Aramco now pays a 20 percent royalty on its revenue and an 85 percent tax on income.
"This Royal Order on tax for oil and hydrocarbon producers operating in the Kingdom brings the Kingdom of Saudi Arabia in line with worldwide benchmarks", said Saudi Arabia's Energy Minister Khalid Al-Falih in a statement.
Saudi Arabia slashed taxes on its state-owned oil company Saudi Aramco, clearing some headspace for the group to make profits for investors ahead of a planned sale of a 5% stake that will nearly certainly be the biggest ever initial public offering. The cut will be backdated to January 1.
"Any tax revenue reductions applicable to hydrocarbon producers operating in the kingdom are replaced by stable dividend payments by government-owned companies, and other sources of revenue including profits resulting from investments", he said in a statement.
As Saudi Arabia is getting ready to list its oil giant next year, it is trying to secure future exports and lock in future demand with key buyers such as China, preferably under long-term contracts, which is the standard approach of the Kingdom toward crude oil exports.
The company said in a tweet that the change bring its tax rate "in line with global benchmarks". The share sale, if it meets the government's estimate, would dwarf that of Alibaba. "We talked with them on the plan", said Sinopec Chairman Wang Yupu at a Monday press briefing. "Going forward, based on our own reality and needs, we will get into more detailed conversations with them", the Chinese manager noted.
Aramco is also thought to pay the government a 20% royalty on its oil export revenues, but it is not clear if this too is changing.
The Aramco share sale is part of policy proposals by Deputy Crown Prince Mohammed bin Salman to set up the world's biggest sovereign wealth fund and reduce the economy's reliance on hydrocarbons.
"The 50 percent tax rate will be very lucrative to investors who should be gearing up for its privatization".
The tax rate for investments exceeding 375 billion riyals ($100 billion) will be 50 percent, SPA said. Those with capital of between 300 billion and 375 billion riyals will pay an income tax of 65 per cent. Companies with capital of between 225 billion and 300 billion riyals will pay 75 per cent, and those with capital below 225 billion riyals 85 per cent.