US Tax Advice for US Expatriate Living and Working in Saudi Arabia

Tax Guide for US Expats Living and Working in Saudi Arabia

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Who Is Liable For Income Taxes in Saudi Arabia

Saudis and nationals of other Gulf Cooperation Council (GCC) states who are resident in Saudi Arabia are not subject to income tax in Saudi Arabia. The GCC states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.   Non-Saudi and nonresident GCC nationals and entities with a permanent establishment in Saudi Arabia are subject to income tax on their business income in Saudi Arabia. Payments to non-residents are subject to withholding tax.

An individual is considered to be resident in Saudi Arabia for a tax year if the person meets any of the following conditions:

• The person has a permanent place of abode in Saudi Arabia and is physically present in Saudi Arabia for a total of at least 30 days during the tax year.
• The person is physically present in Saudi Arabia for at least 183 days in the tax year.

Income subject to tax

Employment income. Employment income and allowances, including education allowances, received by expatriates are not subject to tax in Saudi Arabia.

Self-employment and business income. Foreign individuals are generally not allowed to carry on trading activities in Saudi Arabia. However, foreign professionals and consultants may carry on activities in Saudi Arabia if appropriate licenses are obtained from the Ministry of Commerce and Industry.

Income tax is levied on profits arising in Saudi Arabia derived by self-employed foreign professionals and consultants from their activities conducted in Saudi Arabia.

Investment income. In principle, foreign individuals are taxed on income derived from investments in Saudi projects at a rate of 20%. However, it is suggested that foreign individuals seek professional advice on the taxation of their investment income.

Taxation of employer-provided stock options.  In general, employer-provided stock options are not subject to tax in the hands of the recipient employee.

Capital gains.  Capital gains are taxed as ordinary income together with other income earned for the same period. However, capital gains derived from the disposal of financial papers (shares) traded on the Saudi stock market are not subject to tax if the following conditions are satisfied:

• The sales transaction is carried out in accordance with the Stock Exchange Regulations in Saudi Arabia.
• The investment that was sold was not owned before 30 July 2004.

Deductions.

A taxpayer may deduct all necessary, provable and certifiable expenses incurred for the purposes of the business to the extent allowed under the tax regulations.

Provisions as well as private and personal expenses are not deductible.

Rates.  A flat income tax rate of 20% is applied to the tax-adjusted profit of resident individuals.

Nonresidents who do not have a legal registration or a permanent establishment in Saudi Arabia are subject to withholding tax on their income derived from a source in Saudi Arabia. A Saudi resident entity must withhold tax from payments made to such nonresidents with respect to income derived from Saudi Arabia.

This rule applies regardless of whether the Saudi entity is a taxpayer.

Relief for losses.  Losses may be carried forward indefinitely.   However, the maximum loss that can be offset against a year’s profit is 25% of the tax-adjusted profits for that year. Saudi tax regulations do not provide for the carryback of losses.

B. Net worth tax

Net worth tax is not levied on non-Saudis in Saudi Arabia other than citizens of GCC states. A religious levy called zakat is payable by Saudis and citizens of GCC states on net worth, as adjusted for zakat purposes.

Zakat is levied at a rate of 2.5%. The zakat base is capital that is not invested in fixed assets, long-term investments and deferred costs, as adjusted by net results for the year. Additional complex rules apply to the calculation of zakat liabilities.

C. Social security

Employers must pay Saudi social insurance tax (GOSI) on behalf of their employees. The contributions are levied on basic salary, including housing allowances and certain commissions.

The total contribution for annuity branch (pension annuity) with respect to Saudi nationals is 18% (shared equally between employer and employee). Annuity branch contributions are not required with respect to non-Saudi employees. Employers must pay contributions for occupational hazards insurance at a rate of 2% for both Saudi and non-Saudi employees.

Under the prior rules, nationals of other GCC countries (Bahrain, Kuwait, Oman, Qatar and United Arab Emirates) were not required to register with the annuity branch and settle GOSI contributions. Bahraini and Omani nationals are now subject to GOSI contributions. The total rates of the annuity branch contributions for Bahraini and Omani nationals are 12% and 16%, respectively.   Employers must also pay contributions for occupational hazards insurance at a rate of 2% for both Bahraini and Omani nationals.

E. Tax treaties

Saudi Arabia has tax treaties in force with the following countries.

Austria

Italy

Russian Federation

Belarus

Korea (South)

South Africa

China

Malaysia

Spain

France

Netherlands

Turkey

Greece

Pakistan

United Kingdom

India

Saudi Arabia has signed double tax treaties with Cuba, Germany, Japan, Kazakhstan, the Philippines, Poland, Romania, Singapore, Syria, Tunisia, Uzbekistan and Vietnam, but these treaties are not yet in force.  Saudi Arabia has also entered into limited tax treaties with the United States and certain other countries for the reciprocal exemption from tax on income derived from the international operations of aircraft and ships.

To learn more about the history, culture, economy and other information about Saudi Arabia

We have been preparing US income tax returns for US Citizens and permanent residents living in Saudi Arabia for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.

We have scores of clients located in Saudi Arabia and know how to integrate your US taxes into the local income taxes you pay.  Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end.  (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership.   If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form.  These penalties are due regardless of whether you owe income taxes or not.

There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits.  There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.

If you are self-employed, you will have to pay US self-employment taxes (social security).   If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Saudi Arabia.

We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident.  You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.

Let us help you with your US tax returns, US tax planning and other US tax and legal concerns.  Download our expat tax questionnaire or request a request a consultation by phone, skype or email