Tax Residency
Synonyms: Tax Resident Status، Fiscal Residence، Residence for Tax Purposes
Last updated: 2026-09-25
Short Definition
Tax residency is the legal status that determines whether an individual or an entity is treated as a 'resident' of a country for tax purposes, and therefore which tax applies, what income falls within scope and how it is collected.
Overview
Legal Basis
Tax residency is governed by Article 3 of the Income Tax Law issued by Royal Decree No. (M/1) dated 15/1/1425H, together with Article 5, which treats income from immovable property located in the Kingdom as Saudi-source income, and Article 68, which imposes withholding on payments to non-residents. Article 4 of the Implementing Regulations for Zakat Collection, issued by Minister of Finance Decision No. (1007) dated 19/8/1445H, sets the residency rules for zakat. The Zakat, Tax and Customs Authority (ZATCA) issues tax residency certificates for the purposes of double taxation agreements.
Practical Example
A British investor who lives in London and spends only 20 days a year in Saudi Arabia buys an apartment in Jeddah under the new non-Saudi ownership law and leases it to a Saudi company as housing for an employee at SAR 60,000 a year, paid in four instalments of SAR 15,000. Because he is not tax resident and has no permanent establishment, the tenant company withholds 5% of each instalment (SAR 750), pays him SAR 14,250, remits the withheld amount to ZATCA within the first ten days of the following month and gives him a withholding certificate; total withholding for the year is SAR 3,000, while the residential rent remains VAT-exempt. If the investor moved to the Kingdom and stayed 200 days in the year, he would become tax resident, withholding would stop, and his income would fall under the rules for residents, which should be confirmed with ZATCA or a licensed tax adviser.
Common Mistakes
- ✗Confusing nationality or immigration status (such as Premium Residency) with tax residency; the test is a permanent place of residence and the number of days physically present in the Kingdom.
- ✗Assuming that because individuals pay no income tax, a non-resident's rent is completely untaxed, when payments to them from a resident payer are subject to 5% withholding.
- ✗Miscounting days and forgetting that part of a day counts as a full day (except in transit) when applying the 30-day and 183-day tests.
- ✗Assuming a double tax treaty removes Saudi tax on real estate income, when treaties normally leave the right to tax property income with the country where the property is located.
- ✗Mixing up residency for income tax and zakat with the VAT concept of residence: a non-resident liable to pay VAT must register within 30 days of the first supply, with no threshold.
International Differences
Most countries use a 183-day test as the basis for tax residency, supplemented by criteria such as a permanent home or centre of vital interests. In the UAE, individual residency is determined by day counts alongside other criteria, and salaries are not subject to income tax. In Turkey, a person staying more than six months in a calendar year becomes a full taxpayer, and Egypt also applies a 183-day test. Saudi Arabia is distinctive in linking residency to the type of obligation: zakat on licensed businesses owned by Saudi and GCC nationals, income tax on non-Saudis, and withholding on non-residents. Where a person is resident in two countries, the tie-breaker rules of the relevant double tax treaty decide.
