Saudi Arabia has no personal income tax on salary, making the Foreign Earned Income Exclusion (FEIE) the primary tool for US expats to avoid US tax on their wages. Since there is no comprehensive income tax treaty or social security totalization agreement, complexities arise for investors, business owners, and the self-employed. These individuals may face significant US tax and reporting obligations with no offsetting Saudi taxes.
US filing basics every American abroad must know
US citizens and green-card holders are taxed on worldwide income wherever they live, and usually must file Form 1040 once gross income exceeds the IRS threshold (roughly $15,000 to $30,000 depending on filing status for recent years), even when no tax is ultimately due. The tools that prevent double taxation are the Foreign Earned Income Exclusion (FEIE, up to $130,000 for 2025 under IRC §911) and the Foreign Tax Credit.
Two reporting rules catch most filers in Saudi Arabia: the FBAR (FinCEN Form 114), required when foreign financial accounts exceed $10,000 in aggregate at any point in the year, and Form 8938 (FATCA) for specified foreign assets above the applicable threshold. Both can carry penalties even when no tax is owed. If you are behind, the Streamlined Filing Compliance Procedures are the usual penalty-free path back for non-willful taxpayers.
US tax treaty with Saudi Arabia
The United States and Saudi Arabia do not have a comprehensive income tax treaty. While a Tax Information Exchange Agreement (TIEA) exists to help governments enforce their respective tax laws, it provides no benefits to taxpayers, such as reduced withholding rates or residency tie-breaker rules. US citizens must rely on domestic US tax law, primarily the Foreign Earned Income Exclusion and the Foreign Tax Credit, to mitigate double taxation.
GOSI and US Tax
Saudi Arabia's main social insurance system is the General Organization for Social Insurance (GOSI). For expatriate employees, employers contribute 2% of salary for occupational hazard coverage; employees themselves do not contribute to the retirement annuity portion of the system.
For US tax purposes, these employer contributions to GOSI are generally not considered taxable income to the employee. Because GOSI is a government social security program and expats do not typically contribute, it generally avoids the complex US reporting associated with foreign pension trusts (Form 3520) or PFICs. However, any private savings or investment funds offered in Saudi Arabia are very likely to be classified as PFICs, requiring complex reporting on Form 8621.
Investments, property, and capital gains in Saudi Arabia
Investing in Saudi Arabia presents significant US tax challenges. Local investment funds, known as صناديق, are almost always considered Passive Foreign Investment Companies (PFICs) by the IRS. This triggers complex and often punitive tax rules, requiring annual filing of Form 8621 for each fund. Many US expats choose to invest only through US-based brokerage accounts to avoid this issue.
For direct investments, Saudi Arabia does not tax a resident expat's capital gains, but non-resident foreign investors face a 20% tax on the disposal of shares in a Saudi resident company. The US taxes its citizens on worldwide income, so these gains must be reported and are taxable on a US return. Resident expats receive Saudi dividends tax-free, as the 5% withholding tax applies only to non-residents.
Self-employment and companies in Saudi Arabia
Owning a business in Saudi Arabia has major US tax implications. A US person who owns 10% or more of a Saudi company must file the complex Form 5471. If the company is a Controlled Foreign Corporation (CFC), its profits may be immediately taxable to the US owner under the Global Intangible Low-Taxed Income (GILTI) regime, even if no distributions are made. However, because the Saudi corporate tax rate for foreign-owned companies is 20%, US owners can often utilize the GILTI High-Tax Exclusion or Foreign Tax Credits to eliminate this GILTI tax.
For self-employed individuals and contractors, the rules are strict. Because there is no US-Saudi Arabia totalization agreement, a self-employed US person is liable for the full 15.3% US self-employment tax on their net earnings (from $400). It is not possible to get a Certificate of Coverage to avoid this tax. Self-employed expats do not pay into the Saudi social security system (GOSI), so they only pay US self-employment tax. Crucially, the Foreign Earned Income Exclusion (FEIE) does not reduce your income for self-employment tax purposes.
Worked examples
Salaried employee at an energy company (2025)
A US citizen works as a salaried engineer in Dhahran, earning a salary of USD 150,000. Saudi Arabia does not levy a personal income tax on this salary. On their US return, they can use the Foreign Earned Income Exclusion (FEIE) to exclude up to $130,000 of their earnings from US income tax. This leaves $20,000 of unexcluded income, which is further reduced by the standard deduction. Since no Saudi tax was paid on the salary, there is no Foreign Tax Credit to claim against the US tax due on this remaining amount. They must also report their Saudi bank accounts on the FBAR if the total exceeds $10,000, and they may need to file FATCA Form 8938 if their specified foreign financial assets exceed applicable thresholds.
Self-employed IT consultant (2025)
A US citizen works as a self-employed IT consultant in Riyadh, with net earnings of $100,000. On their US income tax return, they can use the Foreign Earned Income Exclusion to exclude the full $100,000 from US income tax. However, the FEIE does not apply to US self-employment tax. Because there is no totalization agreement, they owe US self-employment tax on their net earnings. The tax is calculated on 92.35% of their net earnings, so on $92,350. The tax is 15.3% of this amount, resulting in approximately $14,130 in US self-employment tax owed, even though their US income tax is zero.
Investor with Saudi stock holdings (2025)
A US citizen living in Jeddah has an investment portfolio. They receive $10,000 in dividends from a publicly traded Saudi company. No Saudi tax is withheld for residents, meaning no Foreign Tax Credit can be claimed for these dividends. On their US return, they report the full $10,000 as income. They also sell shares in a Saudi company for a $50,000 capital gain. Saudi Arabia does not tax this gain. However, the US does, so they must report the $50,000 gain on their US return and pay US capital gains tax on it, with no foreign tax credit to offset it as no Saudi tax was paid.
Common mistakes for Americans in Saudi Arabia
- Assuming no US tax is due because Saudi Arabia has no personal income tax.
- Forgetting to file an FBAR (FinCEN Form 114) or FATCA Form 8938 for Saudi bank and financial accounts when thresholds are met.
- Ignoring the mandatory 15.3% US self-employment tax for contractors and freelancers.
- Incorrectly believing a US-Saudi totalization agreement exists to provide an exemption from self-employment tax.
- Investing in local Saudi investment funds (صناديق) without realizing they are PFICs requiring Form 8621.
- Thinking that capital gains that are tax-free in Saudi Arabia are also tax-free in the US.
- Failing to file Form 5471 for a 10% or more owned Saudi business, which can lead to substantial penalties.
- Using the FEIE and then attempting to claim the refundable portion of the Child Tax Credit, which is not allowed.
Saudi Arabia tax FAQ
Is there a US-Saudi Arabia tax treaty?
No. There is no comprehensive income tax treaty between the United States and Saudi Arabia. This means there are no treaty provisions to reduce US or Saudi tax rates, resolve dual-residency issues, or exempt certain income types from tax in either country. US citizens must rely on the Foreign Earned Income Exclusion and Foreign Tax Credits to avoid double taxation.
Do I have to pay US taxes if I live in Saudi Arabia?
Yes, all US citizens and green card holders are required to file a US tax return if their worldwide income exceeds the filing thresholds, regardless of where they live. While Saudi Arabia has no personal income tax on salary, you must still file with the IRS to report your income and claim mechanisms like the Foreign Earned Income Exclusion (FEIE) to reduce or eliminate your US tax liability.
I'm self-employed in Saudi Arabia. Do I owe US Social Security and Medicare taxes?
Yes, almost certainly. There is no social security totalization agreement between the US and Saudi Arabia. Therefore, a self-employed US person with net earnings of $400 or more is liable for the full 15.3% US self-employment tax. The Foreign Earned Income Exclusion cannot be used to reduce income subject to this tax.
What is GOSI and how does it affect my US taxes?
GOSI is Saudi Arabia's General Organization for Social Insurance. For expats, employers typically contribute a small percentage for occupational hazard insurance. These employer contributions are generally not considered taxable income to the employee on their US return. The system for expats does not typically create complex foreign pension reporting issues.
Are my Saudi investments treated the same as US investments for tax purposes?
No. Local Saudi investment funds are typically considered Passive Foreign Investment Companies (PFICs), which involves very complex and potentially harsh US tax treatment on Form 8621. Additionally, while Saudi Arabia may not tax your capital gains, you must report and pay US capital gains tax on those worldwide gains.
I own a business in Saudi Arabia. What are my US reporting duties?
If you own 10% or more of a Saudi company, you have an annual filing requirement for the highly complex IRS Form 5471. If the company is a Controlled Foreign Corporation (CFC), you may be subject to current US tax on the company's profits under the GILTI (Global Intangible Low-Taxed Income) rules, even if the profits are not distributed to you. However, the 20% Saudi corporate tax rate can allow you to utilize the GILTI High-Tax Exclusion or Foreign Tax Credits to eliminate this tax.
Since Saudi Arabia doesn't tax my salary, can I just not file a US return?
No. You have a legal obligation to file a US tax return if your income is above the filing threshold. To legally reduce your US tax to zero on foreign earnings, you must file a return and claim the Foreign Earned Income Exclusion or Foreign Tax Credit. Failure to file can result in penalties, interest, and the loss of the ability to claim these exclusions later.
What are the FBAR and FATCA Form 8938, and do I need to file them from Saudi Arabia?
The FBAR (Report of Foreign Bank and Financial Accounts, or FinCEN Form 114) is an annual report required if the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the year. This includes bank accounts, brokerage accounts, and other financial accounts held in Saudi Arabia. Additionally, under FATCA, you must file Form 8938 if the value of your specified foreign financial assets exceeds certain higher thresholds. The penalties for non-compliance with either requirement are severe.
Sources and last reviewed
- IRS, United States Income Tax Treaties A to Z (verified 2026-06-07)
- SSA, Current Status of Totalization Agreements (verified 2026-06-07)
- Saudi Arabia, Zakat, Tax and Customs Authority (ZATCA) (verified 2026-06-07)
Last reviewed 2026-06-07.
Common services needed by expats in Saudi Arabia
Most Americans abroad in Saudi Arabia need help with at least one of the following core compliance areas, which frequently interact:
- US expat tax returns, Form 1040 with FEIE, FTC, treaty positions, and any required state returns.
- FBAR reporting, FinCEN Form 114 for foreign financial accounts exceeding $10,000 aggregate at any time during the year.
- Form 8938 (FATCA), IRS disclosure of specified foreign financial assets when thresholds are met.
- Streamlined catch-up filing, For eligible non-willful taxpayers with prior unfiled years.