Saudi Arabia, one of the world’s wealthiest nations, has undergone significant economic transformation in recent years, particularly with the implementation of Vision 2030. This ambitious plan aims to diversify the country’s economy away from oil dependency.
As part of these reforms, Saudi Arabia has introduced and enforced various taxes that affect both residents and foreigners. This article delves into the types of taxes foreigners should be aware of when living or doing business in Saudi Arabia.
1. Value Added Tax (VAT)
Introduction to VAT:
One of the most significant tax changes in Saudi Arabia is the introduction of Value Added Tax (VAT) in 2018. Initially set at 5%, the VAT rate was increased to 15% in July 2020. VAT is a consumption tax applied to most goods and services sold within the Kingdom.
How VAT Affects Foreigners:
- Purchases: Foreigners, like residents, are required to pay VAT on most of their purchases, including food, electronics, and services.
- Business Operations: Foreign businesses operating in Saudi Arabia need to be VAT-compliant. This includes registering for VAT, charging VAT on taxable supplies, and filing VAT returns regularly.
- Exemptions and Zero-Rated Goods: Certain goods and services are either exempt from VAT or subject to a zero rate. This includes healthcare, education, exports, and certain financial services.
VAT Refunds for Tourists:
Foreign tourists are eligible for VAT refunds on goods purchased during their stay in Saudi Arabia, provided they leave the country within 90 days of the purchase. This system is intended to encourage spending by tourists and streamline the process for reclaiming VAT.
2. Excise Tax
Introduction to Excise Tax:
Saudi Arabia introduced excise tax in 2017 as part of its fiscal reforms. This tax is levied on specific goods that are considered harmful to health or the environment.
Goods Subject to Excise Tax:
- Tobacco Products: Subject to a 100% excise tax.
- Energy Drinks: Also subject to a 100% excise tax.
- Soft Drinks: These incur a 50% excise tax.
- Sugary Beverages: Recently, the excise tax was extended to include beverages with added sugar or other sweeteners at a rate of 50%.
Impact on Foreigners:
Foreigners residing in Saudi Arabia will encounter excise taxes when purchasing any of the above products. For businesses, especially those involved in the import or distribution of these goods, understanding and complying with excise tax regulations is essential.
3. Income Tax
No Personal Income Tax:
Saudi Arabia is unique in that it does not impose personal income tax on its residents, including foreigners. This has long been one of the key attractions for expatriates moving to Saudi Arabia, as it allows them to retain the entirety of their salary.
Corporate Income Tax for Foreign-Owned Businesses:
While personal income tax is non-existent, corporate income tax does apply to foreign-owned businesses operating in Saudi Arabia. The standard corporate income tax rate is 20% on profits.
- Zakat: In addition to corporate income tax, Saudi-owned companies and the Saudi share of joint ventures are subject to Zakat, an Islamic wealth tax, at a rate of 2.5% on net income.
- Withholding Tax: Foreign entities receiving income from sources within Saudi Arabia may also be subject to withholding tax, which varies depending on the nature of the payment, ranging from 5% to 20%.
Impact on Foreigners:
Foreigners owning businesses or earning income from investments in Saudi Arabia need to be mindful of corporate income tax obligations. However, as individuals, they benefit from the absence of personal income tax.
4. Real Estate Transaction Tax
Introduction to RETT:
In October 2020, Saudi Arabia introduced a Real Estate Transaction Tax (RETT) of 5%, replacing the previous VAT on real estate transactions. This tax is levied on the total value of any real estate transaction, including sales, gifts, and exchanges.
Impact on Foreigners:
Foreigners purchasing property in Saudi Arabia are subject to RETT. However, certain transactions, such as the transfer of property between spouses or to first-degree relatives, may be exempt. It’s essential for foreigners to consider RETT when planning to buy property in Saudi Arabia.
5. Social Insurance Contributions
Introduction to GOSI:
While not a tax in the traditional sense, social insurance contributions are mandatory for both employers and employees in Saudi Arabia. The General Organization for Social Insurance (GOSI) administers these contributions.
GOSI Rates:
- For Saudi Employees: The contribution rate is 22% of the employee’s salary, with the employer paying 12% and the employee contributing 10%.
- For Foreign Employees: The contribution for foreign employees is 2% of their salary, which is paid by the employer for work-related injury insurance.
Impact on Foreigners:
Foreign employees benefit from this insurance scheme, which covers work-related injuries and provides compensation in the event of permanent disability or death resulting from a work injury. Employers must ensure compliance by making timely contributions to GOSI.
6. Customs Duties
Overview of Customs Duties:
Saudi Arabia imposes customs duties on a wide range of imported goods. The standard duty rate is 5%, but certain products may attract higher rates, especially luxury items or goods that are also produced locally.
Impact on Foreigners:
Foreigners importing goods into Saudi Arabia, whether for personal use or business purposes, need to be aware of the applicable customs duties. It is advisable to check the specific rates and exemptions that may apply to certain categories of goods.
7. Tourism Fees
Introduction to Tourism Fees:
With the recent push to boost tourism under Vision 2030, Saudi Arabia has introduced various fees associated with tourist visas. These fees contribute to the overall tax revenue and support the development of the tourism sector.
Types of Fees:
- Visa Fee: A standard tourist visa costs SAR 440, which includes a basic medical insurance fee.
- Municipal Fees: Tourists staying in hotels may also encounter municipal fees added to their accommodation costs.
Impact on Foreigners:
Tourists visiting Saudi Arabia should budget for these additional costs. For foreigners planning longer stays or frequent visits, understanding the cumulative effect of these fees is essential.
Conclusion
Saudi Arabia’s tax landscape has evolved considerably in recent years, reflecting the country’s broader economic diversification efforts. For foreigners living, working, or investing in Saudi Arabia, it is crucial to understand the various types of taxes they may encounter.
While the absence of personal income tax remains a significant benefit, the introduction of VAT, excise taxes, and other levies requires careful planning and compliance.
By staying informed and consulting with tax professionals, foreigners can navigate the Saudi tax system effectively, ensuring that they meet their obligations while optimizing their financial outcomes.