VAT and Zakat: a guide for foreign-owned companies

Red Dragon Office

Once your company is registered, you'll generally need to register with the Zakat, Tax and Customs Authority (ZATCA) for VAT if your revenue crosses the mandatory threshold, and file returns periodically.

Zakat and income tax work differently depending on ownership: the Saudi-owned share of a company is typically subject to Zakat, while the foreign-owned share is typically subject to income tax, so mixed-ownership companies deal with both.

Exact rates and thresholds can change, so any figures discussed with us are for general guidance and are not a substitute for a formal tax opinion.

We help set up the right registrations from day one and connect you with ongoing bookkeeping support so nothing is missed. Message us on WhatsApp for details specific to your structure.

VAT registration step by step for a new company

For most foreign-owned companies, VAT registration is the first tax task after the Commercial Registration is issued. Registration is completed on the ZATCA portal, and whether you must register depends on the value of your taxable supplies. ZATCA generally looks at taxable supplies over the past twelve months, or those you expect over the next twelve months, and compares them with the mandatory and voluntary thresholds set in the regulations.

1. Confirm your company records. Make sure the Commercial Registration, national address and authorised manager details are consistent, because ZATCA draws on data from other government systems.
2. Assess your expected turnover. Estimate taxable sales for the coming twelve months, including sales to related companies, so you know whether registration is mandatory or optional.
3. Register on the ZATCA portal. Complete the VAT registration form, upload the requested documents and confirm your tax period.
4. Receive your VAT number. Once approved, the VAT registration certificate shows the number that must appear on your tax invoices.
5. Set up compliant invoicing. Configure an invoicing solution that meets ZATCA e-invoicing (Fatoora) requirements before you issue your first invoice.
6. Build a filing calendar. VAT returns are usually monthly or quarterly depending on turnover, and the tax due is paid with the return.

Zakat, income tax and withholding tax: who pays what

Beyond VAT, three direct taxes matter for foreign investors. Which ones apply depends mainly on who owns the company and where the people and companies you pay are based.

• Zakat is typically assessed on the share of the company owned by Saudi nationals, and GCC nationals are generally treated in a similar way. It is calculated on a zakat base rather than on profit alone.
• Corporate income tax typically applies to the share of taxable profit attributable to foreign owners, including branches of foreign companies.
• Withholding tax may apply when your Saudi company pays a non-resident, for example the foreign parent company for management services, royalties, interest or dividends. The rate depends on the type of payment.
• Double taxation agreements that Saudi Arabia has signed with a number of countries can reduce withholding tax in some cases, provided the conditions and paperwork are in place.

Zakat and income tax are filed annually after the end of the financial year. A mixed-ownership company typically submits one return that splits the result between the zakat portion and the income tax portion according to the ownership percentages, so keeping the shareholder register up to date matters.

E-invoicing (Fatoora) and record-keeping

ZATCA's e-invoicing programme, known as Fatoora, requires VAT-registered businesses to issue and store invoices electronically. The first phase covered generating invoices in a structured electronic format. The second phase, integration with ZATCA systems, has been rolled out in waves, and ZATCA notifies the taxpayers in each wave in advance. A new company is better off choosing a system that is ready for integration from the start than migrating later.

• Tax invoices must be issued in Arabic, and another language can be shown alongside it.
• Standard tax invoices for business customers include the seller and buyer VAT numbers, the invoice date, a sequential number, a description of the goods or services and the VAT amount.
• Simplified invoices for consumers carry a QR code generated by the compliant solution.
• Credit and debit notes follow the same rules when you correct or cancel an invoice.
• Accounting records, invoices and import documents should be kept for the statutory retention period, which can be longer for some records than for others.

Document checklist for tax registration and first filings

Having these documents ready shortens the back-and-forth with ZATCA and with your bank:

• Commercial Registration certificate and articles of association
• MISA registration, if the company is foreign-owned (see our MISA registration guide)
• National address registration for the company
• ID or iqama copies of the general manager and authorised signatories
• Corporate bank account details (IBAN); our guide to opening a corporate bank account covers this step
• Estimated turnover and the start date of business activity
• Financial year end and the accounting system you will use
• Contracts with the foreign parent or related companies that involve cross-border payments

Common mistakes foreign-owned companies make

• Registering late. Waiting until the threshold has clearly been crossed can lead to late-registration penalties and VAT that can no longer be recovered from customers.
• Overlooking reverse charge on imported services. Services bought from abroad, including from the parent company, can trigger VAT that the Saudi company must account for itself.
• Missing withholding tax on payments to head office. Management fees, royalties and similar charges often require withholding tax filings that are separate from the VAT return.
• Forgetting import VAT. VAT on imported goods is usually collected at customs, and it can only be recovered if the import documents match the company's VAT registration.
• Non-compliant invoices. Invoices produced by an overseas system, or issued only in English, often fail ZATCA requirements.
• Not updating records after changes. A change in shareholders, capital or activity can change the zakat and income tax split and should be reflected promptly.

Practical tip: Close the books every month, even if your VAT return is quarterly. A monthly reconciliation of sales, purchase invoices and bank statements makes VAT returns, the annual zakat and income tax return and the audit far easier, and it surfaces missing invoices while suppliers can still correct them.

How RDO helps

RDO handles VAT registration on the ZATCA portal, prepares the supporting documents and coordinates the setup of bookkeeping, e-invoicing and your filing calendar so the company starts compliant from day one. We also follow up on changes in ownership or activity that affect your zakat and income tax position. Rules and rates are updated by ZATCA from time to time, so the treatment of your specific structure should always be checked against current guidance.

Frequently asked questions

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