# Zakat vs Income Tax in Saudi Arabia: Who Pays What? *A plain guide to the difference between the two biggest financial obligations on companies* > **In short:** Many business owners confuse Zakat with income tax in Saudi Arabia. Learn the core difference, who pays which one, and what you actually owe as an owner. - **URL:** https://www.snad.io/en/blog/farq-zakat-daribat-dakhl-saudi - **Arabic original:** https://www.snad.io/blog/farq-zakat-daribat-dakhl-saudi - **Category:** Explainers — ZATCA & Tax - **Tags:** Zakat, income tax, ZATCA, taxes, compliance - **Published:** 2025-12-06 - **Updated:** 2026-08-02 - **Publisher:** Snad (snad.io) "Do I pay Zakat, income tax, or both?" It is a question many business owners ask — and many of them do not know the right answer. Confusing the two is not just an academic problem. Getting it wrong can mean paying what you do not owe, or missing what you do owe and exposing yourself to penalties. ## Zakat — what it is and who owes it Zakat is both a religious obligation and a legal requirement in the Kingdom of Saudi Arabia. Who owes Zakat? - Individual Saudi citizens - Companies wholly owned by Saudis - The Saudi shareholder's share in mixed-ownership companies Conditions for Zakat to fall due: - Reaching the nisab: the Zakat base exceeds the defined threshold - Completion of the hawl: a full Hijri year has passed - Growth: the money is deployed in a commercial activity or an investment The rate: Zakat on commercial companies = 2.5% of the Zakat base (not of profit) ## Income tax — what it is and who it applies to Income tax is completely different from Zakat — in nature, in scope, and in rate. Who is income tax applied to? - Non-Saudi individuals resident in Saudi Arabia who run commercial activities - Foreign companies operating in Saudi Arabia - The share held by non-Saudi shareholders in mixed-ownership companies The rate: - 20% of net taxable profit - Some sectors (oil and gas) are taxed at higher rates, reaching 85% The core difference: Income tax is calculated on profits. Zakat is calculated on a different base (Zakat capital). ## The core difference between the two By nature: - Zakat: an Islamic obligation and a religious duty codified in law - Income tax: a government levy in the modern sense of taxation By base: - Zakat is calculated on the Zakat base (Zakatable assets minus liabilities) - Income tax is calculated on annual net profit By rate: - Zakat: a fixed 2.5% of the Zakat base - Income tax: 20% of net taxable profit By who it applies to: - Zakat: on Saudis and their businesses - Income tax: on non-Saudis and on the stakes held by foreign partners ## Who pays what? — a clear breakdown Case one — a company wholly owned by a Saudi: Pays: Zakat only, at 2.5% of the Zakat base Does not pay: income tax Case two — a company wholly owned by a foreigner (resident): Pays: income tax at 20% of net profit Does not pay: Zakat Case three — a mixed-ownership company (Saudi and foreign): - The Saudi share: subject to Zakat - The foreign share: subject to income tax - The company pays both — each on its own portion Case four — a company owned by a foreign government: It may be exempt under bilateral agreements — this needs legal review. Most important of all: Value Added Tax (VAT) is entirely different from both. It applies to every registered company regardless of nationality. ## How is Zakat calculated for companies? Corporate Zakat has two calculation methods that the Zakat, Tax and Customs Authority (ZATCA) accepts: Method one — the net worth method: Zakat base = capital + reserves + retained earnings + Zakatable loans - fixed assets - long-term investments Method two — the current assets method: Zakat base = total current assets (cash + inventory + accounts receivable) - current liabilities Zakat due = Zakat base × 2.5% When is Zakat paid? - Once a year, based on the Hijri year - The return is filed with ZATCA, and payment follows The Zakat nisab for companies: If the Zakat base is worth less than 85 grams of gold, no Zakat is due for that year. ## Income tax for foreigners and mixed-ownership companies The foreign partner in a Saudi company: The foreign partner's share of the profits is subject to income tax at 20%. Example: a company earns SAR 1,000,000 in profit and the foreign partner owns 40%: - The foreign partner's share: SAR 400,000 - Income tax: 400,000 × 20% = SAR 80,000 Withholding tax: Certain payments to foreign parties (contractors, consultants, and intellectual property rights) are subject to withholding tax ranging between 5% and 15% depending on the type of payment. The Saudi payer remits it on their behalf. Double taxation agreements: Saudi Arabia has signed agreements with many countries to avoid double taxation. If you are a foreign partner from a country that has an agreement with Saudi Arabia, you may qualify for tax relief — consult a specialist. ## Frequently asked questions ### Does a Saudi business owner pay tax on their salary or personal profits? No. Saudis are not subject to personal income tax in the Kingdom. They do pay Zakat on their business funds if those funds reach the nisab and a full Hijri year has passed. ### Can Zakat be deducted from income tax in mixed-ownership companies? No. Zakat is paid on the Saudi share and tax on the foreign share — neither one is offset against the other. ### When does a company have to file its Zakat return? Within 120 days of the end of the company's financial year. Filing late exposes the company to penalties. ### Does a new company pay Zakat in its first year? If a full Hijri year has passed since it was established and the Zakat base has reached the nisab, then yes, it pays. If the hawl is not complete in the first year, it does not. ### Can an accounting system help me calculate Zakat? Yes. Snad generates the financial statements and the balance sheet your accountant needs in order to calculate the Zakat base accurately. --- ## About the publisher **Snad (سند)** — a private Saudi software company based in Riyadh, founded 2025. Legal form: Sole proprietorship. Commercial registration: 7038154642 VAT number: 310959226500003 Only official domain: snad.io > Snad is a private commercial business-management platform. It is not a > government body, not a bank, and not a government services portal, and it > is not affiliated with any government entity. Any site or app with a > similar name is unrelated to Snad.