Saudi Arabia Taxes for US Expats: Everything You Need to Know
- Living as an Expat in Saudi Arabia
- Saudi Arabia at a Glance
- US Expat Taxes in Saudi Arabia
- Who Has to File Taxes in Saudi Arabia?
- Who Qualifies as a Tax Resident in Saudi Arabia?
- What Types of Taxation Does Saudi Arabia Have?
- What Tax Forms Do Americans Living in Saudi Arabia Have to File?
- Does the US Have a Tax Treaty with Saudi Arabia?
- Does Saudi Arabia Have a Totalization Agreement with the US?
- Navigating Tax Compliance for US Expats in Saudi Arabia
Living as an Expat in Saudi Arabia
Saudi Arabia provides US professionals with abundant career opportunities — especially in the oil and gas, technology, and energy sectors — which is why thousands of US expats choose to relocate there yearly. If you’re among them, you must familiarize yourself with this nation’s rich culture and Saudi Arabia’s taxes for US expats.
As a US expat living in Saudi Arabia, you’ll pay no taxes on employment income. That’s right — the income tax rate Saudi Arabia charges residents and expats is zero.
The lack of an income tax and favorable investment income tax laws makes Saudi Arabia an appealing destination for US expats. Still, there are a few things you need to know to reduce your US tax liability and avoid running afoul of the IRS.
Saudi Arabia at a Glance
- Primary Tax Form for Residents: There is no personal income tax in Saudi Arabia for residents.
- Tax Year: N/A
- Tax Deadline: N/A
- Currency: Saudi Riyal (SAR)
- Population: Approximately 35 million
- Number of US Expats: Approx. 80,000
- Capital City: Riyadh
- Primary Language: Arabia
- Tax Treaty: No
- Totalization Agreement: No
US Expat Taxes in Saudi Arabia
The tax rate for foreigners in Saudi Arabia is zero. This holds whether you’ve established residency or not.
That doesn’t mean you’re exempt from all income taxes, though. As a US citizen, you must file a tax return with the IRS and, if necessary, pay income taxes.
Americans living abroad are subject to many of the exact tax requirements as those residing within the US, as the United States engages in citizen-based taxation. All US citizens must follow US tax laws, regardless of where they reside.
As part of these requirements, you must claim all worldwide income on your US return and pay the requisite taxes.
Who Has to File Taxes in Saudi Arabia?
Only corporations and business owners have to file taxes in Saudi Arabia. Primarily, Individuals deriving income from wages or investments typically do not file.
While you won’t have to file any Saudi Arabian taxes unless you’re a business owner, you must adhere to US tax laws. The US tax year runs from January 1st to December 31st, and the filing deadline for this year is April 18th, 2023.
As a US expat, you’ll be eligible for an automatic two-month extension, pushing your deadline to June 15th.
Who Qualifies as a Tax Resident in Saudi Arabia?
Saudi Arabia requires US expats to meet one of two conditions to be considered tax residents. You’ll be classified as a tax resident if you:
- Reside in Saudi Arabia for 183 days or more for the tax year or;
- Have a permanent residence in Saudi Arabia and reside there for 30 days or more during the tax year
As long as you meet one of these requirements, you’ll be able to benefit from Saudi Arabia’s favorable tax laws, including its lack of income tax.
What Types of Taxation Does Saudi Arabia Have?
Saudi Arabia charges several taxes, including a tax on income derived from foreign investments. If you invest in a Saudi project as an expat, you’ll have to pay a 20% tax on income earned on these investments.
This tax doesn’t apply to income derived from trading shares of companies listed on Saudi Arabia’s stock exchange or income earned from savings accounts.
Additionally, you may have to pay into Saudi Arabia’s social security program. If required to contribute to this program, you’ll be subject to a tax rate of 9% of your gross income. If you’re self-employed, the rate doubles to 18%.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
What Tax Forms Do Americans Living in Saudi Arabia Have to File?
You wouldn’t need to file any tax forms with the Saudi Arabian government unless you own or operate a business there.
But, it’s essential to understand the US tax forms required to comply with the tax laws of both countries. Below are some necessary forms to be aware of:
- Form 1040: This is the primary US tax form for individuals. US citizens or green card holders must file this form annually, reporting their worldwide income, including income earned in Saudi Arabia.
- Form 2555: Used to claim the Foreign Earned Income Exclusion (FEIE), this form may apply to US expats in Saudi Arabia if specific criteria are met. The FEIE allows the exclusion of up to a certain amount of foreign-earned income from US taxes.
- FinCEN Form 114: If you have financial accounts in Saudi Arabia with a total value of $10,000 or more, this form must be filed with the US Treasury Department. It’s known as the Foreign Bank Account Report (FBAR).
- Form 8938: This form is required to report foreign financial assets exceeding certain value thresholds. If you have foreign assets worth over $200,000, this form must be filed with your US tax return.
Filing these tax forms can be complicated, particularly if you’re not familiar with the US tax system. Seek guidance from a qualified expat tax professional service like Greenback to ensure compliance with all necessary tax requirements.
Does the US Have a Tax Treaty with Saudi Arabia?
No. There is no Saudi Arabia-US tax treaty in place.
Tax treaties are designed to protect US expats from double taxation. Ordinarily, a lack of a tax treaty means you’d be exposed to double taxation. Fortunately, since Saudi Arabia doesn’t charge individuals any income tax, you’ll only have to fulfill your US income tax obligations.
The lack of a tax treaty could be problematic if you’re required to pay business taxes to the Saudi Arabian government, as you wouldn’t be exempt from paying these same taxes to the US government. That said, you may be able to take advantage of certain foreign exemptions to reduce your company’s US tax bill.
Does Saudi Arabia Have a Totalization Agreement with the US?
There is no Saudi Arabia-US totalization agreement. A totalization agreement is intended to prevent US expats from paying into two separate social security programs when their host nations require compulsory participation in such a program.
Saudi Arabia does indeed have a social security program in place. This program protects all private-sector Saudi workers and some public-sector employees.
Those required to pay into Saudi Arabia’s social security program must contribute 9% of their gross earnings. Self-employed individuals, meanwhile, have to pay 18% of their gross earnings into the program.
The good news is you’ll likely be exempt from paying into the US Social Security program, even if you have to pay into the Saudi Arabian program. As such, you should be able to avoid double taxation.
Even so, it’s essential to consult with a licensed tax professional to verify your exempt status.
Navigating Tax Compliance for US Expats in Saudi Arabia
Are you a US expat struggling to understand Saudi Arabia’s taxes? Look no further than Greenback Expat Tax Services for the answers you need. Our definitive guide can help simplify the complexities, but you may still have questions about your unique tax situation.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.