Most English language writing about Saudi tax is about VAT and e-invoicing. That is understandable, because ZATCA has spent five years rolling both out and the deadlines have been loud.
It has also left a gap. The annual obligation that costs more management time than either of those, and that cannot be handled by configuring a system correctly once, is the zakat and income tax return. It is calculated on a basis most finance teams outside the Kingdom have never worked with, and the calculation starts from the balance sheet rather than from profit.
This guide sets out who pays which levy, how the zakat base is actually built, what the 2024 regulations changed, and what happens at the border when a Bahrain company invoices a Saudi customer.
Two levies, one set of accounts
Saudi Arabia does not choose between zakat and corporate income tax at entity level. It splits them by ownership.
- The portion of a company owned by Saudi and GCC nationals goes into the basis on which zakat is assessed.
- The portion owned by non-GCC interests is subject to corporate income tax at 20% of net adjusted profits.
A wholly Saudi or GCC-owned company therefore files on a zakat basis. A wholly foreign-owned company files on an income tax basis. A mixed-ownership company does both, from one set of financial statements, with the result apportioned by shareholding.
Two refinements worth knowing. Companies producing oil and hydrocarbons are taxed at rates ranging from 50% to 85%, not 20%. And shares acquired for speculative trading on the Saudi stock market, along with certain holdings by oil and hydrocarbon companies in listed capital companies, fall under zakat rather than income tax.
For a Bahraini owner this matters directly. Bahraini shareholders are GCC nationals, so a Bahrain-owned Saudi subsidiary sits on the zakat side of the line, not the 20% income tax side. That is usually the more favourable outcome, but it is not the simpler one, because the zakat base is a more involved computation than adjusted profit.
The rate is not 2.5% if your year is not Hijri
Zakat is charged at 2.5% of the zakat base for a Hijri year, which runs to roughly 354 days.
Where a company uses a financial year that differs from the Hijri calendar, the rate is prorated by the actual number of days in the period. Applying that to a standard 365 day Gregorian year produces a rate of approximately 2.58%, not 2.5%.
It is a small difference in isolation and a real one on a large base. It also catches groups that assume the headline figure applies to a December year end.
The zakat base is a balance sheet calculation
This is the part that most often surprises a team arriving from an accounting profit mindset.
The zakat base is not adjusted net profit. It is closer to a measure of the funds employed in the business. Broadly, it starts from equity and certain liabilities and then removes the assets that are not zakatable.
Typically added: retained earnings, reserves, unpaid profit distributions, shareholder credit balances, and certain provisions.
Typically deducted: fixed assets, intangible assets, qualifying investments, raw materials, statutory deposits, employee housing, deferred tax assets, sukuk, investment property, concession assets and right-of-use assets.
Two consequences follow from that structure.
A loss-making company can still have a zakat liability, because the base is not profit. It is driven by what is on the balance sheet and how it is funded.
Classification decisions now carry a cash cost. Whether an item sits in equity or liabilities, whether an asset is capitalised or expensed, whether a lease produces a right-of-use asset, whether a balance is a shareholder loan or a payable. These are ordinary financial reporting judgements, and in Saudi Arabia each one feeds a calculation that produces a payment. Books that were adequate for management purposes are frequently not adequate for this.
The minimum and the maximum
The Zakat Implementing Regulations were issued under Ministerial Resolution No. 1007, dated 29 February 2024 and published in the Official Gazette, Umm Al-Qura, on 21 March 2024. They replaced Ministerial Resolution No. 2216 of 14 March 2019 and apply to financial years beginning on or after 1 January 2024.
There was a window in which zakat payers could elect to apply them retrospectively to earlier periods. It originally ran 60 days from publication, and was later extended to 30 April 2025 by Ministerial Resolution No. 947. That window has closed, so the election is no longer available.
Articles 27 and 28 introduced two boundaries on the computed base.
A minimum limit, referenced to adjusted net profit. The calculated zakat base is compared against adjusted net profit, with adjustments for items such as non-deductible expenses.
A maximum limit, capped at the equity value shown in the financial statements at year end, adjusted for differences between adjusted and book profits and for items reclassified from liabilities to equity.
A related constraint runs alongside them: total liabilities added to the base cannot exceed total deductions from it.
The mechanics of how these limits resolve in a given case turn on the detail of the regulations and on ZATCA’s application of them, and are worth confirming for your own numbers rather than assumed. The broader point stands either way: the computation is now bounded at both ends by figures taken from the financial statements, which makes the quality of those statements load-bearing in a way it was not before.
What else the 2024 regulations changed
Three changes are worth flagging because they alter working practice rather than just the arithmetic.
Closing balances, not timing. The base aligns with the closing balances in the financial statements, regardless of when assets were acquired or liabilities incurred. The previous focus on how long an item had been held falls away.
An attribution mechanism for liabilities. Current liabilities are set against current assets and non-current payables against non-current assets, with non-current payables treated as financing non-current assets regardless of timing. Liabilities can be added back where deductible current assets are offset or where certain non-current assets are excluded from deduction.
Shareholding measured at year end. Zakat is assessed by reference to the shareholders and their shareholding percentages at the end of the fiscal year, regardless of changes during the year. For a company that restructured mid-year, the position at 31 December is what counts.
Taxes and zakat paid to government also became deductible business expenses, and the deductible list was extended to include items such as raw materials, statutory deposits and treasury bills held in employee savings plans under specified conditions.
Filing: 120 days, and audited accounts
The return is due to ZATCA within 120 days of the financial year end, and the final amount due is payable by the same date. For a 31 December year end, that is the end of April.
Companies with Saudi ownership, whether wholly or mixed with non-Saudi interests, must submit audited financial statements with the return. That is the constraint that determines the real timetable, because an audit cannot begin on records that have not been closed and reconciled, and 120 days is not long once the audit sits inside it.
Advance payments also apply where annual income exceeds SAR 500,000: three instalments of 25% each, due on the last day of the sixth, ninth and twelfth months, based on the prior year’s liability net of tax withheld. Overdue advance payments attract a penalty of 1% for every 30 days of delay.
SRR is a management and business advisory consultancy rather than a licensed audit firm, so we do not perform statutory audit or sign audit reports. What we do is prepare the underlying accounts and the supporting schedules and coordinate with a licensed Saudi auditor, which is the same audit support model we run in Bahrain. The work that protects the 120 day deadline happens in the months before it, not in the last fortnight.
If you invoice Saudi Arabia from Bahrain
This section is for the Bahrain reader with Saudi customers rather than a Saudi entity.
Saudi Arabia applies withholding tax on payments made by a resident party or a permanent establishment to a non-resident. The payer withholds, and the amount is due within the first ten days of the month following the month of payment. Bahrain does not levy withholding tax, so this is a one-way exposure.
The rates that matter most to a professional services business:
| Payment | Rate |
|---|---|
| Management fees | 20% |
| Technical and consulting services | 5% |
| Royalties | 15% |
| Dividends | 5% |
| Interest | 5% |
| Rent, air tickets, international telecommunications, insurance and reinsurance premiums | 5% |
| Other services, for example training, recruitment, bookkeeping and marketing | 15% |
Two points follow.
The related party premium is gone, and some coverage has not caught up. Technical and consulting services once attracted 15% when supplied by a head office or a related group company. Decision No. 25, dated 26 July 2023 and effective on its publication in the Official Gazette on 15 September 2023, reduced that to 5% regardless of whether the recipient is a head office or a connected group entity. Guidance written before that date, of which there is still a good deal online, will tell you otherwise.
How the engagement is described changes the rate. A payment characterised as a management fee attracts 20%. The same work described as a technical or consulting service attracts 5%. This is not an invitation to relabel anything, because the characterisation has to reflect what was actually provided, but it is a reason to describe the engagement accurately in the contract rather than reaching for a generic term.
A Bahrain to Saudi treaty is coming, but is not here yet. Bahrain and Saudi Arabia signed a double tax treaty in Manama on 3 December 2025. It had not entered into force at the time of writing. Until it does, domestic rates apply. When it does enter into force, the position on cross-border service payments between the two countries may change, and existing arrangements will be worth revisiting rather than left as they are.
The penalty window, and an important caveat
ZATCA’s Cancellation of Fines and Exemption of Financial Penalties initiative was extended by decision of the Minister of Finance and runs from 1 July 2026 to 31 December 2026.
It covers fines for late registration, late filing and late payment, along with VAT return correction fines. It excludes penalties relating to tax evasion, fines under Article 45 of the VAT Law, fines already paid, and returns falling due after 30 June 2026. To benefit, a taxpayer must be registered, must file all outstanding returns, and must pay the full principal owed.
The caveat matters. ZATCA’s announcement frames the initiative around taxpayers subject to the tax laws. It does not name zakat among what is covered. A zakat payer with outstanding exposure should confirm the position with ZATCA directly rather than assuming the window applies. We cover the underlying penalty regime in more detail in our guide to ZATCA penalties in Saudi Arabia.
What this means in practice
If you operate in Saudi Arabia, or own a Saudi entity from Bahrain, four things follow.
- Know which side of the ownership line each shareholder sits on, and remember the assessment is made on the position at year end.
- Treat the zakat computation as a balance sheet exercise, and accept that classification judgements now have a cash consequence.
- Work backwards from the 120 day deadline, with the audit inside it, not alongside it.
- Look at your cross-border invoicing before the Bahrain to Saudi treaty enters into force, not after.
If your Saudi books are being kept somewhere between an accounting package and a spreadsheet, the zakat base is where that shows. We handle accounting, VAT and compliance in Saudi Arabia for businesses run from Bahrain and across the GCC, including preparing financial statements to a standard an auditor can work from. If you are still getting VAT registration in place, our guide to VAT registration in Saudi Arabia covers that ground.
This article is general information based on Saudi Arabian legislation, the Implementing Regulations for Zakat Collection, and ZATCA guidance as at August 2026, not tax advice. Rates, thresholds and deadlines change, and the treatment of any specific company depends on its ownership, activity and circumstances. Confirm your position with ZATCA or a qualified adviser before acting.