Introduction
The GCC region particularly Saudi Arabia, the United Arab Emirates, and Qatar has become one of the world’s most attractive destinations for business expansion. With strong economic growth, strategic geographic positioning, and ambitious national development plans, these markets offer enormous opportunities for multinational companies.
However, the GCC also has complex and rapidly evolving tax systems. Understanding VAT rules, corporate income tax frameworks, withholding tax, transfer pricing, and substance requirements is essential for any company planning to enter or expand in the region.
This article provides a practical and strategic overview of the key tax considerations businesses must evaluate when expanding into Saudi Arabia, UAE, and Qatar.
1. Corporate Taxation in the GCC
Saudi Arabia (KSA)
Saudi Arabia imposes:
20% Corporate Income Tax (CIT) on foreign-owned companies
Zakat on Saudi/GCC-owned entities
Mixed entities follow a dual system: CIT on foreign share + Zakat on local share
Key considerations:
Tax registration is mandatory
Annual tax returns and audited financial statements
Deductibility limitations
Changes coming under global minimum tax (GMT) & BEPS
United Arab Emirates (UAE)
Historically a no-tax jurisdiction, the UAE introduced Federal Corporate Tax in 2023:
9% CIT on taxable income above AED 375,000
0% CIT below the threshold for SMEs
Free zones may maintain a 0% tax incentive, but only with substance compliance
Businesses must consider:
Qualifying vs. non-qualifying free zone income
Transfer pricing documentation obligations
Exemptions for investment income
Qatar
Qatar applies:
10% Corporate Income Tax on foreign-owned businesses
0% on entities fully owned by GCC individuals (subject to residency and substance rules)
Qatar Financial Centre (QFC) offers a competitive tax environment
Important considerations:
WHT on service fees paid abroad
Deduction restrictions
Tax-exempt income rules
2. VAT Rules and Compliance
Saudi Arabia
VAT rate: 15%
Registration required if exceeding threshold (or mandatory for non-resident suppliers)
Strict invoicing, e-invoicing (ZATCA), and reporting obligations
UAE
VAT rate: 5%
Broad exemptions and zero-rated supplies
Reverse charge mechanism for cross-border services
Qatar
Qatar has enacted a VAT law but has not yet implemented VAT.
Businesses entering the market should prepare for future VAT adoption under GCC VAT Framework.
3. Withholding Tax (WHT)
Saudi Arabia
Saudi Arabia imposes WHT on payments to non-residents:
Services: 5%–15%
Dividends: 5%
Royalties: 15%
Applying double tax treaties can reduce these rates, but only if:
Proper documentation is filed
The foreign entity meets beneficial ownership standards
UAE
The UAE currently has no withholding tax, strengthening its position as a regional hub.
However, treaty misuse and anti-avoidance rules are monitored closely.
Qatar
Qatar applies WHT 5–7% on payments to foreign entities:
Technical services
Interest
Royalties
Treaty relief is often available.
4. Transfer Pricing (TP)
Transfer pricing is now a core compliance requirement across GCC markets.
Saudi Arabia
Mandatory documentation under GAZT/ ZATCA
Master file and local file required for qualifying entities
Disclosure forms submitted with returns
TP audit activity increasing rapidly
UAE
OECD-aligned TP rules
Free zones and mainland entities must maintain TP documentation
Controlled transactions must follow arm’s-length principle
Qatar
TP disclosure form required
TP documentation required under certain thresholds
QFC regulations follow OECD principles
Transfer pricing must be considered early when establishing:
Service arrangements
IP structures
Management fees
Intercompany financing
5. Permanent Establishment (PE) Exposure
GCC countries analyze PE risk based on:
Fixed place of business
Dependent agents concluding contracts
Service PE rules (especially in KSA)
Duration-based PE thresholds
Example:
Delivering on-site services in Saudi Arabia may create a service PE even if the company has no legal entity there.
Proper structuring is essential to avoid unintended taxation.
6. Economic Substance Requirements (ESR)
UAE
Strict ESR rules apply to:
Holding companies
Distribution centers
Service centers
IP companies
Headquarters functions
Businesses must demonstrate:
Core income-generating activities
Local employees
Physical presence
Local decision-making
Saudi Arabia & Qatar
Substance rules are not formalized like the UAE, but:
Zakat/Tax audits
Treaty benefits
PE assessments
increasingly rely on real economic presence.
7. Customs Duties and GCC Common Customs Law
Companies must consider:
5% standard customs duty
Exemptions for strategic industries
Free-zone import/export rules
Anti-dumping duties in some sectors
Incorrect customs treatment can lead to significant penalties.
8. Free Zones and Special Economic Zones
Free zones play a major strategic role for expansion.
UAE
Over 40 free zones, including:
JAFZA
DIFC
ADGM
DMCC
RAKEZ
Qatar
QFZ (Qatar Free Zones Authority)
QFC (Qatar Financial Centre)
Saudi Arabia
Special Economic Zones
Regional HQ Program (obligatory for government contract eligibility in 2026)
Each zone has its own:
Tax incentives
Licensing requirements
Sector focus
Regulatory environment
9. Common Pitfalls During GCC Expansion
Businesses often fall into these traps:
Assuming the region is “tax-free”
Ignoring PE risk
Mispricing intercompany transactions
Underestimating substance requirements
Using offshore structures without compliance
Failing to register for VAT on time
Incorrect classification of cross-border payments
Weak documentation and governance
Conclusion
Expanding into Saudi Arabia, the UAE, or Qatar offers tremendous opportunities but only with a clear understanding of the tax implications. Rapid regulatory changes, the introduction of corporate tax, transfer pricing rules, and new reporting obligations mean that businesses must plan carefully.
