Saudi Arabia: Guidance on resident natural persons subject to income tax

The Zakat, Tax, and Customs Authority (ZATCA) on 31 December 2023 issued a tax bulletin to clarify some provisions that subject natural persons residing in the Saudi Arabia to income tax. 

The bulletin clarifies the following provisions:

• The concept of residence in Saudi Arabia for a natural person
• The resident natural person subject to income tax and the applicable tax rate
• The tax base of a resident natural person and accounting methods
• The obligations of resident natural persons subject to income tax

According to the income tax law and its regulations, a natural person is considered a resident of Saudi Arabia for tax purposes if:

• They have a permanent residence in Saudi Arabia and have been present in the country for at least 30 days (consecutive or separate) during the tax year
• They are present in Saudi Arabia for no less than 183 days (consecutive or separate) during the tax year, even if they do not have permanent residence there

Permanent residence includes a dwelling that is owned or rented by a natural person, or otherwise provided to them, for a period of no less than a year throughout the tax year.

The individual’s nationality is not relevant to determining their residence status in Saudi Arabia.

A natural person is subject to income tax if they are a resident who:

• Lives in Saudi Arabia and does not hold a Saudi nationality
• Is involved in commercial activity of any kind with the intention of making profit

The tax rate applicable to a resident natural person’s tax base is 20%, in accordance with Article No. 7 of the income tax law.

Tax rates differ for taxpayers working in the production of oil and hydrocarbons. The rates apply to the tax base and range from 50% to 85% based on the taxpayer’s total capital investment in Saudi Arabia.

Source of income: The bulletin clarifies when income from an activity is considered to be sourced in Saudi Arabia and extends it to activity in Saudi Arabia of any kind (professional, commercial, artisanal, etc.), as well as activity relating to movable property located in Saudi Arabia, disposal of shares, partnership in a resident company, rental of movable property used in Saudi Arabia, sale or licensing to use intellectual or industrial property in the kingdom, or any amounts for services carried out wholly or partially in Saudi Arabia paid by a resident. 

• The tax base for a natural person who is a non-Saudi resident of Saudi Arabia is the taxable income from any activity from sources in Saudi Arabia minus the deductible expenses as per the income tax law.
• Tax is imposed on natural persons who are partners in a partnership, rather than on the partnership itself.
• The tax base of a resident capital company is calculated independently of the tax base of its shareholders, partners, and subsidiaries.
• The tax base of a natural person working in the field of oil and hydrocarbons production is calculated separately from the tax base for activity in the field of natural gas.
• The natural person cannot calculate profit or loss on the disposal of an asset intended for a non-taxable activity.
• A natural person may keep records on a cash or accrual basis. However, if their gross annual income exceeds SAR5 million, then the accrual method must be used for all subsequent years.

• A resident natural person subject to income tax must comply with registration requirements with ZATCA before the end of their first fiscal year.
• They must submit an income tax return in the prescribed format, as well as pay the taxes due, within the statutory deadline (120 days from tax year-end).
• A resident natural person is to adhere to withholding tax requirements set by the law, including submitting withholding tax returns and paying any amount due within the first 10 days of the month following the month in which a payment to a non-resident beneficiary was made.