In Saudi Arabia, employers have several tax responsibilities. These include Social Insurance Contributions (GOSI), Zakat, Corporate Income Tax, and Withholding Tax.

Social Insurance Contributions (GOSI)

Employers are responsible for registering employees with the General Organization for Social Insurance (GOSI) and remitting regular contributions. The rates for Saudi Nationals include 11.75% for the employer, which includes 9% social insurance, 2% occupational hazard, and 0.75% SANED unemployment insurance. For expatriate employees, the employer pays 2% occupational hazard insurance. Contributions are calculated based on the employee's basic salary, housing allowance (if applicable), and commissions, with a cap of SAR 45,000 per month. GOSI contributions are payable monthly by the end of the following month.

Zakat

Companies with a Saudi ownership component are liable to pay Zakat, an Islamic wealth tax. The rate is 2.5% of the company's Zakat base (adjusted net assets). Zakat is assessed annually and is typically due within 120 days from the end of the company's fiscal year.

Corporate Income Tax

Companies operating in Saudi Arabia are subject to corporate income tax. The standard corporate income tax rate in Saudi Arabia is 20%. Corporate income tax returns must be filed within 120 days from the end of the company's fiscal year, and payments are due at the same time.

Withholding Tax

Employers are required to withhold tax on certain payments made to non-residents for services rendered in Saudi Arabia. Withholding tax rates range from 5% to 20% depending on the type of service. Withholding tax must be paid to GAZT by the 10th of the month following the month in which the payment was made.

In Saudi Arabia, mandatory deductions from employee salaries include social insurance contributions and Zakat.

Social Insurance Contributions (GOSI)

Social insurance contributions, also known as GOSI, are mandatory for all Saudi employees and GCC nationals working in Saudi Arabia. The calculation for these contributions is 9.75% of the employee's gross salary, which includes 9% social insurance and 0.75% SANED unemployment insurance. However, the salary base is capped at SAR 45,000 per month.

Zakat

Zakat is an obligatory religious tax for Muslims, calculated on wealth exceeding a certain threshold (nisab). Muslim employees with wealth exceeding the nisab and meeting other Zakat criteria are obligated to pay it. Zakat is typically calculated at 2.5% of eligible wealth held over a lunar year. Employees can either calculate Zakat themselves or have their employer estimate it based on salary and assets.

In Saudi Arabia, the standard VAT rate is 15%, which applies to the majority of services. This rate was increased from the initial 5% in July 2020. There are also some services that are zero-rated, meaning you'll charge 0% VAT but can claim back input VAT incurred on expenses related to those services. These can include the export of services outside the GCC.

VAT Registration and Filing

Businesses exceeding a taxable supply threshold of SAR 375,000 over 12 months must register for VAT. Voluntary registration is possible below this threshold.

Saudi Arabia provides a variety of tax incentives to attract businesses and foreign investment. These incentives can significantly decrease a company's tax burden, making the Kingdom a more appealing location for conducting business.

Regional Headquarters (RHQ) Program

A significant recent development is the RHQ program, launched in December 2023. This program offers substantial tax benefits to multinational companies willing to establish their regional headquarters in Saudi Arabia. The key features include:

• Zero percent corporate income tax (CIT): Qualified RHQ entities are exempt from paying any corporate income tax for a period of 30 years, renewable. This significantly reduces the overall tax liability for companies operating in the region.
• Zero percent withholding tax (WHT): The program also offers a 0% withholding tax on various payments made by the RHQ to non-residents. This includes dividends, payments to related parties, and payments for essential services required for the RHQ's operations.

These tax exemptions make Saudi Arabia a competitive destination for multinational corporations looking to establish a regional base.

Additional Considerations

• The specific requirements and qualifying criteria for the RHQ program are outlined in the RHQ Tax Rules published in February 2024.
• Companies interested in the program should consult with tax professionals to ensure they meet the eligibility criteria and can maximize the benefits.

Other Potential Tax Incentives

While the RHQ program is a recent and prominent initiative, there may be other tax incentives available depending on the nature of the business and its activities. It's advisable to consult with relevant authorities or tax advisors for comprehensive information on all applicable incentives.