Expat Taxes in Saudi Arabia in 2021

Expat Taxes in Saudi Arabia in 2021 – that will be the topic of today’s article.

This is timely after speaking about expat taxes in numerous countries, including  ThailandSouth Korea and Japan,  GermanySingaporeFrance and the Philippines.

It is a misconception that taxes are 0% in Saudi Arabia on everything, and for every nationality.

Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for firms and on capital gains taxes.

Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.

If you are looking for portable expat tailored investment solutions, which is what we specialise in, you can contact me on this form, email me (advice@adamfayed.com) or use the WhatsApp function below.

Often it is far more tax-efficient to invest overseas, in a portable structure, as an expat, as opposed to sending money home.

Introduction

How will living in Saudi Arabia affect expatriate taxes? Opportunities and favorable tax structures have made many Gulf countries desirable destinations for expats from around the world.

Even if you are faced with a favorable tax structure in the host country, your US taxes for expatriates can negatively affect you – and this is just one of the reasons why understanding your filing obligations with US authorities is important as you comply with Saudi tax laws. Arabia. 

If you are a US citizen or permanent resident, you are required to file US taxes, in this case US expatriate taxes, with the IRS annually, regardless of the country in which you reside.

In addition to your regular income tax return, you may also be required to file an information return on your assets held in foreign bank accounts on Form 114 for Foreign Bank and Other Accounts Reporting (FBAR) statements in addition to Form 8938 Statement of Specified Foreign Financial Assets.

Although the United States is one of the few governments that taxes the international income of its citizens and permanent residents abroad, it has special provisions to help protect them from double taxation, including:

  • The foreign earned income exclusion allows you to reduce your taxable income from U.S. expatriate taxes by the first $ 105,900 in 2019 that you earned as a result of your work while resident in another country ($ 107,600 in 2020).
  • The foreign tax credit that allows you to offset taxes paid by you in the host country from your US dollar per dollar expatriation tax, and
  • The foreign housing exclusion, which eliminates certain household expenses arising from living abroad.

With the right planning and good tax preparation, you can take advantage of these and other strategies to minimize or even eliminate your U.S. expat taxes.

Note, however, that even if you think you won’t end up owing anything on U.S. expat taxes, you will most likely still have to file a tax return. 

Some expat tax tips for Americans living in Saudi Arabia

For Americans who decide to live in Saudi Arabia, it is important to know the tax laws in both the host country and the country of residence. Luckily, here are presented some tips you need to know as an expat living in Saudi Arabia.

Like many Gulf countries, Saudi Arabia has no tax on business income and no tax on investment income. Business is only taxed on capital gains.

Residence status in Saudi Arabia can only be obtained through a residence permit. Expats from the United States can apply for a permit at any Saudi Arabian embassy.

Since there are no taxes on earned income or capital gains, individuals are not required to file a tax return. As a result, there is no tax year in Saudi Arabia.

Saudi Arabia has a social security system that covers workers in the private and some public sectors. Those who are self-employed, work overseas, or do not qualify for compulsory insurance can contribute voluntarily.

Saudis are among the lowest taxed in the world. As a result, there are no capital gains taxes, wealth, gift or inheritance taxes, and no value added taxes.

If you are a US citizen or resident, you will still have to file US taxes annually. If you have assets in foreign bank accounts, you may need to report this as well. Specifically, anyone holding $ 10,000 or more with a foreign bank or financial institution during a calendar year will be required to file an FBAR.

Fortunately, there are several ways you can reduce or eliminate your U.S. tax liability. The first is the Overseas Income Exclusion, which allows you to exclude a certain amount from overseas income for foreigners’ taxes.

The second is a foreign tax credit, which allows you to offset the taxes you paid in the host country from your US foreigners tax in dollars per dollar.

And third, the Foreign Home Exclusion, which allows an additional exemption from U.S. expatriate tax income for certain amounts, paid for household expenses arising from living abroad.

Saudi Arabia Taxes

Income Tax – Anyone looking to avoid paying taxes on their income from work often turns to Saudi Arabia.

As is the case with many Gulf countries, Saudi Arabia does not tax business income. In addition, there are no taxes on investment income for individuals – instead, businesses are taxed on capital gains.

In recent news, it was reported that the Saudi Arabian government is thinking about taxing the income of foreign residents as they want to increase non-oil revenues.

Saudi Arabia does not levy gifts, wealth, or capital gains taxes. Starting January 1, 2018, the standard VAT rate for Saudi Arabia is 5%, and for some goods the VAT rate is zero.

The following deliveries are considered zero rate and are therefore eligible for a refund of VAT paid:

  • Export of goods or services outside the territory of the Council, confirmed by evidence of movement of goods / services
  • Deliveries in zones of suspension of customs duties
  • Export of services includes cases where the client does not reside in the territory of the Council and / or consumption does not take place in the territory
  • International transport of goods or passengers
  • Medical equipment and medicines
  • Investment precious metals

Nevertheless, taxes in Saudi Arabia remain among the lowest on the planet.

Saudi Arabia tax year, tax filling and payment rules

Taxes are collected by the Department of Zakat and Income Tax (DZIT) on the income of non-Saudi Arabian individuals or legal entities from Saudi Arabian sources.

There is also a corporate tax rate of 25% to 45% levied on the net commercial profits of foreign companies. Contact the Islamic Trade Development Center for information on other important tax incentives and restrictions related to business (such as tax holidays and government loans) for citizens of other countries and the Gulf countries.

No local property taxes, non-Saudi payroll taxes, or any other sales taxes. No taxes on rental income from other sources. The tax year in Saudi Arabia is usually the calendar (Gregorian) year from January 1 to December 31, although an alternative Hijri (lunar) calendar of 354 days may be adopted.

USA tax treaty – Saudi Arabia

Saudi Arabia is not one of the many countries with which the United States has tax treaties. Given the low level of taxation in Saudi Arabia, this will not be a problem for most expatriates. However, this could be a problem for those who pay business taxes to both Saudi Arabia and the United States.

Expat Tax Withholding

Saudi Arabia has different withholding rates for different types of income, including dividends, interest and royalties, depending on the existence of existing tax treaties.

When received from a US citizen who is not a Saudi Arabian citizen, the withholding of dividends and interest can range from 5% to 15%.

There are also deductions, for example, on management fees that are not owned by Saudi Arabia.

However, dividend withholding rates are 0% for countries with a tax treaty, compared to 5% for those without one.

The United States does not have a tax treaty with the Kingdom. Consequently, the tax returns of American expats, especially in Saudi Arabia, require analysis by an international tax specialist such as Tax Samaritan.

*About Social Security in Saudi Arabia

Saudi Arabia has a social security regime that applies to Saudi workers in the private and certain public sectors.

Voluntary insurance is available for those who are self-employed, working abroad, or no longer eligible for compulsory insurance. This coverage is paid by the insured pension, which is 9% of gross income. For the self-employed, this rate has been increased to 18%.

Although the United States has summation agreements with several countries to avoid double taxation on social security taxes, there is currently no agreement with Saudi Arabia. So, depending on your situation, you can pay into US Social Security, Saudi Social Security, or both.

Who is liable for income taxes in Saudi Arabia?

Income, not residence, determines the taxation of Saudi Arabia, even if you consider yourself a resident of the Kingdom, if you either;

  • have a permanent address and are staying for more than 30 days in any tax year, 
  • or physically present for more than 183 days in any single tax year

Since most of the income comes from the country’s oil industry, employees’ personal wages are not taxed. However, self-employed professionals and businessmen who generate income from Saudi sources are subject to taxation.

There is also a tax on religious wealth, called zakat, starting at 2.5% of net income or equity, which is levied on citizens of Saudi Arabia and the Gulf Cooperation Council (GCC). Saudi Arabia is part of the Persian Gulf along with five other countries: Kuwait, United Arab Emirates, Qatar, Bahrain and Oman. Likewise, only GCC citizens can own land in that country.

Who is considered as a resident of Saudi Arabia?

A person will be considered a resident of the Kingdom of Saudi Arabia if they have permanent residence and reside in the country for at least 30 days, or if they reside in the country for at least 183 days a year.

Unlike many countries, Saudi Arabia grants residence permits to foreigners based on residence permits. It doesn’t matter how long you have been in Saudi Arabia or what your ties to the country are; if you have permission, you are considered a resident. You can apply for a residence permit at any Saudi Arabian embassy.

More about taxes in Saudi Arabia for US expats – what you need to know?

An estimated 40,000 Americans live in Saudi Arabia. Living in Saudi Arabia is undoubtedly an incredible experience for many reasons – culture, beaches, food, and crazy driving to name but a few. However, as an American expatriate living in Saudi Arabia, what exactly do you need to know about filing taxes on US (and Saudi Arabia) expats?

All US citizens and green card holders who earn at least $ 10,000 (or just $ 400 in self-employment income) anywhere in the world must file a US federal tax return and pay taxes to the IRS, no matter where in the world they live or where they receive their income.

The good news is that Saudi Arabia has no income tax on employment income. However, there are taxes on payments for services provided and on the profits of Saudi companies for foreigners (including dividends).

US Taxes

If your income exceeds $ 10,000 (or $ 400 if you are self-employed), you must complete the Form 1040. Although all taxes are due by April 15th, expats receive an automatic renewal by June 15th. The validity period can be extended online until October 15th.

If you have foreign assets worth more than $ 200,000 (per person), other than your home, if it belongs in your name, you must also complete Form 8938 declaring them.

If at any time during the tax year you had more than $ 10,000 in one or more foreign financial accounts, you must also complete Form FinCEN 114, also known as FBAR (Foreign Bank Account Statement).

“Saudi Arabia has no plans to introduce a profit tax anytime soon, despite the damage to its finances as a result of the collapse in oil prices.” says CNN Money.

For many Americans working in Saudi Arabia, it is worth asking for the Foreign Income Exception, and possibly the Foreign Home Exception if you live in a rented accommodation.

This allows you to exclude the first approximately $ 100,000 of foreign income from US taxes, provided that you can demonstrate to the IRS that you are a resident of Saudi Arabia.

However, keep in mind that even if you are not required to pay taxes to the IRS, if your income exceeds $ 10,000 (or $ 400 for self-employed persons), you must still apply.

The U.S. and Saudi Arabian governments exchange taxpayer information, and Saudi banks pass information about the accounts of U.S. account holders to the IRS, so don’t skimp on the truth and believe that you can stay out of sight of the IRS.

The penalties for tax evasion (incomplete or incomplete) for emigrants are, to put it mildly, harsh.

If you are a US citizen, green card holder, or dual citizen and have lived in Saudi Arabia for a while but didn’t know you need to file a tax return or US taxes, don’t worry: there is a program called IRS Streamlined. This procedure allows you to catch up without incurring penalties. Better to do this sooner rather than later, before the IRS knocks.

Saudi Arabian taxes

As an oil-rich family kingdom, Saudi Arabia does not tax income from employment, instead increasing most of its income by taxing the profits of oil and gas companies.

There are taxes for individuals on payments for services rendered, as well as on corporate income such as dividends.

Saudi Arabia’s tax office is called GAZT (General Authority of Zakat and Taxes).

You can find more information on the Saudi tax system here. There is no personal income tax return form and corporate returns must be filed within 120 days of the end of the company’s fiscal year.

We strongly recommend that if you have any doubts or questions about your tax situation as an expatriate from the US residing in Saudi Arabia, you should contact an expatriate tax specialist.

Saudi Arabia Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that often applies to the tax on US expats in Saudi Arabia concerns the disclosure of foreign assets in the FBAR (Foreign Bank Account Statement – Form 114 – formerly known as TD F 90-22.1).

The FBAR application deadline is June 30 (or the prior business day if June 30 is a weekend).

Unfortunately, requesting an extension for your individual return does not extend the FBAR payment deadline – there is no way to extend the FBAR deadline. Any reports filed after this date are considered overdue by FBAR. In addition, FBAR differs from many other tax forms in that it must be received by a set date (not by a set date).

An FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in brief applies to all cases where a US citizen has a financial interest or signatory power in a foreign country. a financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account (including a monetary value insurance policy such as a full life insurance policy), opened with a financial institution with an aggregate value of more than $ 10,000 at any time during the calendar year, based on the maximum value of each foreign invoice during the tax year.

If you have bank accounts with Arab National Bank (ANB), Al Rajhi Bank, Bank Al-Jazira (BAJ), National Commercial Bank (NCB) and Banque Saudi Fransi (BSF), Riyad Bank or another bank in Saudi Arabia, or in any other foreign country, you can fulfill the requirement to provide information about your foreign accounts with FBAR.

Feel free to contact Tax Samaritan to find out more about your filing requirements.

Saudi banks do not pay interest on deposits in bank accounts in accordance with Islamic law. Cash payment is preferred in the market; credit cards may be accepted, but there is an additional service charge. The Saudi Arabia Monetary Agency is an excellent reference source.

FAQ

  • Do I need to file a tax return if I live in Saudi Arabia?

Yes! If you do not reside in or within the United States or have any income in the United States, you must still file and pay taxes on your worldwide income. Congress has passed some very convoluted new tax laws that will take effect this tax season.

By changing everything around, Congress made it nearly impossible to get an accurate record. In addition to your income tax returns, you may be required to comply with reporting requirements for foreign banks and financial accounts and statements of foreign financial assets. If you do not report correctly, very expensive fines can be imposed.

  • What if I haven’t filed my tax returns for years?

The IRS is offering taxpayer offenders a new special filing process that can benefit you if you haven’t filed a return for years. With our help, we can get you back on track for the IRS.

  • What if I pay income tax in Saudi Arabia? Do I have to pay US taxes?

Expats from the United States have the opportunity to avoid double taxation on their overseas income through the Overseas Income Exclusion (IRS Form 2555 or Form 2555-EZ) and Overseas Tax Credits (IRS Form 1116).

You can qualify for an income exemption up to the amount of your foreign income adjusted for inflation ($ 91,400 in 2009, $ 91,500 in 2010, $ 92,200 in 2011, $ 95,100 in 2012, $ 97,600 in 2013, $ 99,200 in 2014, $ 100,800 in 2015, $ 101,300 for 2016, $ 102,100 for 2017).

In addition, you can exclude or deduct certain amounts for overseas housing – housing exemption (IRS 2555) or housing deduction (IRS 2555). But you must file your tax return with the IRS in order to qualify for these benefits.

Preparing tax returns is always a hassle. US expatriate taxes add further to the frustration with special tax rules for US citizens and overseas green card holders. There are many tax risks when filing a return for expatriates and green card holders, but there are also many opportunities.

Here it is, all the information that a US expat must know while living in Saudi Arabia. This country is the one on this planet requiring no taxes, or very low taxes in comparison with other countries. So you can definitely use this chance and make a profit from this.

Conclusion

Saudi is still a low-tax place to live, but coronavirus and low oil prices are changing the situation.

American expats do still need to pay taxes in certain situations.

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