In Riyadh, Saudi Arabia, the capital and main financial hub with a population of roughly 7 million people, restaurants are subject to several taxes and regulatory requirements that impact their operations. The primary taxes include Value Added Tax (VAT), Zakat, and, in certain cases, withholding taxes. Additionally, restaurants must comply with specific municipal regulations and licensing requirements to operate legally.
Value Added Tax (VAT):
VAT is a consumption tax applied to most goods and services in Saudi Arabia, including those provided by restaurants. As of July 2020, the standard VAT rate was increased from 5% to 15%. This rate applies uniformly to all restaurant services, encompassing dine-in, takeaway, and delivery orders. Restaurants are responsible for collecting VAT from customers and remitting it to the Zakat, Tax and Customs Authority (ZATCA). Failure to comply with VAT regulations can result in penalties and fines.
Zakat:
Zakat is an Islamic wealth tax applicable to Saudi-owned businesses and individuals. For businesses, including restaurants, Zakat is typically calculated at 2.5% of the company’s net worth and is paid annually. This obligation applies to businesses fully owned by Saudi or Gulf Cooperation Council (GCC) nationals. Foreign-owned or partially foreign-owned businesses are generally subject to corporate income tax instead of Zakat.
Withholding Tax:
Withholding tax (WHT) in Saudi Arabia is imposed on payments made to non-resident entities for services provided within the country. If a restaurant in Riyadh engages non-resident individuals or companies for services—such as consultancy, technical services, or royalties—it is required to withhold a specific percentage of the payment as tax and remit it to ZATCA. The withholding tax rates vary depending on the nature of the payment, ranging from 5% for dividends and interest to 20% for management fees. Timely compliance with WHT regulations is crucial to avoid penalties.
Municipal Regulations and Licensing:
Operating a restaurant in Riyadh necessitates adherence to various municipal regulations and obtaining the appropriate licenses. Key requirements include:
- Location and Site Approval: The restaurant must be situated on a commercial street or within a commercial center. It should be at least 25 meters away from shops selling gas and 30 meters from petrol stations. The minimum area for a restaurant is typically 65 square meters, with larger spaces required for specific types of cuisine, such as Mandi meat restaurants, which require a minimum of 100 square meters.
- Facility Requirements: The establishment must include designated areas for food preparation, storage, and dining, each meeting specific size and hygiene standards. For instance, the kitchen area must exceed 15 square meters and be properly ventilated and separated from the dining area. Additionally, adequate restroom facilities must be provided, with at least one toilet and sink for every ten people.
- Health and Safety Compliance: Restaurants are required to comply with health and safety standards set by the Saudi Food and Drug Authority (SFDA) and local municipalities. This includes regular inspections to ensure food safety, hygiene, and proper waste management practices are maintained.
- Licensing: Obtaining the necessary licenses involves several steps, including registering the business with the Ministry of Commerce, obtaining an investment license from the Ministry of Investment Saudi Arabia (MISA) for foreign investors, and securing municipal permits. The process requires submission of various documents, such as proof of identity, commercial registration, and a detailed business plan.
Excise Taxes:
In addition to VAT, Saudi Arabia imposes excise taxes on specific products deemed harmful to public health. For instance, a 100% excise tax is applied to tobacco products and energy drinks, while a 50% tax is levied on soft drinks and sweetened beverages. Restaurants offering these products must account for the additional taxes in their pricing and ensure compliance with excise tax regulations.
Corporate Income Tax:
Foreign-owned or partially foreign-owned restaurants in Riyadh are subject to corporate income tax instead of Zakat. The standard corporate tax rate is 20%, though rates may vary across different sectors. It’s essential for such establishments to understand their tax obligations and ensure timely filing and payment to avoid penalties.
Employee-Related Contributions:
Restaurants must also consider contributions related to their employees:
- Social Insurance Contributions: The General Organization for Social Insurance (GOSI) oversees social insurance contributions for employees. Employers are required to contribute a percentage of their employees’ salaries to social insurance, covering benefits such as pensions and occupational hazards.
- Saudization (Nitaqat) Requirements: Saudi Arabia has implemented the Nitaqat program to increase employment opportunities for Saudi nationals. Restaurants are required to employ a certain percentage of Saudi nationals, with the exact percentage varying based on the size and nature of the business. Non-compliance can result in penalties or restrictions on the business’s operations.
Conclusion:
Operating a restaurant in Riyadh involves navigating a complex landscape of taxes and regulatory requirements that typically requires a good tax professional and an accountant.
