U.S. taxes for Americans in Saudi Arabia: what to file, and how to catch up.
Saudi Arabia doesn’t tax salaries, but the U.S. still taxes its citizens wherever they live, so Americans in Riyadh, Jeddah and the Eastern Province file a U.S. return every year. With no Saudi tax to credit, the foreign earned income exclusion and the housing exclusion do most of the work. Many contractors and engineers are behind without knowing it, and most can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You moved to Riyadh or the Eastern Province on a tax-free contract.
- You assumed no Saudi tax meant no U.S. tax either.
- You’ll get an end-of-service award when your contract ends.
- Your employer provides housing or a housing allowance.
How does the IRS treat a Saudi salary, allowances and savings?
Accounts go on your FBAR once they add up to more than $10,000. What differs is how the IRS taxes them.
| Item | U.S. treatment | |
|---|---|---|
| Salary and allowances | Taxable for the U.S., including housing and schooling allowances. The foreign earned income exclusion often covers wages, up to $132,900 for 2026. | Mostly friendly |
| End-of-service award | Taxable for the U.S. when you receive it. Part of it may count as earned income for the exclusion, depending on when it was earned. | Plan ahead |
| Employer housing | Housing your employer pays for usually counts as income, but the foreign housing exclusion can exclude part of it. | Mostly friendly |
| Bank accounts | Interest or profit is taxable for the U.S., and the accounts count toward your FBAR total. | Taxable |
| Local funds | Usually PFICs (Form 8621), with complex reporting and tax rules. | Watch out |
| Employer savings plans | Some employers run savings or thrift plans for staff. They could be treated as a foreign pension or a foreign trust, and we check how yours works. | Check first |
Which Saudi investments are PFICs?
Saudi mutual funds and ETFs sold by local banks and investment firms, including Islamic funds, and the funds inside many offshore savings plans sold to expats in the Gulf. For U.S. tax they’re passive foreign investment companies, or PFICs.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- No Saudi tax to offset it. Individuals pay no Saudi tax on investment gains, so the U.S. tax is paid in full.
- Not PFICs: shares of individual companies on Tadawul, sukuk held directly, and bank deposits.
Is there a U.S.–Saudi tax treaty?
No. The U.S. and Saudi Arabia have no income tax treaty and no social security agreement. With no Saudi tax on salaries, there’s little double tax to relieve, so the U.S. rules do the work:
- The foreign earned income exclusion and the housing exclusion, if you meet the 330-day test or are a bona fide resident of Saudi Arabia.
- No social security agreement means a self-employed American owes U.S. self-employment tax, and working for a U.S. company usually means U.S. Social Security withholding. Saudi GOSI contributions for expats cover workplace injury only.
- A FATCA agreement does exist, so Saudi banks report accounts held by Americans to the IRS.
Saudi Arabia taxes the profits of foreign-owned companies. If you own one, it usually needs Form 5471 each year, whatever it pays locally.
When are U.S. taxes due from Saudi Arabia?
Employees in Saudi Arabia file no local income tax return, so only the U.S. dates matter. To use the exclusions you have to file, even when they bring your U.S. tax to zero.
| Saudi Arabia | United States | |
|---|---|---|
| Tax year | No personal income tax on salaries | January to December |
| Annual return | None for employees | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | Nothing on salaries | April 15, even if you file later |
| Foreign accounts | No report | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in Saudi Arabia?
The foreign earned income exclusion, almost always. With no Saudi tax on your salary, there’s nothing for the foreign tax credit to work with.
- Up to $132,900 for 2026 of salary can be excluded, plus housing costs above a base amount, up to the IRS limit for your city.
- Pay above that is taxed, at the rates it would face on top of the excluded amount, so engineers and managers on large packages often still owe some U.S. tax.
- Allowances count as pay. Housing, schooling and transport allowances all go into earned income before the exclusions apply.
The exclusion doesn’t allow the refundable part of the child tax credit, so families sometimes compare both ways. How we compare the exclusion and the credit.
A worked example: an engineer in Dhahran
Matt works for an energy company in the Eastern Province on SAR 540,000 a year, about $144,000, plus company housing and a schooling allowance for his two children. He’ll get an end-of-service award when his contract ends. He hasn’t filed since moving in 2019.
| Item | How it’s handled |
|---|---|
| Salary | The exclusion covers the first $132,900 for 2026; the rest is taxed at his higher rates. |
| Housing and schooling | Both count as pay. The housing exclusion covers part of the housing; the schooling allowance is taxable. |
| End-of-service award | Taxed when he receives it, with part possibly excludable. Planning the year he leaves can help. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if he qualifies. |
Catching up from Saudi Arabia
Most Americans in Saudi Arabia who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
No tax in Saudi Arabia. Do I really owe the U.S.?
Often little or nothing on wages, once the exclusions apply. But you still have to file, and investment income and very high salaries can leave a U.S. bill.
Do I pay U.S. Social Security tax in Saudi Arabia?
Usually not if you work for a local employer. There’s no U.S.-Saudi social security agreement, though, so self-employment tax can still apply if you work for yourself, and FICA if you work for a U.S. company.
Can I exclude my rent too?
Often part of it, through the foreign housing exclusion. The IRS sets a limit for each city, and expensive cities get higher limits. We check the limit for yours.
Is my end-of-service award taxable?
Yes, for the U.S., in the year you receive it. Part of it may be excludable, depending on when it was earned, so it’s worth planning before your contract ends.
Do I have to file if the exclusion brings my tax to zero?
Yes. The exclusion only applies if you claim it on a return, and the FBAR is a separate filing that doesn’t depend on owing tax.
I live on a company compound. Does that change anything?
Housing your employer provides usually counts as pay for the U.S., at its value, though housing in a qualifying remote camp can be left out entirely. Otherwise the housing exclusion can cover part of it, up to the IRS limit for your city.
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