Zakat or corporate tax in Saudi Arabia: ownership decides
Saudi Arabia is the only country that runs two parallel charges on the same company at the same time. Which one you pay is not a choice, not an election, and not a function of what you do — it follows entirely from who owns you.
A company with Saudi and foreign shareholders pays both, proportionately, on two completely different bases: Zakat on net worth, corporate tax on profit. Businesses that model one and discover the other are the ones that get the year-end wrong.
Which regime applies to you
The two regimes come from separate instruments, which is why they can behave so differently on the same set of accounts. Corporate income tax sits in the Income Tax Law issued by Royal Decree No. M/1 of 1425H (2004), whose Article 3 supplies the residence test — formation under the Saudi Companies Law, or central management in the Kingdom. Zakat is collected under the Implementing Regulation for Zakat Collection, Ministerial Resolution No. 1007 dated 19/8/1445H (29 February 2024), which replaced the previous regulation and applies to fiscal years beginning on or after 1 January 2024. If you are working from guidance written before 2024, check it against Resolution 1007 before relying on it — the base rules changed.
The two bases are not comparable
This is what makes modelling difficult. Zakat and corporate tax do not measure the same thing, so a loss-making company can owe Zakat and a profitable one can owe relatively little.
| Zakat | Corporate income tax | |
|---|---|---|
| Rate | 2.5% | 20% |
| Base | The Zakat base — broadly net worth: capital, retained profits and reserves, adjusted, less deductible items including fixed assets | Net adjusted profit for the year |
| Nature of the base | A balance sheet measure | An income statement measure |
| Loss-making year | Zakat can still be payable — net worth does not disappear because the year was poor | Generally nothing payable |
| Losses | No carry-forward concept in the same sense | Carried forward indefinitely; no carry-back |
| Holding period | Items generally counted where held for a lunar year | The fiscal year |
| Governing rules | Zakat Regulations, updated for fiscal years beginning on or after 1 January 2024 | Income Tax Law and its regulations |
Mixed ownership, worked
Filing and payment
- One deadline for both: the return is due within 120 days of the fiscal year end. A calendar-year company files by 30 April.
- Audited financial statements underpin the declaration.
- Registration with ZATCA and a tax identification number come first — nothing can be filed without them.
- The liability is settled by the filing deadline. Advance payments are not generally required of most entities, so the whole amount lands at once — plan the cash.
- Objections to an assessment run to a defined window, so a disputed assessment needs action quickly rather than at leisure.
Chartered Advisory computes the Zakat base and the tax computation separately, models both against your ownership split, and prepares the ZATCA declaration.
Avail our Saudi tax servicesWhat this changes about structuring
- Ownership percentage is a tax variable. Changing the Saudi/foreign split changes which base bites and by how much — model it before signing a shareholders' agreement, not after.
- Capital structure matters differently on each side. Equity increases the Zakat base; debt attracts thin capitalisation attention on the tax side, where debt-to-equity above roughly 3:1 can see excess interest disallowed.
- Reserves are not free. Retaining profit builds the Zakat base, so a Saudi-owned company that accumulates reserves is building its own recurring liability.
- Losses behave asymmetrically. They shelter corporate tax and carry forward indefinitely; they do not remove Zakat.
The mistakes that cost the most
- Assuming a loss means nothing is due. Zakat follows net worth.
- Modelling only the 20 per cent in a mixed-ownership company.
- Applying the ownership split to the wrong base — Zakat to profit, or tax to net worth.
- Treating the two as offsettable. They are separate computations.
- Missing the 120-day deadline, which arrives faster than an annual audit sometimes allows.
- Ignoring the listed-share exception where shares were acquired for trading through the Saudi capital market.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
Can I choose between Zakat and corporate tax?
No. It follows ownership and nothing else. Shares held by Saudi and GCC persons attract Zakat at 2.5 per cent of the Zakat base; shares held by non-Saudi, non-GCC persons attract corporate income tax at 20 per cent of net adjusted profit. A mixed-ownership company pays both, split by ownership percentage, on two different bases.
My company made a loss. Do I still owe anything?
On the Saudi and GCC-owned share, very likely yes. Zakat is charged on the Zakat base — broadly net worth including capital, retained profits and reserves, adjusted — rather than on profit, so a loss-making but well-capitalised company still has a liability. Corporate tax on the foreign share generally falls away in a loss year, and losses carry forward indefinitely.
How does the split work in a mixed-ownership company?
Proportionately, but on separate bases. The Saudi and GCC percentage is applied to the Zakat base and charged at 2.5 per cent; the foreign percentage is applied to net adjusted profit and charged at 20 per cent. On a company with a SAR 30 million Zakat base and SAR 4 million of profit owned 60:40, that is SAR 450,000 of Zakat plus SAR 320,000 of tax.
When is the return due?
Within 120 days of the fiscal year end, which is 30 April for a calendar-year company, and the liability is settled by the same date. Because advance payments are not generally required of most entities, the whole amount arrives at once — worth planning the cash rather than discovering it alongside the audit.
Are there exceptions to the ownership rule?
Some, and one is worth checking specifically: shares in a Saudi-listed company acquired for trading or speculation through the capital market can fall under Zakat even where the holder is not Saudi or GCC. Oil and hydrocarbon production sits under an entirely separate regime with progressive rates far above 20 per cent.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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