A non-resident, non-GCC investor sells its shares in a Saudi resident closed (unlisted) joint-stock company to another non-resident buyer. Separately, in the same year, the same investor sells shares it holds in a different Saudi resident company that are listed and were acquired after 30 June 2004, selling them through the Saudi stock exchange (Tadawul). Under the Saudi Income Tax Law, how are these two disposals generally treated?
- The gain on the unlisted shares is subject to capital gains tax at 20%, while the gain on the exchange-traded disposal of the post-30 June 2004 listed shares is exempt from this tax
- Both disposals are exempt from capital gains tax, because any sale between two non-residents falls outside the scope of the Saudi Income Tax Law entirely
- The gain on the unlisted shares is exempt, because private, off-market sales are never within the scope of Saudi capital gains tax, while the listed-share disposal is taxed at 20% because it passed through a public exchange
- Both disposals are taxed at 20%, because the exchange-traded exemption applies only to shares acquired before 30 June 2004, not after
Why A? And why not the others?
Correct answer: A. The gain on the unlisted shares is subject to capital gains tax at 20%, while the gain on the exchange-traded disposal of the post-30 June 2004 listed shares is exempt from this tax
A non-resident's gain from disposing of shares in a Saudi resident company is generally treated as Saudi-source income subject to capital gains tax at 20%, but the Income Tax Law carves out a specific exemption for gains on shares acquired after 30 June 2004 that are listed and sold through the Saudi exchange (or in other permitted market transactions under the Capital Market Law); the unlisted, privately sold shares in this scenario do not fall within that carve-out, so their gain remains taxable while the exchange-traded listed-share gain is exempt. The option treating both disposals as automatically outside the law's scope because both parties are non-resident is wrong because Saudi tax jurisdiction over this gain is based on the source of the gain, the underlying Saudi company, not on the residency of either party to the sale. The option reversing the treatment, exempting the private sale and taxing the exchange sale, is wrong because it inverts the actual rule: it is the listed, exchange-traded disposal that benefits from the exemption, not the unlisted, off-market one. The option taxing both because the exemption supposedly only covers pre-30 June 2004 acquisitions is wrong because the exemption specifically targets shares acquired after that date, not before it; that date is the acquisition cut-off enabling the exemption, not disabling it.
Source: Saudi Income Tax Law (Royal Decree No. M/1 of 1425H), capital gains provisions; ZATCA FAQ on taxation of capital gains for non-resident shareholders