How will living in Saudi Arabia affect taxes for expatriates? The opportunities and favorable tax structures have made many Gulf nations desirable destinations for expats from around the globe. Even if you face an advantageous tax structure in your host country, you could be affected adversely on your US taxes for expatriates – and this is just one of the reasons why understanding your filing obligations to US authorities is important as you comply with Saudi tax law.
Taxes for Expatriates in Saudi Arabia
If you are a citizen or permanent resident of the United States and meet filing thresholds, then you are obligated to file your US taxes with the IRS every year, no matter where you live. You will be required to file a regular income tax return, and you might also be required to file an informational return on your assets held in foreign bank accounts with FinCEN Form 114 (also known as Foreign Bank Account Report – FBAR).
While the US taxes the foreign income of its citizens and permanent residents who reside overseas, the US does have special provisions to help protect taxpayers from double taxation. Such provisions include:
- The Foreign Earned Income Exclusion, allowing you to decrease your 2017 taxable income by the first $102,100 (in 2018 the number rises to $104,100) earned as a result of your labors while a resident of a foreign country (indexed annually for inflation)
- A foreign tax credit that could allow you to lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
- A Foreign Housing Exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
With proper planning and quality tax preparation, you can take advantage of these and other strategies to minimize or even eliminate any taxes for expatriates owed. Please note that even if you do not believe you owe any US taxes for expatriates, you will still likely be required to file a return.
Saudi Arabia Income Tax
Saudi Arabia is a tax haven for those looking to avoid paying taxes on income earned from employment. Saudi Arabia is similar to other Gulf nations because it has no tax on individual income. Further, no taxes are levied on investment income for individuals; businesses are taxed on these capital gains.
Who Is a Resident of Saudi Arabia?
A person will be considered a resident in the Kingdom of Saudi Arabia if they have a permanent place of residence and reside in the country for at least 30 days, or if they reside in the country for at least 183 days in the year. Unlike many countries, Saudi Arabia grants residency to expatriates through resident permits. It does not matter how long you are in Saudi Arabia or what your connections are to the country; if you have a permit (Iqama), you are considered a resident. You can apply for a resident permit at any Saudi embassy.
Saudi Arabia Tax Date
Since there is no income tax on income earned or capital gains, the Government Authority of Zakat and Tax does not require a tax return from individuals. There is no tax year or tax due date in place.
Social Security in Saudi Arabia
There is a social security regime in Saudi Arabia, which covers private-sector and certain public-sector Saudi workers. There is voluntary coverage available for those who are self-employed, work abroad, or no longer fit the requirements for compulsory coverage. This coverage is paid for by an insured pension that takes 9% of gross earnings. For those who are self-employed, that rate is increased to 18%. Though the United States has totalization agreements with several countries to avoid double taxation regarding social security taxes, currently, there is no agreement with Saudi Arabia. So, depending on your situation, you may pay into US Social Security, Saudi Social Security, or both.
Is Foreign Income Taxed Within Saudi Arabia?
Income is not taxed in Saudi Arabia, regardless of where it was earned.
US – Saudi Arabia Tax Treaty
Saudi Arabia is not one of the many countries with which the United States has a tax treaty. Considering the low level of taxation in Saudi Arabia, this will not present an issue for most expats. A problem may arise, however, for those who are paying business taxes to both Saudi Arabia and the United States.
Other Taxes in Saudi Arabia
Saudi Arabia does not tax capital gains, wealth, gifts, or inheritance. Up until recently, there was no Value Added Tax (VAT) that expatriates had to worry about in the event of making large purchases. However, in a radical policy shift, the country has imposed VAT as of January 1, 2018, at a rate of 5% on all goods and services that are bought and sold by businesses, with a few exceptions. Even so, Saudi Arabia remains one of the lowest taxed nations on the globe.
Questions About Taxes for Expatriates in Saudi Arabia?
Our team of expat-expert CPAs and IRS Enrolled Agents are here to help! Contact us today for the tax advice you need regarding living and working in Saudi Arabia.
Originally published in 2012; updated May 30, 2018.