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Income tax in Saudi Arabia: a detailed explanation
Income tax is one of the most important sources of income for governments around the world, including the Kingdom of Saudi Arabia. This income tax in Saudi Arabia aims to finance infrastructure projects and public services, promote social justice, and stimulate economic growth.
In this article, we will provide a detailed explanation of income tax in Saudi Arabia, covering its various aspects, starting with its definition and types, passing through a detailed explanation of the method of calculating it, all the way to a review of the permitted exemptions and deductions.
Definition of income tax in Saudi Arabia and its types
Income tax is a tax imposed on income earned by individuals and companies from various sources within the Kingdom of Saudi Arabia. Taxable income is defined as net income after deducting all expenses and allowable allocations.
Types of income tax in Saudi Arabia
Income tax in Saudi Arabia is imposed on two main types of taxpayers:
Resident individuals:
Saudis: exempt from income tax.
Non-Saudis: are subject to income tax at the rate of 20% of their net income.
Non-resident individuals:
They are subject to an income tax of 20% of their net income generated from sources within the Kingdom.
Companies:
National companies:
Joint stock companies: are subject to an income tax of 20% of their net profits.
Limited liability companies: are subject to an income tax of 15% of their net profits.
Foreign companies:
Companies that have a branch or permanent office in the Kingdom: are subject to an income tax of 20% of their net profits generated from sources within the Kingdom.
Companies that do not have a branch or permanent office in the Kingdom: are subject to an income tax of 30% of their net profits generated from sources within the Kingdom.
How to calculate income tax in Saudi Arabia
Calculating income tax in Saudi Arabia for individuals:
Resident:
Non-Saudis:
Collect all sources of income (salary, freelance work, investments, …).
Deduct all permitted expenses and allowances (rent, insurance, …).
Income tax calculation:
Multiply net income by the income tax rate (20%).
Non-residents:
Collecting all sources of income generated from sources within the Kingdom.
Deducting all expenses and allowable allocations related to income generated from sources within the Kingdom.
Income tax calculation:
Multiply net income by the income tax rate (20%).
National companies:
Collect all company revenues.
Deduct all company expenses.
Income tax calculation:
Multiply the net profit by the income tax rate (20% or 15% depending on the type of company).
Foreign companies
Collecting all the company’s revenues generated from sources within the Kingdom.
Deducting all company expenses related to income generated from sources within the Kingdom.
Income tax calculation:
Multiply the net profit by the income tax rate (20% or 30% depending on the type of company).
Allowed exemptions and deductions
Exemptions:
Personal exemption: Each resident individual (Saudi or non-Saudi) is granted a personal exemption worth 36,000 Saudi riyals annually.
Family exemptions: Each married resident is granted a family exemption worth SAR 36,000 annually, in addition to additional exemptions for each dependent child.
Other exemptions: Other exemptions are granted for some cases, such as:
Disability: A disabled person is granted an exemption worth 24,000 Saudi riyals annually.
Single mothers: A single mother is granted an exemption of 12,000 Saudi riyals annually for each dependent child.
Deductions:
Insurance deductions: It is allowed to deduct the amounts of social insurance contributions (retirement, disability, and death) from taxable income.
Charitable deductions: Donations to charitable organizations registered with the General Authority of Zakat, Tax and Customs are allowed to be deducted from taxable income.
Mechanism for paying income tax in Saudi Arabia
Individuals:
Resident individuals (non-Saudis) must submit an annual tax return to the General Authority of Zakat, Tax and Customs.
The income tax due is paid to the General Authority of Zakat, Tax and Customs.
Companies:
Companies must submit an annual tax return to the General Authority of Zakat, Tax and Customs.
The income tax due is paid to the General Authority of Zakat, Tax and Customs.
Penalties for not paying income tax in Saudi Arabia
Fines: Fines are imposed for late or non-payment of income tax.
Imprisonment: In some cases, a person who does not pay income tax may be imprisoned.
The impact of income tax on the Saudi economy
Income tax in Saudi Arabia aims to achieve many benefits for the Saudi economy, including:
Increasing government revenues: Income tax in Saudi Arabia is an important source of government revenues, which are used to finance infrastructure projects and public services, such as: education, health care, transportation, and security.
Enhancing social justice: Income tax contributes to enhancing social justice by distributing tax burdens fairly between individuals and companies, in proportion to their incomes and profits.
Stimulating economic growth: Income tax can contribute to stimulating economic growth through:
Support investment: Tax revenues provide an incentive for the government to invest in infrastructure projects and public services, creating new jobs and stimulating economic growth.
Promoting efficiency: An income tax can encourage companies to use their resources more efficiently, by incentivizing them to reduce their costs and increase their profits.
The future of income tax in Saudi Arabia
Saudi Arabia seeks to develop a fairer and more efficient tax system, including income tax. Some potential developments in this area include:
Expanding the taxpayer base: The income tax taxpayer base may be expanded to include more individuals and companies.
Increased tax rates: Income tax rates may be increased for some categories, such as: companies with high profits.
Introducing new taxes: New taxes may be introduced, such as: value-added tax on goods and services.
Income tax in Saudi Arabia is an important tool for achieving economic development and social justice in Saudi Arabia. By developing a fair and efficient tax system, Saudi Arabia can enhance its government revenues, stimulate economic growth, and create a more just and prosperous society.
The role of the Doc Suite HR system in income tax
The Doc Suite HR system can play an important role in managing income tax for employees within the Kingdom of Saudi Arabia, through:
Calculating income tax
The Doc Suite HR system can calculate income tax for employees automatically, in accordance with Saudi income tax laws. The system takes into account all factors that affect income tax, such as:
Employee salary.
Rewards and incentives.
Suits.
Tax exemptions.
Deductions.
Reports preparation
DocSuite HR can prepare detailed income tax reports for employees, enabling companies to:
Follow up on the payment of income tax owed by employees.
Compliance with laws and regulations related to income tax.
Submit tax data to the General Authority of Zakat, Tax and Customs.
Managing the income tax payment process in Saudi Arabia
DocSuite HR can manage the income tax payment process in Saudi Arabia on behalf of companies, through:
Deduction of income tax from employee salaries.
Transferring the income tax due to the General Authority of Zakat, Tax and Customs.
Compliance with income tax laws in Saudi Arabia
DocSuite HR helps companies comply with Saudi income tax laws by:
Providing periodic updates of any changes in income tax laws in Saudi Arabia.
Send alerts to employees and companies regarding their tax obligations.
Providing support to employees and companies in all matters related to income tax.
Improving the efficiency of income tax administration
DocSuite HR helps companies improve the efficiency of income tax management in Saudi Arabia through:
Automate many income tax related tasks.
Reducing human errors.
Save time and money.
Enhance work satisfaction
DocSuite HR can enhance employee job satisfaction by:
Providing clear and accurate information about income tax.
Facilitating the process of paying income tax in Saudi Arabia.
Avoid any income tax issues.
Overall, DocSuite HR is a powerful tool that businesses can use to manage income tax in Saudi Arabia effectively and efficiently, and to improve compliance with laws and regulations related to income tax.