The Dual Tax System
The Kingdom of Saudi Arabia operates a unique dual tax regime administered by the Zakat, Tax and Customs Authority (ZATCA). Liability is determined strictly by the nationality of the shareholders in a given entity.
Income Tax
Applied to the non-Saudi/non-GCC shareholder's proportion of the company's net adjusted income.
Zakat
Applied to the Saudi/GCC shareholder's proportion of the Zakat base (roughly equivalent to net worth + adjusted income).
Joint Venture Implications
For a US-Saudi Joint Venture, the tax burden is bifurcated. Consider a JV structured as a 60% US / 40% Saudi LLC.
- The entity pays 20% corporate tax on 60% of the net taxable profit.
- The entity pays 2.5% Zakat on 40% of its Zakat base.
While 20% is highly competitive globally, the Zakat calculation (which taxes capital, not just income) can create liabilities even in years where the entity operates at a loss, provided the capital base is robust.
Withholding Taxes (WHT)
Repatriating capital to the US parent entity triggers Withholding Tax. The standard rates apply to payments made to non-residents:
| Payment Type | Standard Rate |
|---|---|
| Dividends | 5% |
| Royalties | 15% |
| Technical & Consulting Services | 5% (or 15% if paid to related party) |
| Loan Charges / Interest | 5% |
Note: The US and KSA do not currently have a comprehensive double taxation treaty, though reciprocal exemptions exist for specific industries like aviation.
The Regional Headquarters (RHQ) Exemption
In 2024, ZATCA formalized substantial tax incentives for multinational companies establishing their Regional Headquarters in Riyadh. Qualified entities receive a 30-year exemption from corporate income tax on income derived from eligible RHQ activities.
Next Steps
Prior to capital deployment or entity formation, a thorough tax modeling exercise must be conducted to compare Delaware C-Corp vs. LLC passthrough implications back in the US against the dual ZATCA regime.