Zakat vs Corporate Income Tax in Saudi Arabia
Saudi Arabia's tax structure is unique in the GCC. Saudi and GCC national-owned businesses pay Zakat — an Islamic wealth levy — rather than corporate income tax. Foreign-owned businesses (and the foreign share of mixed-ownership entities) pay Corporate Income Tax at 20%. Businesses with mixed Saudi/foreign ownership pay Zakat on the Saudi share and CIT on the foreign share.
This distinction matters for how your business records must be structured and what information ZATCA (Zakat, Tax and Customs Authority) requires in your annual return.
How Zakat Is Calculated on a Business
Zakat is levied at 2.5% on the Zakat base — broadly, your business's net worth attributable to Saudi/GCC shareholders, adjusted for certain additions and deductions. The Zakat base calculation includes:
- Opening equity (capital + retained earnings) at the start of the year
- Plus: long-term borrowings, provisions and reserves
- Less: fixed assets (net book value), investments in subsidiaries, and certain deductible items
The resulting figure is the Zakat base, and 2.5% of this is the Zakat liability. For a trading company with SAR 10 million in equity and minimal fixed assets, the Zakat liability might be SAR 250,000 per year.
What Records ZATCA Requires
Annual Zakat/CIT returns must be supported by:
- Financial statements prepared under SOCPA (Saudi Organisation for Chartered and Professional Accountants) standards or IFRS
- A detailed trial balance as at the financial year-end
- Schedules of fixed assets, investments, debtors, and creditors
- Evidence of all revenue and expenses claimed
Revenue documentation is where your POS directly contributes. Every sale recorded in your POS system creates a transaction record that supports your declared revenue in the Zakat return. A POS-generated annual sales report reconciled against your financial statements is the starting point for a defensible return.
VAT and Zakat: Two Separate Obligations
Businesses above the VAT threshold (SAR 375,000 annual revenue) pay both VAT (15%) collected from customers and Zakat on their net worth. These are entirely separate calculations. VAT is a monthly/quarterly remittance of collected tax. Zakat is an annual levy on wealth. Confusing the two — or assuming paying one satisfies the other — is a compliance error.
Withholding Tax for Foreign Payments
Saudi Arabia imposes withholding tax (WHT) on payments to non-residents. Common rates: 5% on dividends, 5% on interest, 15% on royalties, 20% on technical services. If your business makes any payments to foreign entities — for software, consulting, franchise fees, management fees — WHT must be deducted at source and remitted to ZATCA.
This applies to SaaS subscriptions paid to foreign companies, technology licensing fees, and any cross-border service payments. Many Saudi businesses are unaware of this obligation and accumulate significant WHT liability unknowingly.
Filing Deadlines
Zakat/CIT returns are due 120 days after the end of the financial year. For a December 31 year-end, the deadline is April 30. Extension requests are possible but must be filed before the original deadline. Penalties for late filing: 1% of revenue per month delayed, up to 25% of revenue. Late payment surcharge: 1% per month on unpaid liability.
Conclusion
Saudi business owners who maintain clean financial records — with a POS providing accurate revenue data, organised expense documentation, and professionally prepared financial statements — are in a strong position to file accurate Zakat returns and withstand ZATCA scrutiny. Those who reconstruct records at year-end from memory and partial receipts create unnecessary liability and audit exposure.
