Saudi businesses routinely conflate three separate charges. They're collected differently, calculated differently, and triggered by different events. Getting them straight is the difference between a clean filing and a penalty.
VAT — a tax on consumption
Value Added Tax is 15%, charged on most goods and services at each step of the supply chain, administered by ZATCA. The business is a collector: you add VAT on sales (output) and reclaim VAT on purchases (input), remitting the difference. It's a tax on the transaction, borne ultimately by the end consumer.
Zakat — a charge on capital
Zakat is fundamentally different. It's a religious wealth levy, assessed at roughly 2.5% on a company's Zakat base (broadly, adjusted net worth / working capital) for Saudi and GCC-owned entities, also administered by ZATCA. It's a charge on capital, not on sales — a profitable year with a thin asset base and a loss-making year with a fat one can produce counterintuitive Zakat. Foreign-owned shares are subject to income tax instead.
VAT is on what you sell. Zakat is on what you're worth. They are not alternatives — many companies pay both.
RETT — a tax on property transfer
Real Estate Transaction Tax is 5% on the value of a property disposal, introduced in 2020 to replace VAT on real-estate sales. It's triggered by the transfer of real estate, not by ongoing trade. Buyers and sellers routinely forget it exists until it appears at registration.
Quick comparison
| Charge | Rate | Based on | Triggered by |
|---|---|---|---|
| VAT | 15% | Transaction value | Sale of goods/services |
| Zakat | ~2.5% | Zakat base (capital) | Annual assessment |
| RETT | 5% | Property value | Real-estate transfer |
The practical rule: when you price a deal, ask which of the three it triggers — sometimes it's more than one.
