Many companies in Saudi Arabia have both Saudi and foreign shareholders. These mixed ownership companies sit across two regimes: Zakat on the Saudi and GCC-owned share, and corporate income tax on the foreign-owned share. Understanding how the two work together is essential for accurate filing and for planning.
How the split works
The company's results are allocated according to ownership:
Saudi and GCC shareholders. Their share is subject to Zakat, generally at 2.5% of the Zakat base attributable to them. Our guide to Zakat explains how the base is calculated.
Foreign shareholders. Their share is subject to corporate income tax at 20% of taxable profit attributable to them.
For example, if Saudi shareholders own 60% of a company and a foreign shareholder owns 40%, the company calculates Zakat on 60% of its Zakat base and corporate income tax on 40% of its taxable profit.
Filing
Mixed ownership companies file a combined Zakat and income tax return through the ZATCA portal. As with Zakat-only companies, the return and payment are due within 120 days of the end of the financial year, and the return is supported by audited financial statements.
Because the Zakat base and taxable profit are calculated differently, the two computations should be prepared side by side and reconciled to the same set of accounts.
Where withholding tax fits in
Separately from the annual return, companies must deduct withholding tax when they make certain payments to non-residents, such as dividends, interest, royalties, rent and fees for services. Rates range from 5% to 20% depending on the type of payment, and tax treaties may reduce them where the conditions are met.
Withholding tax is deducted at the time of payment and paid to ZATCA monthly, together with a withholding tax return. Mixed ownership companies often have regular payments to foreign shareholders or group companies, so this deserves particular attention.
Points to watch
Changes in ownership. When the shareholding changes during the year, the split between Zakat and income tax changes too.
Related party transactions. Payments to foreign group companies may raise withholding tax and transfer pricing considerations.
Deductible expenses. Rules on which expenses are deductible differ between the Zakat and income tax computations.
Treaty relief. Reduced withholding rates under a tax treaty usually require supporting documentation.
How Zento can help
Zento Solutions prepares combined Zakat and income tax returns, advises on withholding tax and reviews related party arrangements for mixed ownership companies. Learn more about our corporate tax services or talk to us.
This article is general guidance and not tax advice. Confirm the treatment for your company with a qualified adviser before acting.
