Article 2 of the Saudi Income Tax Law

This article explains who is subject to income tax in the Kingdom, in six categories:

• A resident capital company (which under Article 1 is a joint-stock company, a limited liability company or a partnership limited by shares, and investment funds are treated as such) on the shares owned directly or indirectly by non-Saudis, and on the shares owned directly or indirectly by those working in the production of oil and hydrocarbons.
• A resident non-Saudi natural person who carries on activity in the Kingdom.
• A non-resident who carries on activity in the Kingdom through a permanent establishment.
• A non-resident who has other taxable income from sources in the Kingdom.
• Anyone working in natural gas investment.
• Anyone working in the production of oil and hydrocarbons.

Paragraph (a) excludes the shares owned directly or indirectly by those working in the production of oil and hydrocarbons in resident capital companies listed on the Saudi financial market, as well as the shares those companies own directly or indirectly in other capital companies; these shares are not taxed under this paragraph.

It follows from paragraph (a) that tax on a resident capital company is tied to the shares of non-Saudis (and the shares of oil workers), not to the shares of Saudi partners. As for the meaning of "resident," Article 3 determines it, with its conditions for natural persons and companies, and "activity," under the definitions, is commercial, professional, craft or similar activity intended to make a profit.

Paragraph (a) was amended by Royal Decree No. M/131 dated 29/12/1438 AH and then by Royal Decree No. M/153 dated 5/11/1441 AH, and the text explained here is the text in force. To know the position of a particular establishment, it is advisable to consult a lawyer specialized in tax and commercial matters.