Tax Considerations for Individuals and Investors Based in Saudi Arabia

Saudi Arabia offers a tax-friendly environment with no personal income tax, inheritance tax, or wealth tax for individuals. Key taxes applicable to individuals include VAT, social insurance contributions, and Zakat, while various wealth management structures, including trusts and investment companies, offer tax advantages.

By Giulia Interesse

Saudi Arabia is renowned for its highly favorable tax environment, particularly for individuals, as it does not impose personal income tax on either residents or non-residents. This tax-free status has positioned the Kingdom as an attractive destination for expatriates, high-net-worth individuals, and investors seeking financial efficiency. Additionally, the absence of inheritance taxes, gift taxes, and wealth taxes further enhances its appeal as a jurisdiction for wealth preservation and succession planning.

Despite the lack of personal income tax, individuals in Saudi Arabia may still encounter various tax obligations depending on their financial activities and asset holdings.

Additionally, while trusts, private investment companies, and other asset-holding structures are commonly used for wealth management and estate planning, they are subject to specific regulatory and tax considerations. International tax implications, particularly for individuals with cross-border assets or business interests, also require careful structuring to ensure compliance and tax efficiency.

This article explores the key tax considerations for individuals in Saudi Arabia, covering residency rules, investment taxation, wealth structuring, and anti-avoidance measures.

Tax residency and domicile

Unlike many jurisdictions that impose personal income tax, Saudi Arabia does not tax individuals on their earnings. However, tax residency status remains an important consideration, particularly for individuals engaged in business activities or holding investments that may be subject to taxation under corporate or Zakat regulations.

Criteria for tax residency

Under Saudi tax regulations, an individual is considered a tax resident if they meet either of the following conditions in a given taxable year:

• Permanent place of residence: The individual has a permanent home in Saudi Arabia and resides in the country for at least 30 days within the taxable year.
• Physical presence: The individual is present in Saudi Arabia for at least 183 days in the taxable year, regardless of whether they have a permanent residence.

These residency criteria are important in determining potential tax liabilities, especially concerning business ownership, zakat obligations, and corporate tax exposure.

Implications of being classified as a tax resident

While there is no personal income tax on residents, tax residency status can still have financial implications, particularly for individuals with business interests or investments in Saudi Arabia. Some key considerations include:

• Zakat obligations: Saudi nationals and GCC citizens who qualify as tax residents may be subject to zakat on their business income and investments.
• Corporate tax exposure: Foreign individuals operating businesses or holding shares in Saudi-based entities may be subject to corporate tax if their activities create a taxable presence.
• International tax planning: Residency status may impact an individual’s global tax strategy, especially for those with cross-border assets or business operations.

Income taxation

Saudi Arabia maintains a highly attractive tax environment for individuals by not imposing personal income tax on either residents or non-residents. This means that salaries, wages, and other employment-related earnings remain entirely tax-free, making the Kingdom a desirable destination for expatriates and high-net-worth individuals seeking tax efficiency.

Taxation of non-employment income

While personal income is not taxed, individuals who generate non-employment income through business activities, investments, or ownership of a permanent establishment (PE) in Saudi Arabia may be subject to taxation. Key considerations include:

• Corporate tax on foreign-owned businesses: Individuals who own businesses in Saudi Arabia through a foreign entity are subject to a 20 percent corporate tax on the profits of the business.
• Zakat for Saudi and GCC nationals: Instead of corporate tax, Saudi and GCC nationals are subject to Zakat, a religious wealth tax applied at 2.5 percent of net worth (excluding certain assets).
• Taxation of permanent establishments: Non-resident individuals or foreign companies with a PE in Saudi Arabia are subject to taxation on income derived from their business operations within the country.

These tax obligations highlight the importance of structuring business and investment activities appropriately to ensure compliance and optimize tax efficiency.

Social insurance tax and its impact on employment income

While there is no direct tax on employment income, Saudi Arabia imposes mandatory social insurance contributions on salaries. These contributions, overseen by the General Organization for Social Insurance (GOSI), are calculated as follows:

• For Saudi employees: Employers contribute 11.75 percent of the employee’s monthly salary, while employees contribute 9.75 percent, bringing the total social insurance contribution to 21.5 percent. This is subject to a salary cap of SAR 45,000 (approximately US$11,999.52) per month.
• For non-Saudi employees: Employers are required to contribute 2 percent of the employee’s monthly salary as an occupational hazard insurance fee. No contribution is required from the employee.

While this social insurance tax is not an income tax in the traditional sense, it still affects total employment costs for businesses and take-home pay for Saudi employees.

Capital gains and wealth-related taxes

One of the key advantages of Saudi Arabia’s tax system for private clients is the complete absence of capital gains tax on individuals. Whether derived from the sale of stocks, real estate, or other investments, individuals are not subject to taxation on their capital gains. This policy makes Saudi Arabia an attractive jurisdiction for investors, as it allows for tax-free accumulation of wealth through asset appreciation.

However, it is important to note that while individuals are exempt, capital gains realized by business entities or permanent establishments may be subject to taxation under corporate tax rules. Additionally, the Real Estate Transaction Tax (RETT) of 5 percent applies to most property sales, except for exempt transactions such as gifts between close relatives (spouses and relatives up to the third degree).

No net wealth or net worth taxes

Saudi Arabia does not impose any net wealth or net worth taxes on individuals. This means that individuals are not taxed based on the total value of their assets, regardless of their holdings in real estate, stocks, cash, or other financial instruments.

The absence of both capital gains tax and wealth tax allows individuals to grow and preserve their wealth without direct tax liabilities on accumulated assets. This is particularly beneficial for high-net-worth individuals (HNWIs) and investors seeking long-term financial security and intergenerational wealth transfer strategies.

Lifetime gifts and inheritance taxation

Saudi Arabia does not impose a gift tax on individuals, allowing for tax-free transfers of wealth between family members and other recipients. This policy enables individuals to distribute their assets during their lifetime without incurring tax liabilities, providing a favorable environment for wealth planning and intergenerational transfers.

Exemptions for real estate disposal tax on family transfers

While there is no gift tax, real estate transfers in Saudi Arabia are generally subject to a RETT of 5 percent.

However, exemptions exist for certain family-related transfers. The Zakat, Tax, and Customs Authority (ZATCA) has clarified that gifts of real estate between spouses and relatives up to the third degree of kinship are exempt from RETT, provided the transfer is properly documented with the competent authorities.

This exemption encourages the seamless transfer of real estate assets within families, reducing tax burdens on individuals engaged in estate and succession planning.

No inheritance or estate taxes

Saudi Arabia does not impose inheritance tax or estate tax on individuals. Upon a person’s death, their assets are distributed to heirs in accordance with Islamic inheritance laws (Sharia principles), which govern succession and asset distribution.

Key considerations for inheritance in Saudi Arabia include the following:

• Sharia-based succession laws apply to Saudi nationals and Muslim residents, dictating how assets are distributed among heirs.
• Non-Muslim expatriates may be subject to the inheritance laws of their home country unless they have structured their assets through estate planning mechanisms such as offshore trusts or private investment companies (PICs).
• No probate tax or fees are imposed on inherited assets, ensuring that wealth is transferred to beneficiaries without additional financial burdens.

Real property taxation

Unlike many countries that levy annual property taxes based on the value of owned real estate, individuals in Saudi Arabia can hold and maintain property without recurring tax obligations related to ownership. This tax-free property ownership structure benefits both Saudi nationals and expatriates who invest in residential or commercial real estate, allowing them to retain the full value of their assets without ongoing tax liabilities.

White land tax on vacant urban land

Although there is no general property tax, Saudi Arabia enforces a White Land Tax (WLT) on vacant urban land designated for residential or commercial development. This tax was introduced through Royal Decree No. M/4 (2015) and aims to combat land hoarding, increase real estate development, and promote housing affordability.

• Tax rate: The WLT is set at 2.5 percent of the land’s market value, assessed annually.
• Applicability: The tax applies to undeveloped plots located within urban areas where demand for development is high.
• Objective: The government enforces this tax to incentivize landowners to develop their properties or sell them, thereby boosting real estate supply and preventing speculative land banking.

While WLT is currently focused on specific urban areas, the scope of enforcement may expand in the future to include more regions and categories of land.

Key considerations for property owners

For individuals and investors holding real estate in Saudi Arabia, there are several important factors to keep in mind:

• No annual property tax: Unlike many countries that impose property taxes based on assessed values, Saudi Arabia only taxes vacant urban land, making it a favorable environment for real estate investment.
• RETT: A 5 percent tax on property sales and transfers applies unless an exemption (such as family transfers) is granted.
• Regulatory changes: The Saudi government continues to refine real estate taxation policies, particularly to encourage urban development. Investors should stay informed about potential regulatory changes that may impact property holdings.

Value-added tax (VAT)

VAT in Saudi Arabia was implemented on January 1, 2018, at an initial rate of 5 percent for most goods and services. However, as of July 1, 2020, the VAT rate was raised to 15 percent, which continues to apply.

There are certain exceptions to this tax, especially for specific goods and services, so it’s important for individuals to be aware of the VAT treatment on purchases.

Trusts and other holding vehicles

Trusts and asset-holding vehicles are often utilized in Saudi Arabia for managing wealth, protecting assets, and facilitating estate planning. These structures can offer flexibility in terms of ownership, asset protection, and minimizing taxes. Some of the common structures include:

• Private investment companies:
 PICs are often established as closed joint-stock companies and are popular among high-net-worth individuals and families. These companies help manage and control investments, providing a flexible way to handle various assets and protect family wealth.
• Real estate investment trusts (REITs):
 REITs allow individuals to pool funds for investment in real estate properties without directly owning them. They are typically used for investments in commercial buildings, residential complexes, and hotels, and can be a tax-efficient way for individuals to invest in real estate.
• Offshore trusts:
 Offshore trusts established in jurisdictions like the Cayman Islands, British Virgin Islands, and Jersey are frequently used for international estate planning and asset protection. These trusts offer confidentiality, tax benefits, and protection of assets from local taxation.
• Family trusts:
 Family trusts are structured to manage and preserve family wealth across generations. These trusts can offer estate planning benefits, reduce tax liabilities, and help ensure wealth is transferred smoothly within the family while maintaining control over assets.
• Charitable trusts: 
Charitable trusts allow individuals to dedicate assets for philanthropic purposes. They can also offer tax incentives and are an effective way to support charitable causes while achieving long-term tax savings.

Taxation of charities in Saudi Arabia

Charities play an important role in Saudi Arabia, and their tax treatment is subject to specific regulations. Key points on charity taxation include:

• Zakat and income tax exemption:
 Charities that focus on charitable activities and meet the criteria outlined by the General Authority for Zakat and Tax (GAZT) may be exempt from Zakat and income tax. However, income generated from activities not directly related to charitable purposes may still be subject to taxation.
• Donor tax deductibility:
 Donations made to registered charities are generally tax-deductible for donors, provided the donation complies with the requirements set by GAZT.
• VAT and refunds:
 Charities may be liable for VAT on goods and services purchased for non-charitable activities. However, specific exemptions apply to certain activities such as healthcare and education. Additionally, charitable institutions can apply for VAT refunds, subject to meeting criteria such as holding a valid license from the Ministry of Labor and Social Development and not engaging in profit-generating activities.

Anti-avoidance and anti-abuse tax provisions

Saudi Arabia has enacted several anti-avoidance and anti-abuse provisions to ensure that individuals and businesses adhere to the tax laws. These provisions help prevent tax evasion and ensure fair taxation. Some of the key anti-avoidance measures include:

• General Anti-Avoidance Rule (GAAR): 
The GAAR allows the Saudi tax authorities to disregard legal forms of transactions that are deemed to be carried out primarily for the purpose of obtaining a tax advantage. If a transaction lacks commercial substance or is deemed artificial, the authorities can recharacterize it and deny any associated tax benefits.
• Transfer pricing guidelines:
 Saudi Arabia has adopted transfer pricing regulations based on the OECD Transfer Pricing Guidelines. These rules ensure that transactions between related parties are conducted at arm’s length prices. The tax authorities have the power to make transfer pricing adjustments if they believe that related-party transactions have not been priced appropriately.
• Controlled Foreign Company (CFC) rules:
 To combat profit shifting to low-tax jurisdictions, Saudi Arabia has introduced CFC rules. Under these rules, if a Saudi resident has significant control or ownership in a foreign company, the undistributed profits of that company may be subject to taxation in Saudi Arabia.

It is important for private clients to understand these provisions, as they affect both local and international wealth management strategies, particularly in relation to trusts, offshore holdings, and cross-border transactions.

Conclusion

Saudi Arabia’s tax system presents significant benefits for individuals, particularly for wealth management and succession planning. However, understanding the various taxes, residency rules, and anti-avoidance measures is crucial for individuals to optimize their tax position and ensure compliance with local regulations.

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