Our Corporate Income Tax (CIT) service in Saudi Arabia is part of our tax consultancy services in Saudi Arabia.
Corporate Income Tax is interchangeably referred to as Corporate Tax across the GCC countries. It is a form of direct tax collected by governments as a source of income; it is levied on the net income or profits of corporations and businesses.
WHAT BUSINESS ACTIVITIES ARE SUBJECT TO CORPORATE INCOME TAX?
All types of business activities across all types and sectors are subject to Corporate Income Tax.
WHO IS SUBJECT TO CORPORATE INCOME TAX?
Non-Saudi investors are liable to Corporate Income Tax; while Saudi and GCC citizen investors countries (who are considered as Saudi citizens for tax related purposes) are subject for Zakat which is an Islamic assessment. If a company ownership is mixed, having both Saudi (or GCC) and non-GCC investors, then the non-GCC interest portion of taxable income is subject to Corporate Income Tax, and the Saudi (or GCC) share is liable for Zakat.
The following is the list of persons subject to Corporate Income Tax:
- The provisions of the income tax system shall be applied to companies with resident funds for the shares owned directly or indirectly to non-Saudi persons, and for the shares owned either directly or indirectly by the persons engaged in the production of oil and hydrocarbons, whether they were natural or legal persons, residents or non-residents. It does not include the shares of the non-Saudi partners in resident funds listed in the financial market; nor the shares owned by non-Saudi for trade speculation purposes on the Saudi financial market.
- A non-resident person who earns income from sources in the Kingdom without having a permanent establishment, shall be taxed as follows:
- If the source of income is as specified in Article 68, then it shall be subject to withholding tax in accordance with the rules specified in aforementioned article.
- If the income represents capital gains resulting from the disposal of shares in a resident company, then it will be subject to 20% capital gains.
- All Natural Persons or Legal Persons, Saudi or non-Saudi engaged in the investment and natural gas sector.
WHO IS A RESIDENT PERSON?
- A person is considered resident in the Kingdom during a taxable period if he has a permanent residency in the country and has stayed in the Kingdom for a period not less than 30 days (consecutive or non-consecutive) during a tax period; or if they have stayed in the Kingdom for a period not less than 183 days (consecutive or non-consecutive) even if he does not have a permanent residency.
- The nationality of the person is not used to determine the place of residence, where the person, natural or legal, is considered a non-resident in the country if he does not meet the residency conditions specified in the regulations.
WHAT IS THE CORPORATE INCOME TAX RATE IN SAUDI ARABIA?
The Corporate Income Tax rate is 20% of the net adjusted profits, and the Zakat is charged on Zakat base at 2.5%.
However, the two following activities are charged a different corporate tax rate:
- Income from oil and hydrocarbon production is subject to a tax rate in the range of 50% to 85%.
- The tax base of a person working in natural gas investment is independent of the tax base related to the other activities performed by this person.
WHAT ARE SAUDI ARABIA – SOURCES OF INCOME?
The following types of income are considered from an activity that took place inside the Kingdom:
- Debt returns for a non-resident in any of the following cases:
- If the debt is secured by movable or non-movable property located in the Kingdom;
- If the borrower is residing in the Kingdom; or
- If the loan is related to an activity exercised in the Kingdom through a permanent establishment.
- Insurance and reinsurance premiums, in any of the following cases:
- If the insured subject is located in Saudi Arabia;
- If the insured subject is a resident of Saudi Arabia; or
- If the insurance is for activities or risks related to an activity practiced in Saudi Arabia.
- Income from technical and consultancy services in any of the following cases:
- If the service was provided to a resident person in Saudi Arabia; or
- If the service is related to an activity practiced in Saudi Arabia.
- Income generated by a resident funds company from its operations and the operations of its branches inside or outside Saudi Arabia.
- Income derived from movable and non-movable funds that are related to an activity practiced in Saudi Arabia or related to it practiced through a resident person.
- Income generated from sales of goods and merchandise manufactured or produced inside Saudi Arabia.
- Contracts for the supply of goods to Saudi Arabia, including its related shipment and insurance contracts, shall not be considered as contracts that arose from an activity that took place in Saudi Arabia, unless the contracts include accompanying works such as internal transport, installation, maintenance, training, practiced inside Saudi Arabia. In this case, only the accompanying activities will be considered to have arisen from a source of activity in Saudi Arabia.
- Services are considered to have occurred in Saudi Arabia if:
- The required service has been provided, completely or partially, in Saudi Arabia, even if it has been executed remotely, as physical presence is not a requirement for the service provider
- If the service has been carried out on board on an aircraft or ship that works for a person carrying an activity inside Saudi Arabia.
CORPORATE INCOME TAX IN QATAR
Any Person engaged in commercial activity in Qatar is subject to Corporate Income Tax. A commercial activity refers to any profession, vocation, service, trade, and contract in any industry.
There is no tax on personal income in Qatar. However, any individual who exercises any type of commercial activity in the country for income-related purposes is subject to Corporate Income Tax.
Further, the income of Qatari and GCC national resident investors in Qatar is exempted from Corporate Income Tax.
A resident is any natural person who owns permanent accommodation in the country or has stayed in Qatar for more than 183 days continuously or intermittently during a 12-months period.
The corporate income tax rate on businesses in Qatar is 10% of taxable income paid annually.
The taxable rate on oil operations is however not less than 35%.
Profits generated from the following activities are subject to Corporate Income Tax:
- Operating any commercial activity in the country.
- Contracts executed fully or partially in the country.
- Income generated from selling stocks, company shares, and individual companies that own real estate in the country.
- Services provided by a main company, it branches and other related entities.
- Income on loans provided from the country.
- Profits, gains and revenues on Public Treasury Bonds, Development Bonds and Public Corporation Bonds.
- Income from companies engaged in agriculture and fisheries.
- Income from companies engaged in craft activities that do not use machinery, and whose total annual income does not exceed QAR 200,000, and the number of employees does not exceed three within a taxable period, and which practice its activity through a single establishment.
- Small size entities with three employees or less.
- Income generated by non-Qatari companies for air navigation or marine operating in the country, on the condition of reciprocity.
- Interest and bank returns due to a natural person, resident or non-resident, who do not practice a taxable activity.
- Interest and returns on public debt and Islamic securities
- Profits earned from sale of real estate property or security realized by a natural person provided that the disposable property or security is not related to assets of a taxable activity.
- Dividends and other income:
- If they are deducted from profits that have been taxed under the provision of the law.
- Distributed by a company whose profits are exempt from tax under the provision of the law.
CORPORATE INCOME TAX IN KUWAIT
GCC companies based in Kuwait wholly owned by citizens of the GCC are not subject to Corporate Income Tax. While companies with foreign ownership or mixed ownership are subject to Corporate Income Tax to the extent of the non-GCC share of interest.
Profits from the following sources are subject to Corporate Income Tax:
- Any profits and capital gains endured from conducting an industrial, services or commercial business or trade in Kuwait entirely or partially, or directly or through an agent.
- Any activity or business carried out entirely or partially in Kuwait whether the contract has been signed inside or outside Kuwait.
- Having a permanent establishment/presence in Kuwait where the sale and purchase contracts are signed or where the business activities are performed.
- Commission earned in cash or in kind from agreements of representation or commercial mediation.
- Gains received from the sale, lease or grant of franchise of an intellectual property (trademark, patent, copyright).
- Granting loans in Kuwait.
- Earning from property lease used in Kuwait.
- Profits earned from purchase or sale of property, goods or related monetary or moral rights in Kuwait.
- Profits resulting from providing management, technical, and consultancy services.
- Income from a contract that has been performed inside and outside Kuwait should be reported entirely for tax in Kuwait for income determination purposes.
- Trading activities in the Kuwait Stock Exchange (KSE); directly or through investment portfolios and funds.
- Profits from the sales of goods to a buyer in Kuwait if the supplier of the goods is entirely not involved in any operations inside the country.
- Profits of a corporate body gained from dealing in or disposing of securities listed in KSE; whether these activities has been conducted directly or through investment portfolios and funds.
The corporate tax rate in Kuwait is set at 15%.
CORPORATE INCOME TAX IN OMAN
- Businesses and corporations established in Oman.
- Foreign entities with operational activities in Oman.
The Omani Shura Council (equivalent to the parliament) approved a draft law imposing individual income tax on high-income earners in Oman. Although the details of the draft were not released, it is expected that the tax would be charged at a low rate and would apply to both nationals and non-nationals meeting certain income thresholds.
The Shura Council passed the draft law on 6 November 2022. The draft law still requires the approval of the Cabinet and the endorsement of the Sultan (by way of Royal Decree) to become a law. This is expected by March 2023.
There are no exemptions on corporate tax. The corporate tax rate is uniform for all types of entities at a rate of 15%. Yet, income generated from the sale of oil and gas originating from Oman is taxed at 55%.
However, the Corporate Income Tax rate is 3% if the taxpayer does satisfy all the following conditions:
- An Omani corporate entity.
- Registered capital of OMR 50,000 or less at the beginning of the tax year.
- Employs 15 staff or less.
- Annual revenues for any tax year are OMR 100,000 or less.
- Is not involved in activities related to banking, insurance, financial services, public utility concessions, air and sea transport, extraction of natural resources, or other activities decided by the Council of Ministers.
CORPORATE INCOME TAX IN BAHRAIN
There is no Corporate Income Tax imposed on income or profits in Bahrain, except for local and foreign companies that operate in the oil and gas sector or are engaged in the exploration, production, or refinery of fossil fuels/hydrocarbons. The taxable income rate for such companies is 46%.