In Saudi Arabia, two different levies sit side by side. Zakat is a religious (Shariah) obligation charged at 2.5% and applies to Saudi and GCC ownership, while corporate income tax (CIT) is a statutory levy introduced by Royal Decree, charged at 20% on non-Saudi and non-GCC ownership. Both are administered by ZATCA, and a mixed-ownership company pays both, on separately computed bases.
Key takeaways
- Zakat is a Shariah-based levy on Saudi and GCC ownership at 2.5% of the zakat base, which is derived from equity adjusted for certain assets and liabilities.
- Corporate income tax is a statutory levy on non-Saudi and non-GCC ownership at 20% of adjusted taxable income.
- A mixed-ownership company pays both, split by ownership percentage, with separate computations and no blending of the zakat base and taxable income.
- Both zakat and CIT returns are due within 120 days of the financial year-end, and both are administered by ZATCA.
- Corporate income tax allows losses to be carried forward, subject to conditions, and can be paid in instalments; zakat does not carry forward losses and is paid once a year.
Zakat vs corporate tax: two levies, one authority
Zakat and CIT are conceptually different obligations that happen to share a regulator. Zakat is a religious levy rooted in Shariah, calculated on a zakat base derived from the entity's equity and then adjusted for deductible assets and liabilities. CIT is an ordinary statutory tax, introduced by Royal Decree, calculated on adjusted taxable income. Ownership decides which one applies: Saudi and GCC shareholders bring zakat, non-Saudi and non-GCC shareholders bring CIT. The comparison below captures the main contrasts.
| Parameter | Zakat | Corporate income tax |
|---|---|---|
| Nature | Religious (Shariah) levy | Statutory levy introduced by Royal Decree |
| Applies to | Saudi / GCC ownership | Non-Saudi / Non-GCC ownership |
| Standard rate | 2.5% | 20% |
| Base of calculation | Zakat base derived from equity, adjusted for deductible assets and liabilities | Adjusted taxable income |
| Loss carry-forward | No concept of loss carry-forward | Losses can be carried forward, subject to conditions |
| Group consolidation | Possible, but only under specific conditions | Not possible |
| Return filing | 120 days from the year-end | 120 days from the year-end |
| Authority | ZATCA | ZATCA |
How each is calculated
Zakat and CIT are calculated on different bases by different routes: zakat on an equity-derived base under either a direct or an indirect method, CIT on net profit adjusted for tax. The direct method (for example the wealth-uses or net-current-assets method) starts from zakatable assets and subtracts zakatable liabilities, then applies additions such as cash assets and trading securities and deductions such as short-term liabilities and loans. The indirect method (the finance-sources or source-of-invested-funds approach) builds from capital, reserves, profits and external wealth sources, then deducts fixed assets and investments in shares of Saudi companies. CIT, by contrast, follows a single standardised method: it starts with net profit per the financial statements, adds back non-deductible expenses and deducts allowable expenses and exemptions. Zakat is paid once a year, whereas CIT can be paid in instalments.
Mixed-ownership companies pay both
A Saudi-registered company with both Saudi/GCC and non-GCC shareholders is subject to zakat and CIT at the same time. The key principle is that the computations are kept entirely separate: the zakat base is applied to the Saudi/GCC ownership share, adjusted taxable income to the non-GCC share, and the two are never blended.
Mixed-ownership companies are where many groups need advice. For a mixed company, the zakat charge is broadly the total zakat base multiplied by the Saudi or GCC ownership percentage at 2.5%, and the CIT charge is adjusted net income multiplied by the non-Saudi or non-GCC ownership percentage at 20%. In practice, SBC keeps the two computations strictly separate from the first entry, because blending the zakat base and taxable income is a common error in mixed companies. Because the two run in parallel, structuring, financing and corporate tax planning all have to respect both regimes at once. For groups with foreign shareholders, the international tax analysis of who owns what, and through which entity, directly drives the split.
Who is subject to zakat and CIT?
Zakat obligation rests on three conditions that must all be met: the entity is Muslim-owned within Saudi or GCC ownership (subject to conditions), there is absolute ownership of stable, value-generating wealth, and the wealth has been held for one full lunar (Hijri) year, known as Hawl, which is roughly 354 days. Corporate income tax reaches a defined list of persons, including a resident capital company in respect of its non-Saudi shares, a resident non-Saudi natural person conducting business in the Kingdom, a non-resident operating through a permanent establishment, a non-resident with other Saudi-source income, and persons engaged in natural gas investment or in oil and hydrocarbon production. Residency itself turns on presence: a natural person with a permanent home in the Kingdom present for at least 30 days, or anyone present for at least 183 days, and a company formed under the Companies Law or centrally managed in the Kingdom.
Frequently asked questions
What is the difference between zakat and corporate income tax in Saudi Arabia?
Zakat is a Shariah-based levy charged at 2.5% on Saudi and GCC ownership, calculated on an equity-derived zakat base. Corporate income tax is a statutory levy charged at 20% on non-Saudi and non-GCC ownership, calculated on adjusted taxable income. Both are administered by ZATCA and filed within 120 days of the year-end.
Do mixed-ownership companies pay both zakat and CIT?
Yes. A Saudi-registered company with both Saudi/GCC and non-GCC shareholders is liable to both. The zakat base is applied to the Saudi/GCC ownership share and adjusted taxable income to the non-GCC share, with entirely separate computations and no blending of the two.
What are the rates for zakat and corporate income tax?
Zakat is charged at 2.5% of the zakat base. Corporate income tax is charged at 20% of adjusted taxable income. The ownership profile of the entity determines which rate, or which combination of the two, applies.
When are zakat and CIT returns due?
Both returns are due within 120 days of the end of the financial year, and both are filed with ZATCA. Corporate income tax can be settled in instalments, whereas zakat is paid once a year.
How SBC Tax Consulting can help
SBC helps Saudi and mixed-ownership groups compute zakat and corporate income tax correctly, keep the two bases properly separate, and plan structures that work under both regimes. We support corporate tax filings, ownership and international tax analysis, and the treatment of losses and instalments. For tailored guidance on your zakat and CIT position, contact our team.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.