Market Entry into KSA and The Accounting Considerations
KSA is one of the most rapidly growing economies in the Gulf, and as such holds great potential for businesses interested in establishing themselves in the region. Before setting up shop, however, there are some important elements to consider, including financial and accounting considerations. Thankfully, the Saudi government has taken significant steps to develop the nation into a more business-friendly environment, with a clear and transparent framework for companies to do business.
Setting Up a Business in Saudi Arabia So – you've decided to set up a business in KSA – the first step is to establish your company's legal status and register your business with the Saudi government. This process takes around six weeks on average. Once your business is registered, it's time to start considering how you will ensure compliance with the local accounting and financial regulations. Here are some key considerations for new and prospective business owners in Saudi Arabia.
Taxes The local taxation authority in KSA is known as ZATCA. As an employer, you will be required to register and ensure you are compliant with the local tax regulations. In KSA, there are four main types of tax that you need to be aware of: Value Added Tax (VAT), Zakat, Corporate Income Tax, and Withholding Tax.
Unlike most countries, KSA does not have a personal tax system. However, as a business, you must pay corporate income tax on gross profits, which are taxed at a flat rate of 20%. In addition to this, companies may be liable for withholding tax when making payments to foreign entities. VAT is a consumption tax that applies to most goods and services at a standard rate of 15%. Companies are also responsible for paying Zakat, a tax on wealth that is set at a fixed rate of 2.5%. This tax is due once a year and is payable on the equity of the business.
Accounting Standards Since 2017, all businesses operating within Saudi Arabia are required to adhere to the International Financial Reporting Standards (IFRS) laid out by The International Accounting Standards Board (IASB). This set of standards provides guidance for entities on how to prepare, present and report their financial statements. As such, businesses are required to keep accurate financial records and generate reports that are compliant with IFRS regulations. The Saudi Organization for Chartered and Professional Accountants (SOCPA) provides further guidance on how best to be compliant with the new standards.
Financial Reporting Requirements As part of the financial reporting requirements in KSA, businesses must submit their annual financial statements by the 31st of March of the following reporting year. The statements must include cash flow, profit and loss, and a balance sheet completed by the Register of Companies. The Saudi government has made it possible to complete this process electronically, which allows businesses to submit their financial reports quickly and easily.
Ensure Compliance by Consulting an Accountant Setting up a business in KSA is not as daunting as it may sound. With the right support and guidance, businesses can ensure they are compliant with the relevant financial and accounting regulations and make the most out of the opportunities that KSA has to offer. By understanding their local taxation requirements, adhering to IFRS regulations, and submitting their financial statements on time, businesses can minimize their risks and take advantage of the growing business potential in KSA. To assist with the accounting and finance considerations when setting up in KSA, our accounting and tax teams offer the most up-to-date advice and guide you through the process.