How are partnerships taxed?

Taxation in Saudi Arabia is administered by the Saudi Arabian General Authority of Zakat and Taxation (the GAZT).

The tax exposure of entities incorporated in Saudi Arabia that are wholly owned by Saudi or GCC nationals is limited to zakat. The computation of zakat is complicated, but it is essentially an assessment of 2.5 per cent of net income or net worth. To the extent a portion of a Saudi-domiciled company is owned by non-GCC shareholders, a corresponding portion of the entity’s profits will be subject to tax at the rate of 20 per cent of such profits.

A dividend by any company incorporated in Saudi Arabia that is paid to a shareholder not resident in Saudi Arabia results in a withholding tax at the rate of 5 per cent. If a Saudi company or individual makes a payment that is from a source in Saudi Arabia to a non-­resident, then such payment is subject to withholding tax of between 5 per cent and 20 per cent depending on the nature of the payment. The withholding tax will not apply to payments made on contracts for goods, but will apply to payments made for services and on interest payments under loan agreements.

Capital gains on the sale of shares in an unlisted company in Saudi Arabia such as an LLC received by a non-resident shareholder will result in a capital gain or tax at the rate of 20 per cent on the amount of the gain.

Reporting and transparency requirements

To what extent must partnerships, LLPs and similar structures file accounts and other documents and information with a government agency?


Unlike an LLC and JSC, partnership companies and professional companies are not required to prepare and audit their finances and file them annually with the Ministry of Commerce and Investment. However, preparing finances is typically done and filed with the GAZT for the purpose of calculating tax and zakat. It is not generally possible for the public to access the financial information or audited accounts of partnership companies and professional companies or LLCs, and publication is not required.

Partnership agreements

The articles of association of partnership companies, LLCs and JSCs will be registered with the Ministry and be published on its website. It is common, however, that partners enter into a separate ‘shareholders’ agreement’, which may be entered into before company formation and sets out approval rights, board composition, competition restrictions, management arrangements and dispute resolution mechanisms, among others. The shareholders’ agreement will not be filed with any authority and is not required to be available to the public.

Ownership and membership

Can anyone be a partner, and, if not, who can and cannot? Can bodies corporate or other partnerships own a partnership?

Only natural persons with legal capacity can be admitted as partners. Minors can be only be accepted as limited partners in a limited partnership company. In relation to professional companies, only individuals who are qualified by the relevant body to practise the professional activities of the company can be admitted as partners.

The ownership of non-GCC partners in professional companies cannot exceed 75 per cent of the ownership and the remaining 25 per cent must be owned by a Saudi Arabian qualified partner. The non-GCC partner must also demonstrate its good reputation, qualification and experience in Saudi Arabia, and its existence for at least 10 years.

Other restrictions and requirements may apply in respect of regulated activities. For certain professions, such as legal consultancy, non-GCC lawyers and law firms are generally not permitted to become partners in professional companies in Saudi Arabia.

Execution of documents

How do partnerships and LLPs execute documents? Must all partners sign? Can the partnership or LLP sign in its own name?

This is mainly regulated by the articles of association of the company. As per the Companies Law and the Professional Companies Law, each partner (except for the partners who are not appointed as executive partners under its articles of association) and the managers appointed by the shareholders are authorised to represent the partnership company. The partnership company will be bound by the actions of its managers within the scope of its objects, provided that the counterparty is dealing in good faith with the partnership company.

In relation to matters that are beyond the management’s powers, the partners’ resolutions must be passed by majority votes of partners. If the matter requires an amendment to the articles of association, it must be approved by all the partners unless agreed otherwise in the articles.