later asks how a figure was built, and it usually does, both answers are already in writing.

9Common mistakes

Using Gregorian figures without the zakat adjustment. The 2.5% rate is a Hijri-year rate. A 365-day Gregorian year is about 11 days shorter, so the effective rate becomes 2.578%. Companies that apply 2.5% to a Gregorian year understate zakat by roughly 3%, and the error repeats every year until an audit finds it.

Treating GCC shareholders as foreign, or the reverse. A Jordanian individual owning a company registered in Dubai is not a GCC national. Nationality of the ultimate owners decides, and the shareholder register is the evidence ZATCA asks for.

Ignoring withholding on payments to foreign service providers. Management fees, royalties and technical services paid abroad attract WHT. Companies often discover this during an audit, when the payer-side liability and penalties land together.

Filing one obligation and assuming the other is covered. In a mixed company, both the zakat and the tax computation must be submitted. A combined return does not mean a combined calculation. The second most common filing error is leaving a prior-year loss offset against the wrong base: losses offset taxable profit, not the zakat base, and mixing them distorts both computations.

10FAQ

Do foreign-owned companies pay zakat?

No. A company owned entirely by non-GCC foreign shareholders pays corporate income tax at 20%, not zakat. Zakat applies to the Saudi and GCC-owned share. Where the shareholders are themselves companies, ZATCA looks through the intermediate holding companies to the ultimate owners, so the ownership chain decides which levy applies.

Do individuals pay income tax in Saudi Arabia?

No. Employment income for individuals, Saudi or foreign, is not taxed. Income tax applies to business profits of companies and to certain Saudi-source investment income of non-residents, mostly collected through withholding.

What is the zakat rate for companies?

2.5% of the zakat base for a Hijri year. For a Gregorian fiscal year, the rate is prorated to about 2.578%. The base is broadly equity plus long-term liabilities minus fixed assets and certain investments.

Can a company pay zakat and income tax in the same year?

Yes, and this is the normal situation for mixed-ownership companies. The Saudi/GCC share of the base goes to zakat, the foreign share of profit goes to income tax, and both are settled through one combined return within 120 days of year end.

Is zakat the same as corporate tax in Saudi Arabia?

No. Zakat is charged broadly on net worth at 2.5% and applies to Saudi and GCC owners. Corporate income tax is charged at 20% on the profit attributable to non-GCC foreign owners. They follow different rules and different bases, even when they are filed in one combined return.

Who pays zakat in Saudi Arabia?

Saudi and GCC nationals, and companies owned by them, pay zakat on their share. Where a company also has foreign shareholders, only the Saudi and GCC share enters the zakat base.

11Next step

Pull your articles of association and the current shareholder register, and mark each shareholder as zakat or tax side. That single exercise tells you which obligations you carry and stops most of the mistakes above before they happen. If the split looks complicated, the Zakat, VAT and Corporate Tax course works through mixed-ownership cases line by line. Before your first filing, prepare the zakat return working papers with the same care: the zakat return, tax return and the reconciliations behind them are what ZATCA reviews first. And if your question starts with an audit rather than a filing, read what happens during a ZATCA tax audit next.

Related reading: how to file a VAT return in Saudi Arabia and which Saudi tax course is right for you.

This article is general information, not legal or tax advice. Rules change; confirm with the official source or a licensed adviser.