Saudi Arabia's Income Tax Law and Zakat Collection Executive Regulations precisely define who is subject to each regime: Zakat is imposed on a resident Saudi person who carries on an activity under a licence, on establishments and companies owned by Saudis, and on the Saudi partner's or shareholder's share in resident companies, while income tax is imposed on a resident non-Saudi natural person who carries on an activity in the Kingdom, on the shares of non-Saudi partners in resident capital companies, and on a non-resident who carries on an activity through a permanent establishment or has other taxable income from sources in the Kingdom.
Who Is Subject to Zakat Collection?
The Zakat Collection Executive Regulations identify the persons subject to its provisions, including:
- A resident Saudi person who carries on an activity under a licence in the Kingdom.
- A sole proprietorship owned by a Saudi and established in the Kingdom.
- A company owned by a Saudi and established in the Kingdom, the Saudi partner's or shareholder's share in resident companies, and the shares of government bodies and institutions and their equivalents.
Who Is Subject to the Income Tax Law?
By contrast, the Income Tax Law sets out the categories of persons subject to it, including:
- A resident capital company, in respect of the shares of non-Saudi partners.
- A resident non-Saudi natural person who carries on the activity in the Kingdom.
- A non-resident who carries on the activity in the Kingdom through a permanent establishment.
- A non-resident who has other taxable income from sources in the Kingdom.
What Counts as a Permanent Establishment for a Non-Resident?
A non-resident becomes subject to income tax if it carries on its activity in the Kingdom through a permanent establishment, which consists of a fixed place for the non-resident's activity through which the activity is carried on wholly or partly, including activity carried on by the non-resident through an agent. On this basis, merely having a fixed place of business or an agent conducting the activity on behalf of the non-resident in the Kingdom may be sufficient to subject it to income tax.
Mixed Companies: Zakat on One Share, Tax on Another
When a resident capital company has both Saudi and non-Saudi partners, its tax treatment is split by nationality: the Saudi partner's share is subject to Zakat collection, while the non-Saudi partner's share is subject to income tax. The company is therefore treated as a "mixed taxpayer" that files a Zakat return for the Saudi partners' share and an income tax return for the non-Saudi partners' share, each under its own rules.
Separation Between the Two Regimes: No Double Subjection
The Zakat Collection Executive Regulations expressly exclude an income tax taxpayer, and the shares of legal persons subject to income tax, from its provisions. This ensures that the same person or the same share is not subjected to both Zakat and income tax on the same base; rather, one of the two regimes applies according to the person's nature, nationality, and residence.
Legal References
- Zakat Collection Executive Regulations 1445H (Ministerial Resolution No. 1007 dated 19/8/1445H) with Published Amendments, Article Three and Article Six.
- Income Tax Law, Article Two and Article Four.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.