Zakat is a religion-based wealth tax levied on Saudi and GCC nationals at a rate of 2.5% on their net income or wealth, whichever is greater. Since there is no tax on earned income or capital gains, the Department of Zakat and Income Tax does not require individuals to file tax returns. Therefore, there is no taxation year or date on which taxes and tax returns are due. Saudi Arabia is not one of the many countries with which the United States has a tax treaty. Given the low level of taxes in Saudi Arabia, this won`t be a problem for most expats who work as Americans in Saudi Arabia. However, a problem may arise for those who pay trade taxes to both Saudi Arabia and the United States. Income, not residency, determines Saudi taxation, although you are considered a resident of the Kingdom if you are either (1) a permanent resident and present for more than 30 days in a particular tax year, or (2) physically present for more than 183 days in a single tax year. Since most of the income comes from the country`s oil industry, employees` personal salaries are not taxed. However, self-employed workers and businessmen who generate income from Saudi Arabia are subject to tax. American expats living in Saudi Arabia have no responsibility to pay for social security.
If the U.S. expat lives with the use of a work visa or permit for a Saudi-based company, the employer is responsible for making the payments on their behalf. The foreign tax credit does not apply to expats living in Saudi Arabia because the government does not levy tax on income earned there. Taxes are levied only on business income received in Saudi Arabia. “Saudi Arabia has no plans to introduce an income tax anytime soon, despite the damage to its finances caused by the collapse in oil prices.” – CNN Money For many Americans working in Saudi Arabia, it`s worth asking for the exclusion of foreign earned income and perhaps exclusion from foreign housing if you live in a rented apartment. This allows you to exclude the first foreign income of about $100,000 from U.S. tax, as long as you can prove to the IRS that you are a resident of Saudi Arabia. Keep in mind, however, that even if you don`t owe tax to the IRS, if your income is more than $10,000 (or $400 for the self-employed), you still need to file a return. Earned income – Earned income and allowances, including education allowances received from expatriates, are not subject to tax in Saudi Arabia. Understanding the most important tax issues for U.S.
expats in Saudi Arabia is important before taking a step. If you have any further questions or need assistance, our U.S. expat tax experts will be happy to provide them. FEIE can reduce the income of an American expatriate in Saudi Arabia. For the 2016 tax year, the first $101,300 earned in Saudi Arabia and $100,800 for the 2015 tax year are excluded. This only applies if the U.S. expat can qualify by passing the physical presence test or the bona fide residency test. The physical presence test requires an expat to spend 330 days out of 365 days abroad and earn an income there. The bona fide residency test applied to long-term expats who have been living abroad for more than a year and do not intend to return to the United States immediately.
If you are a U.S. citizen or permanent resident and you meet the filing thresholds, you must file your U.S. taxes with the IRS every year, regardless of where you live. You will need to file a regular tax return and you may also need to file an informative statement of your assets in foreign bank accounts using the FinCEN 114 form (also known as the Foreign Bank Account Report – FBAR). This even refers to income tax for expats in Saudi Arabia. In general, capital gains are taxed as ordinary income with other income earned during the same period at a rate of 20% if the person is taxable in Saudi Arabia and the profit is made in connection with the person`s business activity. However, capital gains on the sale of exchange-traded shares are exempt from tax if the following conditions are met: Overall, net investable funds include net assets less amounts invested in capital assets, long-term investments and deferred costs plus or minus adjusted net income. U.S. citizens, as well as permanent residents, must file tax returns with the federal government each year, regardless of where they live.
In addition to the typical tax return, many people are also required to file a return that discloses assets held in overseas bank accounts using Form FinCEN 114 (FBAR). The activity income to which this tax rate refers is gross income, including all income, profits, profits of any kind and any form of payment resulting from the carrying on of the business, including capital gains and any ancillary income that is not exempt income. .