RELATED ARTICLES
- E-Invoicing in Saudi Arabia
- ZATCA e-Invoicing Phase 2: Applicability, Requirements, Rules and Regulations in Saudi Arabia
- ZATCA Announced Wave 2 Under Phase 2 of e-Invoicing in Saudi Arabia
- ZATCA Announced Wave 3 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 4 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 5 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 6 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 1 Under Phase 2 of e-Invoicing in Saudi Arabia
- How to Validate ZATCA e-Invoice Using QR Code?
- FAQs on Phase 2 of KSA e-Invoicing
- ZATCA Announced Wave 7 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 8 Under Phase 2 of Saudi Arabia e-Invoicing
- KSA VAT Number Verification: How to Verify a VAT Number in Saudi Arabia?
- Impact of ZATCA e-Invoicing on Saudi Arabia Businesses
- ZATCA Announced Wave 9 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 10 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 11 Under Phase 2 of Saudi Arabia e-Invoicing
- ZATCA Announced Wave 12 Under Phase 2 of Saudi Arabia e-Invoicing
Saudi Arabia Capital Gains Tax Explained
Updated on: Nov 12th, 2024
|
8 min read
Saudi Arabia’s tax system is generally investor-friendly, but certain transactions, especially involving capital gains, are subject to specific taxes. Capital Gains Tax (CGT) in Saudi Arabia primarily targets non-residents who sell shares in Saudi-based companies, with a 20% tax on the profit from these transactions. Resident shareholders may instead face a 2.5% Zakat or a 20% tax, depending on their status and the nature of their income.
This blog explains capital gains tax in Saudi Arabia, current rates, calculation methods, and filing steps. Plus, we compare it to other countries' taxes.
What is Capital Gains Tax in Saudi Arabia?
Capital gain is the profit made from the sale of an asset, such as shares, real estate, or business assets. It is calculated as the selling price of the asset minus its original purchase cost or cost base. Capital Gains Tax (CGT) is charged on the profit made from selling an asset.
CGT applies to individuals or entities selling shares in Saudi Arabia-resident companies, as well as those disposing of business assets, such as property used in business activities. It applies to both non-residents and residents.
Non-residents selling shares in Saudi companies are subject to CGT. Resident shareholders may also be subject to CGT on the sale of shares. For non-residents, CGT is 20% of the profit. For resident shareholders, the tax is either 2.5% Zakat or 20% tax on ordinary income, depending on their status.
Current Capital Gains Tax Rate Regime
Saudi Arabia’s CGT regime includes several specific provisions:
| Type of Capital Gain | Conditions and Additional Details | Tax Rate or Treatment |
| Capital gain on transfer of shares or securities traded on Tadawul |
| Exempt |
| Capital gain on transfer of shares or assets between companies within the same group | No gain or loss | |
| Capital gain realised by a resident shareholder on disposal of shares in a KSA-resident entity | Applies to resident shareholders disposing shares in Saudi-based companies. | Zakat @ 2.5% or taxed @ 20% as a capital gain or ordinary income |
| Capital gain realised by a non-resident on disposal of shares in a KSA-resident entity | CGT is calculated on the difference between the consideration and the cost base of shares. | CGT @ 20% |
| Capital gain on disposal of property or assets used in a business activity | Gains may be deferred if proceeds are reinvested into a new qualifying capital asset within 12 months. | Ordinary income - zakat @ 2.5% or corporate tax @ 20% - depending on shareholder's status |
Capital Gains Tax Calculation and Filing Procedures
In Saudi Arabia, CGT is based on the asset's selling price minus its cost base. Here’s how it works:
- For selling price, the sale is valued by the highest of three values: contract value, market value, or book value. The book value is what the company recorded.
- The cost base is the original purchase cost or the asset's value upon acquisition.
The selling party must report the capital gain to the General Authority of Zakat and Tax (GAZT). They also need to settle any tax due within 60 days of the sale. GAZT usually finalises CGT when a company’s articles of association are formally amended and notarized. However, GAZT may use the date of the Sale and Purchase Agreement (SPA) instead. This may happen if it leads to a higher tax, as per Saudi tax rules.
Comparison of Saudi Arabia's Capital Gains Tax Regime with Other Countries
Saudi Arabia's approach to CGT is more lenient compared to many countries, making it attractive to investors. Here’s a quick comparison with other nations:
- The UAE does not have a capital gains tax for individuals. This makes it attractive for investors. They can avoid CGT on personal investments.
- In Kuwait, capital gains from asset sales are treated as regular business income. They are taxed at the standard corporate income tax rate of 15%. This means capital gains are included in the business income tax.
- Egypt applies a 10% capital gains tax on stock market profits. However, bonus shares are exempt from this tax, meaning that distributions of bonus shares do not incur CGT.
- The US has a more extensive CGT system, with rates ranging from 0% to 20% depending on income levels and the holding period.
- The UK imposes CGT on both residents and non-residents for UK assets, with rates varying based on income level and asset type.
Conclusion
Saudi Arabia’s capital gains tax system keeps tax obligations limited. With its focus on foreign entities and non-residents, it offers an appealing environment for domestic investors and businesses. For anyone investing in Saudi assets, understanding the specific capital gains tax limit requirements helps ensure compliance and maximise tax efficiency.
