Corporate Income Tax in Saudi Arabia: Who Pays 20%, How a Mixed Company Splits Between Zakat and Tax, and the Filing Calendar

Saudi Arabia has a corporate income tax of 20%, and most Saudi companies have never paid it. The tax applies to the share of a resident company owned by non-Saudi partners, to non-residents doing business through a permanent establishment, and to a few sectors taxed at their own rates. The Saudi and GCC share of the same company pays Zakat instead, at 2.5% of a base that has nothing to do with profit. One set of books, two levies, split by who owns the shares.

That split is the mechanism the SOCPA Zakat and Tax paper examines most, because it is the one that appears on every mixed company's return: a Riyadh joint venture that is 60% Saudi and 40% foreign files a Zakat computation for 60% of itself and a tax computation for 40%. This article sets out who pays, at what rate, on what base, when, and what late costs, with a worked mixed-company example. The Zakat side of the same return is in How the Zakat Base Is Calculated, and the choice between the two levies in Zakat or Income Tax?.

Who pays

Taxpayer	What is taxed
Resident capital company, to the extent of its non-Saudi ownership	The share of taxable income attributable to the non-Saudi partners, "whether such partners are natural or legal persons, resident or non-resident," in ZATCA's words
Non-resident with a permanent establishment in the Kingdom	The income attributable to the permanent establishment
Non-resident earning Saudi-source income without a permanent establishment	Withholding tax on the gross payment, at the rates in Withholding Tax in Saudi Arabia by Payment Type
Resident non-Saudi natural person carrying on business	The business income
Companies in natural gas investment, and in oil and hydrocarbon production	Their income, at the sector rates below

GCC nationals and companies wholly owned by them are treated as Saudi for this purpose and pay Zakat. A company listed on Tadawul splits by the nationality of its shareholders as recorded, which is why listed companies' returns carry both levies in proportions that change with the register.

The rates

Activity	Rate on the tax base
General business, the non-Saudi share	20%
Natural gas investment	20%
Oil and hydrocarbon production, capital investment above SAR 375 billion	50%
Oil and hydrocarbon production, above SAR 300 billion to SAR 375 billion	65%
Oil and hydrocarbon production, above SAR 225 billion to SAR 300 billion	75%
Oil and hydrocarbon production, up to SAR 225 billion	85%

The hydrocarbon tiers are examined for one reason: they run backwards. The largest producer pays the lowest rate, because the tiers were set to reflect the scale of investment the Kingdom wants to encourage, and a candidate who assumes the usual progressive shape will pick the wrong tier.

The tax base

Taxable income is gross income from Saudi sources less the expenses the Income Tax Law allows: costs that are ordinary, necessary, actually incurred and connected with earning the taxable income, supported by documents. The adjustments the exam tests are the ones that separate book profit from the tax base.

Item	Treatment
Depreciation	By the Law's own categories and declining-balance rates, not the accounting policy. Buildings, movable industrial and agricultural structures, plant and equipment including computers and vehicles, exploration costs and other assets each carry their own rate; the Law and its regulations list them
Losses	Carried forward without time limit, but the deduction in any year is capped at a percentage of that year's taxable profit; no carryback
Provisions and reserves	Not deductible when made; the actual expense is deductible when incurred, with limited exceptions such as banks' doubtful debt provisions
Related-party charges	Deductible only at arm's length, under the transfer pricing bylaws that have applied to taxpayers since 2019 and to Zakat payers for years from 1 January 2024
Head office charges to a permanent establishment	Deductible only within the limits the regulations set; a branch cannot deduct notional royalties or interest paid to itself
Fines, penalties, income tax itself, entertainment expenses	Not deductible

Capital gains are taxable income: a non-resident's gain on disposing of shares in a resident company is taxed, with an exemption for shares listed on the exchange that meets the regulations' conditions. Dividends received by a resident company from another resident company are exempt when the ownership and holding period conditions are met, so that the same profit is not taxed twice as it moves up a group.

The mixed company, worked

A limited liability company in Riyadh is owned 60% by a Saudi shareholder and 40% by a German one. Its accounting profit for the year is SAR 12,000,000. Tax adjustments add back SAR 500,000 of provisions and SAR 300,000 of non-deductible expenses and replace book depreciation with the Law's rates, a net reduction of SAR 800,000. Taxable income is SAR 12,000,000.

Step	Amount
Taxable income of the company	12,000,000
Non-Saudi share, 40%	4,800,000
Income tax at 20%	960,000
Saudi share, 60%	Subject to Zakat on 60% of the Zakat base, computed separately

The two computations are independent. The Zakat base for the Saudi share is built from equity and the sources of funds, adjusted, and the 2.5% applies to that base; the income tax base for the German share is built from profit. A profitable company with a small equity base can pay far more income tax on its foreign share than Zakat on its Saudi share, and the reverse is common in capital-heavy companies with thin profits. A question that gives one profit figure and asks for "the total levy" is asking for both computations, not for a blended rate.

The calendar

Obligation	When
Annual return and payment of the balance	Within 120 days of the end of the tax year, with audited financial statements attached where required
Advance payments	Three instalments, at the end of the sixth, ninth and twelfth months of the year, each 25% of the prior year's tax less tax withheld, due only when that 25% comes to SAR 500,000 or more, so when the prior-year tax less tax withheld is SAR 2,000,000 or more
Withholding tax	Remitted monthly, within the first ten days of the following month, on payments to non-residents
Transfer pricing disclosure form	With the return; master and local files within the thresholds and deadlines in the bylaws
Contract reporting	Contracts of SAR 100,000 or more with private-sector parties are reported to ZATCA within three months of signing

The advance payment rule is examined with a computation. A company whose prior-year tax was SAR 2,400,000, none of it withheld, pays three instalments of SAR 600,000 during the current year and settles the balance of the current year's tax within 120 days of year end; a company whose prior-year tax was SAR 960,000, the figure in the worked example, would compute instalments of SAR 240,000, below the SAR 500,000 floor, and so makes no advance payments at all.

What late costs

The Income Tax Law sets penalties for failing to file and for failing to pay, and they compound.

Failure	Penalty
Not filing the return on time	A percentage of gross revenue, capped, or, where higher, a percentage of the unpaid tax that rises with the length of the delay, reaching 25% when the delay exceeds a year
Not paying tax on time, including advance payments	1% of the unpaid tax for every 30 days of delay
Understating the tax in the return	A further percentage of the difference where the understatement is deliberate or from false records

The exact percentages of the filing penalty and the revenue-based fine are set in the Law and change with amendments; a question will give them, and the skill tested is applying the 1% per 30 days correctly to an advance payment made late. Objections to an assessment go first to ZATCA, and then to the Zakat, Tax, and Customs Dispute and Violation Committees, through the General Secretariat of the Zakat, Tax, and Customs Committees, within the deadlines the committees' 1445H procedures set.

How the paper asks

Question pattern	Answer
Company 70% Saudi, 30% foreign, taxable income given	Tax on 30% at 20%; Zakat on the 70% share of the Zakat base
GCC-owned company	Zakat, not income tax
Non-resident consultant, no permanent establishment	Withholding tax on the gross fee, not income tax on profit
Prior-year tax SAR 600,000	No advance payments: 25% is SAR 150,000, below the SAR 500,000 floor
Advance payment paid 45 days late	1% for each full 30 days, none for a delay under 30: 1%
Hydrocarbon producer with capital of SAR 400 billion	50%
Provision for warranty booked this year	Add back; deduct the actual cost when incurred
Loss of SAR 1,000,000 brought forward, profit this year SAR 2,000,000	Deduct up to the annual cap; carry the rest forward

Where to practise this

Income tax questions are computations with a fixed structure, and the structure is learned by working the mixed-company return twenty times with different percentages and adjustments. Prepito's Zakat and Tax course covers income tax, Zakat, VAT, withholding tax and the procedures with practice questions and full explanations in Arabic and English. The paper as a whole is mapped in the SOCPA Zakat and Tax study guide, and the VAT side of the same course in VAT Registration and Returns in Saudi Arabia.

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This is a study guide, not tax advice. Sources: ZATCA, Income Tax, ZATCA, tax rates on the tax base, ZATCA, the Income Tax Law and its implementing regulations, ZATCA, Transfer Pricing Guidelines. The Law, its regulations and ZATCA's penalty initiatives change; the advance payment threshold, the loss cap and the penalty percentages should be confirmed against the current text before use.