A non-resident foreign company conducts business in Saudi Arabia through a branch that constitutes a permanent establishment. Under Article 7 of the Saudi Income Tax Law (Royal Decree No. M/1 of 1425H), what corporate income tax rate generally applies to the taxable income attributable to that permanent establishment?
- 5%
- 15%
- 20%
- 30%
Why C? And why not the others?
Correct answer: C. 20%
Article 7 of the Income Tax Law sets a flat 20% rate on the taxable income of a resident capital company's non-Saudi, non-GCC shares and on a non-resident's income from carrying on business in Saudi Arabia through a permanent establishment such as a branch. The 5% figure is wrong here because that rate applies to specific withholding categories such as dividends, loan interest, or rent paid to non-residents, not to a branch's own taxable business profit. The 15% figure is wrong for the same reason: it is the withholding rate on categories such as royalties, not the general corporate income tax rate on a permanent establishment's profits. The 30% figure is wrong because no general corporate income tax rate reaches that level under this law; substantially higher rates exist only under the separate, narrowly targeted natural gas investment tax regime, which does not apply to an ordinary branch's trading income.
Source: Saudi Income Tax Law (Royal Decree No. M/1 of 1425H), Article 7 (rate of tax)