US Expat Taxes for Americans Living in Saudi Arabia – What You Need to Know
There are an estimated 40,000 Americans living in Saudi Arabia.
Living in Saudi Arabia is undoubtedly an incredible experience for lots of reasons – the culture, the beaches, the food, and the crazy driving, to name but a few. As an American expatriate living in Saudi Arabia though, what exactly do you need to know regarding filing US expat (and Saudi) taxes?
All US citizens and green card holders who earn more than $12,550 (in 2021, or just $400 of self-employment income or just $5 if you’re married to a foreigner) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or where their income originates.
The good news is that there is no income tax on employment income in Saudi Arabia. There are taxes on payment for services provided though, and on Saudi company profits for foreigners (including dividends).
US taxes – what you need to know
If you earned more than US$12,550 (in 2021, or $400 of self-employment income etc), you are required to file Form 1040. While taxes are still due by April 15, expats get an automatic filing extension until June 15, which can be extended further online until October 15.
If you have foreign assets worth over US$200,000 (per person), excluding your home if it is owned in your own name, you should also file a form 8938 declaring them.
If you had more than US$10,000 in total in one or more foreign financial accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as an FBAR (Foreign Bank Account Report).
“Saudi Arabia has no plans to introduce income tax any time soon, despite the damage done to its finances by the oil price crash.”
– CNN Money
For many Americans working in Saudi Arabia it’s worth claiming the Foreign Earned Income Exclusion, and possibly also the Foreign Housing Exclusion if you are living in rented accommodation. This allows you exclude the first around US$100,000 of foreign earned income from US tax providing you can demonstrate to the IRS that you are a Saudi resident. Bear in mind though that even if you don’t owe any tax to the IRS.
The US and Saudi governments share taxpayer info, and Saudi banks pass on US account holders’ account info to the IRS, so don’t be economical with the truth or believe you can stay under the IRS’ radar. The penalties for tax evasion (or incomplete filing, or not filing) for expats are harsh, to say the least.
If you’re a US citizen, green card holder, or dual citizen and you have lived in Saudi Arabia for some time but didn’t know you had to file or US taxes, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without facing any penalties. It’s better to do this sooner rather than later though, before the IRS comes knocking.
Saudi Arabian taxes – what you need to know
As an oil-rich, family-run kingdom, Saudi Arabia doesn’t tax employment income, instead raising most of its revenue from taxing oil and gas companies’ profits.
There are taxes for individuals on payments for services provided though, as well as on corporate-derived income such as dividends.
The Saudi tax Authority is called the GAZT (General Authority of Zakat and Tax).
There is no personal income tax return form, and corporate returns are due within 120 days of the company’s fiscal year end.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Saudi Arabia, you contact an expat tax specialist.