Expat Tax In Saudi Arabia – Ultimate Tips You Need To Know
Expat Living In Saudi Arabia
The Kingdom of Saudi Arabia (KSA), taking up most of the Arabian Peninsula, is a wonderful place to live and work despite its dry, desolate desert. The Saudi tax regime is financially kind to expatriates working in this country. An absolute monarchy rules over this land between the Red Sea and Persian Gulf known throughout the world for one of the largest oil reserves and two of the most significant Islamic mosques; Al-Masjid al-Haram at Mecca, and Al-Masjid an-Nabawi at Medina. Riyadh, the capital of the Kingdom, is a vibrant city of currently over 5 million people.
Below is our top 9 list of cities in Saudi Arabia for expats (in no particular order):
- Khamis Mushait
Even though life in Saudi Arabia is influenced by centuries of strict religious tradition based on the Wahhabi form of Islam, football (soccer), basketball, and camel racing are popular activities in the country. Strict rules controlling public behavior, dress, and many forms of entertainment and artistic expression are counter-balanced by the diversity of Saudi Arabian cuisine. The Saudi Arabian Riyal is the standard currency of this country.
Guide To US Expat Tax In Saudi Arabia
The Tax Samaritan country guide to US expat tax in Saudi Arabia is intended to provide a general review of expat tax in Saudi Arabia and how that will impact your U.S. expatriate tax return as a U.S. Expat In Saudi Arabia.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Saudi Arabia and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the Saudi Arabia, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in Saudi Arabia and this brief article will address a few of those considerations.
Saudi Arabia Expat Income Taxes
Who Is Liable For Income Taxes In Saudi Arabia
Income rather than residency determines Saudi Arabian taxation even though you are considered a resident of the Kingdom if you either (1) have a permanent address and are present for more than 30 days in any given tax year or (2) are physically present for more than 183 days in any single tax year. Since most revenue comes from the country’s oil industry, personal wages for employees are not taxed. Self-employed professionals and business people generating Saudi-source income, however, are subject to taxation.
There is also a religious wealth tax called Zakat starting at 2.5% on either net income or net worth imposed on both Saudi and Gulf Cooperation Council (GCC) nationals. Saudi Arabia is part of the GCC with five other countries: Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Similarly, only GCC nationals can own land in this country.
Tax Year In Saudi Arabia And Tax Filing And Payment Rules
Taxes are collected on Saudi-source income of non-Saudi persons or business entities by the Department of Zakat and Income Tax (DZIT). There is also a corporate tax rate from 25% to 45% levied on foreign-owned corporate net business income. Refer to the Islamic Centre for Development of Trade for other important business-related tax incentives and restrictions (for example, tax holidays and government loans) involving non-Saudi and GCC nationals.
There are no local property taxes, non-Saudi payroll taxes, or any form of sales tax. There are no taxes on non-Saudi-source rental income. The tax year in Saudi Arabia is typically a calendar (Gregorian) year from January 1 thru December 31 although an alternative Hijri (lunar) calendar of 354 days can be adopted.
Expat Tax Withholding In Saudi Arabia
Saudi Arabia has a variety of tax withholding rates levied on different kinds of income including dividends, interest, and royalties, depending on the existence of existing tax treaties. There can be 5% to 15% withholdings on both dividends and interest when received by a non-Saudi US national. There are also withholdings on, for example, non-Saudi management fees. Withholding rates on dividends however, are 0% for countries with a tax treaty as compared to 5% for those without one. The United States does not have a tax treaty with the Kingdom. Consequently, tax returns of US expats, especially in Saudi Arabia, require analysis by an international tax specialist like Tax Samaritan.
What You Need To Know About US Expat Tax In Saudi Arabia
When dealing with US expat tax in Saudi Arabia, there are a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions will reduce your U.S. taxes to zero.
Some of these preferential tax treatments or benefits for US expat tax in Saudi Arabia include:
- If you are a U.S. citizen or a resident alien of the United States and you live in Saudi Arabia, your US expat tax in Saudi Arabia is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in Saudi Arabia. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion .
- When it comes to your US expat tax in Saudi Arabia, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Saudi Arabia. A U.S. taxpayer working overseas in Saudi Arabia may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in Saudi Arabia does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.
When faced with US expat tax in Saudi Arabia there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
Saudi Arabia Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in Saudi Arabia is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The 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 a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at Arab National Bank (ANB), Al Rajhi Bank, Bank Al-Jazira (BAJ), National Commercial Bank (NCB) and Banque Saudi Fransi (BSF), Riyad Bank or at another bank in Saudi Arabia or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
Saudi banks do not pay interest on bank account deposits following Islamic law. Cash payment is preferred in the market place; credit cards may be accepted but carry additional service charges. The Saudi Arabian Monetary Agency is an excellent reference source.
U.S. – Saudi Arabia Social Security Totalization Agreement
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, Saudi Arabia has not entered into a Totalization Agreement with the United States thus there is no opportunity to avoid double taxation of social security income for US expat tax in Saudi Arabia.
U.S.- Saudi Arabia Tax Treaty And Tax Relief For US Expat Tax In Saudi Arabia
The United States does not currently have a separate tax treaty with the Kingdom of Saudi Arabia. The US Internal Revenue Code offers tax credits against any Saudi-levied income tax. See our Tax Samaritan Takeaways below for other valuable references.
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Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in Saudi Arabia. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in Saudi Arabia. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in Saudi Arabia or to request a free 30-minute tax consultation.
Tax Samaritan Takeaways
Please click on the hyperlinks below for additional takeaways for your expat tax in Saudi Arabia:
Tax Samaritan Expat Tax Services
2014 IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad
Member States Business Guide – Saudi Arabia, Islamic Centre for Development of Trade
Major Banks in Saudi Arabia, The Saudi Network
Kingdom of Saudi Arabia Ministry of Foreign Affairs
Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in Saudi Arabia and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in Saudi Arabia. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in Saudi Arabia. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in Saudi Arabia advice based on your individual needs.
All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.