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For US citizens & green card holders

US expat tax for Americans in Saudi Arabia

US federal tax, FBAR, and FATCA obligations for citizens and green-card holders living in Saudi Arabia, prepared through Expat Tax.

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. The FEIE has to be earned: it takes a tax home in Saudi Arabia plus either the 330-day physical presence test or the bona fide residence test, and it is claimed on Form 2555. 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 ($15,750 for single filers, $31,500 for married filing jointly, and $23,625 for head of household for 2025), even when no tax is ultimately due. The tools that reduce double taxation are the Foreign Earned Income Exclusion (FEIE, up to $130,000 for 2025 under IRC §911) and the Foreign Tax Credit. Neither is automatic. The FEIE requires a tax home in a foreign country plus either the bona fide residence test or 330 full days abroad in a 12-month period, and it reaches earned income only. The Foreign Tax Credit is figured separately for each income category under IRC §904 and is capped at the US tax on the foreign income in that category, so it reduces double taxation without guaranteeing that none remains.

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 path back for non-willful taxpayers. They run on two tracks: the foreign track carries no offshore penalty but requires meeting the program's non-residency test, and the domestic track carries a 5% offshore penalty but works through amended returns, so it does not fit someone who never filed at all. Tax and interest on the catch-up years are owed whichever route applies.

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 Saudi company is a Controlled Foreign Corporation (CFC) when US shareholders together own more than 50% of it by vote or by value, counting only those US shareholders who each own at least 10%. Form 5471 is not triggered by the 10% stake alone: its filing categories cover a US shareholder of a CFC, someone who controls the company, and someone who acquires a stake that reaches 10%, acquires another 10% on top, disposes of enough to drop below 10%, or becomes a US person while already holding 10%, so which category applies depends on the ownership picture and on what happened during the year. If the company is a 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. Saudi Arabia taxes the foreign-owned share of a company's profits at 20%, which is above the 18.9% effective-rate threshold (90% of the 21% US corporate rate) for the GILTI high-tax exclusion, so the election is often available. It is an election made by the controlling domestic shareholders, tested unit by tested unit on the actual effective rate rather than the headline rate. Note also that an individual US shareholder cannot credit the company's Saudi tax without a section 962 election; the deemed-paid credit runs to corporate shareholders.

For self-employed individuals and contractors, the rules are strict. Because there is no US-Saudi Arabia totalization agreement, a self-employed US person owes US self-employment tax at 15.3% on 92.35% of net earnings from self-employment, once those net earnings are $400 or more. The 12.4% Social Security portion stops at the annual wage base ($176,100 for 2025, $184,500 for 2026) and the 2.9% Medicare portion is uncapped, plus a further 0.9% Additional Medicare Tax on combined Medicare-taxed wages and self-employment income above $200,000 for a single, head-of-household or qualifying-surviving-spouse filer, $250,000 for a joint return, and $125,000 for married filing separately. 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, an engineer with a tax home in Saudi Arabia who meets the 330-day physical presence test or the bona fide residence test can use the Foreign Earned Income Exclusion (FEIE) to exclude up to $130,000 of their earnings for 2025 ($132,900 for 2026). This leaves $20,000 of unexcluded income, which is further reduced by the standard deduction. The remainder is not taxed from the bottom bracket up: under the stacking rule in IRC section 911(f), it is taxed at the rates that would have applied had the excluded income been counted first. 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, a consultant with a tax home in Saudi Arabia who meets the 330-day physical presence test or the bona fide residence test 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

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 owes US self-employment tax at 15.3% on 92.35% of those net earnings. The 12.4% Social Security portion stops at the annual wage base ($176,100 for 2025, $184,500 for 2026) and the 2.9% Medicare portion is uncapped. The Foreign Earned Income Exclusion cannot be used to reduce income subject to this tax, and the Foreign Tax Credit cannot be applied against it.

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?

A 10% stake commonly puts you in scope for the highly complex IRS Form 5471, though which filing category applies depends on the facts: being a US shareholder of a CFC, controlling the company, or acquiring a stake that reaches 10%, acquiring another 10% on top, disposing of enough to drop below 10%, or becoming a US person while already holding 10% each have their own category. The company is a CFC when US shareholders together own more than 50% of it by vote or by value, counting only those US shareholders who each own at least 10%. If it is a CFC, you may be subject to current US tax on its profits under the GILTI (Global Intangible Low-Taxed Income) rules, even if the profits are not distributed to you. Saudi Arabia's 20% rate on the foreign-owned share clears the 18.9% effective-rate threshold for the GILTI high-tax exclusion, so that election is often available, but it is made by the controlling domestic shareholders and tested on actual effective rates. Do not assume a foreign tax credit will mop up the rest: an individual shareholder cannot credit the company's Saudi tax without a section 962 election.

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

Reviewed by Ilya Fayerman, Esq. (NY Bar) on

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