NAVIGATING TAX REGIMES IN UAE & KSA: A GUIDE FOR CROSS-BORDER SUCCESS

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This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.

As a corporate service provider for the UAE and KSA, we have noticed investors assuming that both markets are “low tax” havens, only to face compliance challenges. Although UAE and KSA share economic ambitions, their tax regimes vary. Effective tax planning needs to consider all business levels, from startups to multinational companies.

This blog looks at the different entity and structure types, transfer pricing, VAT compliance, and audit readiness, and gives tips on how to get the most from doing business in the UAE and Saudi.

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UNDERSTANDING UAE & KSA TAX REGIMES: WHY IT MATTERS

The UAE and Saudi Arabia have different tax systems, and mistakes or lack of understanding can lead businesses to penalties or missed opportunities for savings. The evolving Corporate Tax (CT) system in the UAE contrasts with Saudi Arabia’s Zakat and Tax system, which requires a tailor-made strategy. Below we have listed the main tax types, rates and details a business should consider:

COUNTRY	TAX TYPE	RATE	DETAILS
KSA	Zakat	2.5%	Levy on net worth for GCC nationals and Saudi-owned entities, based on Sharia law, enforced by ZATCA
KSA	Corporate Tax	20%	For foreign entities or mixed-ownership firms
KSA	VAT	15%	Applies to most goods and services
KSA	WHT	5-20%	Payments to non-residents (technical fees, installation fees, dividends, royalties, management fees, etc.)
UAE	Corporate Tax	9%	Applicable to profits over AED 375,000, effective from 1 June 2023
UAE	Incentives in a Free Zone	0% CT	Qualifying income on listed activities in Free Zone entities (e.g., JAFZA)
UAE	VAT	5%	Applies to most goods and services
KSA/UAE	Common Traps	-	Misclassified income (e.g., Zakat vs. CT in KSA), disregarding PE rules (tax on foreign entities with fixed presence in KSA)

ENTITY STRUCTURING FOR CROSS-BORDER EFFICIENCY

Your business structure will determine your tax obligations. Copy-paste setups often lead to overexposure, especially for cross-border operations. Below we have listed out the structuring options, key considerations and benefits or note to factor and take into account.

OPTION	KEY CONSIDERATIONS	BENEFITS / NOTES
UAE Holding Company (e.g., DIFC)	Acts as a vehicle for reinvoicing and managing dividends	Can secure 0% Corporate Tax on qualifying income; UAE-KSA DTT can reduce WHT on dividends from 5% to 0%
KSA Branch	Exempt from Zakat, but subject to 20% Corporate Tax: stricter regulatory requirements	Direct operation without creating a separate entity, but less liability protection
KSA Subsidiary (e.g., LLC)	May be subject to Zakat (if Saudi-owned) and VAT; liability protection provided	Suitable for certain activities, such as large-scale projects; choice depends on ownership and business type
UAE Free Zones (e.g., IFZA)	Allows 100% foreign ownership, tax incentives on qualifying activities	Ideal for supporting KSA operations while benefiting from incentives
KSA Economic Cities	Similar advantages to UAE Free Zones, but ZATCA compliance is required	Useful for businesses seeking a local presence with incentives
Leverage DTAs	Use Double Taxation Agreements when operating across borders	Minimizes withholding tax and prevents double taxation

TRANSFER PRICING & CROSS-BORDER TRANSACTIONS

Billing between UAE and KSA entities will be examined. The UAE and Saudi have enacted Transfer Pricing (TP) rules to ensure that pricing is conducted fairly, and penalties can be big if the guidelines are not followed.

VAT PLANNING & COMPLIANCE INTEGRATION

The risk of double VAT errors can reduce margins. With the UAE VAT system at 5% and the KSA VAT system at 15%, a single transaction could result in non-recoverable input VAT and potential penalties. Below we have covered double registration, cross-border supplies, frequent errors, VAT compliance integration, audit, and penalty risk and what the rules and regulations and important takeaways are on these topics.

TOPIC	REQUIREMENT / RULE	KEY DETAILS / RISKS	TAKEAWAY / IMPORTANCE
Double Registration	Company must register in both UAE & KSA if providing goods or services	Registration thresholds: AED 375,000 (UAE), SAR 375,000 (KSA)	Ensures you company is fully compliant and will avoid penalties
Cross-Border Supplies	Entities need to understand the nexus rules	Exported services may face double taxation; reverse charge mechanisms can help an entity recover VAT	Proper planning reduces tax exposure for an entity
Frequent Errors	A company must correctly classify services, and it needs to comply with invoicing rules	Misclassifying services (e.g., zero-rated exports); KSA E-invoicing compulsory since 2021	The output will be avoiding fines and future audit issues
VAT Compliance Integration	A business needs to centralize VAT compliance via shared services	Separate records must still be maintained for each country	This will simply business reporting while staying audit-ready
Audit & Penalty Risk	Entities must maintain complete records	UAE fines are up to AED 50,000; KSA fines are up to SAR 100,000 for poor recordkeeping	An entity must ensure there are good records to protect against penalties and ensure smooth audits

VAT & TAX COMPLIANCE INTEGRATION IN KSA & UAE

Main Points:

UAE Triggers: The FTA may audit for incomplete records in Transfer Pricing (TP) or failure to comply with the Economic Substance Regulations (ESR). Records should be kept for 7 years.
KSA Practices: ZATCA focuses on miscalculating Zakat, withholding tax errors, and E-invoicing compliance. Records should be kept for 10 years.
Common Mistakes: Missing deadlines, improperly documented loans, or incorrect disclosure of Ultimate Beneficial Ownership (UBO).
Takeaway: Digital tools can support E-invoicing and recordkeeping. Ensure records are stored in both Arabic and English, not just English, to comply with ZATCA and the FTA.

VAT, WHT & TAX OVERVIEW – KSA AND UAE

ASPECT	UAE	KSA
Corporate Tax	9% (for profits above AED 375,000)	20% (applies to foreign entities)
VAT	5%	15%
Zakat	None	2.5% (for GCC nationals)
Withholding Tax (WHT)	None	5–20% (applies to payments to non-residents)
Record Retention	7 years	10 years

CONCLUSION

The UAE offers a low-tax Free Zone environment, compared to Saudi Arabia, which has Zakat obligations and a compliance-heavy framework. How a business structures their entity or group of companies, prepare TP documentation, plan for VAT, and prepare for audits are all important considerations in managing tax exposure and avoiding penalties.

The UAE-KSA Double Tax Agreements and Free Zone incentives for qualifying activities help maximize business opportunities while minimizing tax implications. At Creation Business Consultants, we manage these complexities and enhance your cross-border business experience through our specialized corporate tax services.

HOW WE CAN HELP

Creation Business Consultants specializes in UAE and KSA tax and compliance, offering:

Tax Strategy: Structuring your business to maximize CT, Zakat, and WHT benefits.
Tax Compliance: Ensuring your cross-border TP is at arm’s length and your VAT is utilized efficiently across jurisdictions.
Audit Assistance: Preparing your records for FTA and ZATCA audits.

Looking to discuss your company’s tax position, contact our team today at [email protected] for assistance with tax services in the UAE.