A natural person is treated as tax-resident in Saudi Arabia if he has a permanent home there and stays for at least 30 days in the tax year, or if he stays for 183 days or more without the permanent-home condition. A company is resident if it is formed under the Companies Law or has its head office in the Kingdom.
Residence Conditions for a Natural Person
A natural person is treated as resident in the Kingdom during the tax year if either of the following two conditions is met:
- He has a permanent home in the Kingdom and stays in the Kingdom for a total of no less than 30 days in the tax year.
- He stays in the Kingdom for no less than 183 days in the tax year.
For the purpose of computing the period of stay, staying in the Kingdom for part of a day counts as staying for a full day, and a person's stay in the Kingdom while in transit between two points outside it is not counted as a stay inside the Kingdom.
Residence Conditions for a Company
A company is treated as resident in the Kingdom during the tax year if either of the following two conditions is met:
- It is formed in accordance with the Companies Law.
- Its head office is located in the Kingdom.
Why Does Tax Residence Matter?
Residence status determines the basis on which tax liability is imposed: a resident non-Saudi natural person who carries on an activity in the Kingdom is subject to income tax, while a non-resident is treated differently, generally based on having a permanent establishment or income from Saudi sources. Residence also determines whether an entity is taxed on its activity both inside and outside the Kingdom once the conditions for having its head office there are met.
Residence and the Duty to File a Tax Return
Residence status carries direct procedural obligations: a resident non-Saudi natural person who carries on the activity, along with a resident capital company and a non-resident with a permanent establishment, must file a tax return for its activity in the Kingdom, unlike a non-resident with no permanent establishment and no direct activity there.
The Effect of Residence on the Territorial Scope of Tax
Determining residence status affects the scope of taxable income; a company meeting the residence conditions, such as being formed under the Companies Law or having its head office in the Kingdom, may be taxed on its activity and that of its branches both inside and outside the Kingdom once the head-office conditions are met. It is therefore advisable to review the actual location of board meetings and the centre of executive decision-making when assessing residence status, not merely the place of formal registration.
Residence Is Not the Same as Nationality
Tax residence differs from nationality; a natural person may be resident in the Kingdom without holding its nationality, once the residence conditions relating to a permanent home or length of stay are met. This distinguishes subjection to income tax, based on residence and activity, from subjection to Zakat collection, which is based mainly on Saudi nationality alongside residence.
Legal References
- Income Tax Law, Article Three, and Article Sixty.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.