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 almost certainly be the biggest ever initial public offering.

Taxes on the income of the world's biggest oil producer will tumble to 50% from their current level of 85%, Saudi Arabia said on Monday. The cut will be backdated to Jan. 1.

"This Royal Order on tax for oil and hydrocarbon producers operating in the Kingdom brings the Kingdom of Saudi Arabia in line with international benchmarks," said Saudi Arabia's Energy Minister Khalid Al-Falih in a statement. "It is very important to make it clear that the hydrocarbon resources of the Kingdom of Saudi Arabia remain sovereign and that any reduction in tax revenues arising from this Royal Order is replaced by stable dividend payments and other sources of revenue from hydrocarbon producers to the government."

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The tax burden on Saudi Aramco will be a key component in determining the price of the business which is expected be valued at more than $2 trillion, making it the world's most valuable company when it comes to market, probably next year. The company is yet to say where it will list, though it is likely to be on a number of exchanges, possibly including the NYSE and Hong Kong, as well as the Saudi exchange.  

Saudi Arabia has begun talks with possible cornerstone investors in the share sale. On Monday, China Petroleum Corp., known as Sinopec said it had been invited to take a stake in the operation and that talks were ongoing. "We talked with them on the plan," said Sinopec Chairman Wang Yupu at a Monday press briefing. "We will get into more detailed conversations with them."  

The Saudi Aramco stake sale is part of a wider strategic plan to reduce the Kingdom's dependence on hydrocarbons. Cash from the sale will be used to establish a sovereign wealth fund that will invest outside of the oil business and in support of developing non-oil sources of income within Saudi Arabia.

Prior to the royal decree issued on Monday, Saudi Aramco had paid a 20% royalty on sales and 85% tax on its profits. The decision to cut the tax rate to 50% had been flagged earlier this year and is in line with the recommendation of Saudi Aramco's own management to the Saudi government.  

The new 50% tax rate will apply to all Saudi oil companies with capital of more than 375 billion Saudi riyals ($100 billion), according to a report appearing on the Saudi state-owned news source the Saudi Press Agency. Saudi oil companies valued at between 375 billion and 300 billion riyals, will pay 65% income tax, those at between 300 billion and 225 billion riyals will pay 75% and any company below that threshold will continue to pay 85%.