How are companies taxed in Saudi Arabia?
A KSA company is taxed according to the nationality of its shareholders, so this makes the tax system of KSA different to other countries. A KSA company owned by Saudi or GCC nationals is not subject to Corporate Income Tax (CIT). Instead, it is subject to Zakat.
In practice, the KSA tax authorities or Zakat will look through the chain of ownership of a KSA company and the ultimate owners to determine whether the KSA company is subject to corporate income tax, Zakat, or both.
If we take a look at the first example, then the KSA company is ultimately owned by Saudi or GCC nationals, so it’s subject to Zakat.
In the second example, the KSA company is ultimately owned by non-GCC shareholders. So it’ll be subject to Corporate Income Tax.
In the third example, the look-through treatment is not applied to a non-GCC entity in the ownership chain. As a result, using a non-GCC entity to invest in KSA may result in the profits of the KSA company being subject to 20% corporate income tax, irrespective of the profile of the ultimate investors.
In summary, using a non-GCC vehicle to invest in KSA could “block” or “dilute” the GCC nationality of the ultimate GCC shareholders.
Creation Business Consultants has an experienced team who deal with tax compliance in KSA on a regular basis, so please feel free to get in touch with us if you require any assistance.