Navigating the tax landscape in Saudi Arabia requires employers to understand specific obligations related to social security contributions and corporate tax, while employees benefit from the absence of personal income tax on their earnings. The Kingdom's tax system is distinct, primarily focusing on corporate income tax for foreign entities and Zakat for Saudi and GCC entities, alongside mandatory social security contributions for both employers and employees.
For companies operating within Saudi Arabia, ensuring compliance with the General Organization for Social Insurance (GOSI) regulations is a primary responsibility. These contributions are mandatory for all Saudi and non-Saudi employees working under a labor contract, covering various social insurance branches.
Employer Social Security and Payroll Tax Obligations
Employers in Saudi Arabia are required to register with GOSI and make monthly contributions on behalf of their employees. These contributions cover two main branches: the Annuities Branch and the Occupational Hazards Branch. The contribution rates are calculated based on the employee's basic wage plus the housing allowance, up to a specified ceiling.
The standard GOSI contribution rates are as follows:
| Contribution Type | Employer Rate | Employee Rate | Total Rate |
|---|---|---|---|
| Annuities Branch (Saudi) | 9% | 9% | 18% |
| Occupational Hazards | 2% | 0% | 2% |
| Annuities Branch (Non-Saudi) | 0% | 0% | 0% |
| Unemployment Insurance (SANED) (Saudi) | 0.75% | 0.75% | 1.5% |
Note: The Annuities Branch and SANED contributions apply only to Saudi employees. The Occupational Hazards contribution applies to all employees (Saudi and non-Saudi).
The calculation base for GOSI contributions is the employee's basic wage plus housing allowance, with a maximum contribution ceiling that is updated periodically. Employers are responsible for calculating, deducting the employee's share, and remitting the total contribution amount to GOSI monthly. There is no separate "payroll tax" levied on the total payroll value; GOSI contributions are the primary employer-side cost directly linked to employee compensation.
Income Tax Withholding Requirements
Saudi Arabia does not impose personal income tax on the income earned by individuals, whether they are Saudi citizens or expatriate residents working in the Kingdom. Therefore, employers are generally not required to withhold income tax from their employees' salaries.
However, employers may have withholding tax obligations on certain payments made to non-resident entities or individuals for services performed in Saudi Arabia. This is distinct from employee salary withholding and typically applies to payments like rent, royalties, services, etc., at varying rates depending on the nature of the payment and whether a double tax treaty exists. For standard employee payroll for residents, no income tax withholding is necessary.
Employee Tax Deductions and Allowances
Given the absence of personal income tax in Saudi Arabia, employees are not subject to income tax deductions from their salaries. Consequently, there are no standard tax allowances or deductions that employees can claim against their income in the way they exist in countries with personal income tax systems.
The primary mandatory deduction from an employee's salary is their share of the GOSI contribution, which is 9.75% for Saudi employees (9% for Annuities + 0.75% for SANED) and 0% for non-Saudi employees. This deduction is handled by the employer and remitted to GOSI as part of the total monthly contribution.
Tax Compliance and Reporting Deadlines
Employers must adhere to specific deadlines for GOSI contributions and their own corporate tax or Zakat obligations.
- GOSI Contributions: Monthly GOSI contributions are typically due by the 15th day of the following month. Late payments can incur penalties. Employers must also register new employees and deregister departing employees with GOSI promptly.
- Corporate Tax/Zakat: Entities operating in Saudi Arabia are subject to either corporate income tax (foreign entities) or Zakat (Saudi and GCC entities). The annual tax or Zakat return must generally be filed within 120 days from the end of the company's financial year. Estimated tax payments may also be required quarterly for corporate income tax payers.
Employers are responsible for maintaining accurate payroll records, GOSI registration details, and compliance documentation for potential audits by GOSI or the Zakat, Tax and Customs Authority (ZATCA).
Special Tax Considerations for Foreign Workers and Companies
Foreign workers residing and working in Saudi Arabia are treated the same as Saudi citizens regarding personal income tax – they are not subject to it on their employment income earned within the Kingdom. This is a significant advantage for expatriates.
For foreign companies operating in Saudi Arabia, the primary tax obligation is corporate income tax, levied at a rate of 20% on the company's adjusted net income derived from activities within the Kingdom. This contrasts with Saudi and GCC-owned entities, which are subject to Zakat, an Islamic wealth tax. Foreign companies may also be subject to withholding tax on certain payments made to non-residents for services or other income streams sourced in Saudi Arabia. Understanding the distinction between corporate income tax and Zakat, as well as potential withholding tax obligations, is crucial for foreign businesses. Utilizing an Employer of Record can help manage the complexities of local employment and payroll compliance for foreign workers without requiring the foreign company to establish a local entity immediately.
