How Withholding Tax in Saudi Arabia Works

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Published: 31 December 2024, 09:40 am

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What Is Withholding Tax (WHT) in Saudi Arabia?

Withholding Tax (WHT) in Saudi Arabia is a direct tax applied to payments made by resident businesses to non-residents for services, royalties, dividends, and other income-generating activities. This tax is part of Saudi Arabia’s efforts to reform its tax system and align with international taxation standards.

The Zakat, Tax, and Customs Authority (ZATCA) oversees the implementation and regulation of WHT. The tax applies to businesses of all sizes and industries, ensuring a consistent stream of tax revenue from cross-border transactions.

Purpose of Withholding Tax in Saudi Arabia

Saudi Arabia ensures tax revenue security by imposing withholding tax on payments made to non-residents for services, royalties, dividends, and interest, ensuring these revenues contribute to the national treasury. 

This approach simplifies the tax administration process by placing the responsibility on domestic firms to collect taxes at the source and remit them directly to the Zakat, Tax, and Customs Authority. By doing so, it reduces the risks of tax evasion.

Furthermore, withholding tax discourages tax evasion in international transactions through strict documentation and reporting requirements, while tax treaties provide clarity on responsibilities and reduce opportunities for avoidance.

Who Should Pay Withholding Tax in Saudi Arabia?

Any entity in Saudi Arabia that makes payments to non-residents is required to deduct and remit withholding tax. These payments typically include:

  • Service Fees: Payments for consultancy, management, and technical services.
  • Royalties: Charges for the use of intellectual property.
  • Interest and Dividends: Payments made on loans and the distribution of profits.

Businesses must strictly adhere to their withholding tax obligations, as failure to comply can result in severe penalties. This highlights the importance of maintaining vigilance and ensuring compliance to avoid financial and legal repercussions.

What Are the Current Withholding Tax Rates in KSA?

The withholding tax rate in Saudi Arabia depends upon the type of payment and the jurisdiction of the beneficiary’s residence:

Type of payment Tax Percentage
Management Fees 20%
Royalties 15%
Dividends 5%
Interest Payments 5%
Technical and advisory services 15%

Double tax treaties may reduce these rates since relief for resident taxpayers in countries that enjoy bilateral agreements with Saudi Arabia may be given.

Withholding Tax Process in Saudi Arabia

  • Identify the Withholding Entity: Determine whether the payer is a Saudi Arabian resident and if the recipient is a non-resident.
  • Determine the Applicable Withholding Tax: Identify the nature of the payment (e.g., services, royalties, dividends) and the applicable tax rate.
  • Deduct Tax at Source: Deduct the applicable withholding tax before making the payment to the non-resident.
  • Remit the Withholding Tax: Pay the withheld tax to the Zakat, Tax, and Customs Authority by the statutory due date.
  • File a Withholding Tax Return: Prepare and file a tax return detailing the payments made and the withholding tax deducted.

How to Calculate Withholding Tax in KSA?

  1. Determine the Applicable Tax Rate:
    Identify the withholding tax rate based on Saudi tax regulations or any applicable tax treaties.
  2. Gross Pay:
    This is the total amount paid to the nonresident before any deductions.
  3. Calculate Withholding Tax:
    Multiply the gross pay by the applicable withholding tax rate to find the tax amount.

Example:
If a Saudi company pays SAR 100,000 to a nonresident for consultancy services, and the withholding tax rate is 15%, the tax will be:
SAR 100,000 × 15% = SAR 15,000

When Are the Withholding Tax Deadlines in KSA?

Tax withholdings and returns must be filed with ZATCA by the 10th of the month after payment. This will not require penalties or interest imposed on it.

What Are the Withholding Tax Penalties in Saudi Arabia?

Failure to comply with Withholding Tax (WHT) regulations in Saudi Arabia can result in the following penalties:

  • Late Payment Penalties:
    • A 1% charge on the unpaid tax amount for each month of delay.
  • Failure to File:
    • Penalties for not adhering to ZATCA (Zakat, Tax, and Customs Authority) filing requirements.
  • Incorrect Filing Charges:
    • Fines based on the extent of discrepancies in the reported and actual tax amounts.

What Exemptions and Reductions Are Available for Withholding Tax?

Certain payments and entities are exempt from withholding tax or enjoy reduced rates because of the following:

  • Tax Treaties: Treaties with countries like the UAE either lower or even abolish certain taxes on specific payments.
  • Sector-specific exemptions may be in place for those businesses performing within government-sanctioned industries.
  • Income Type Exemptions: Specific types of income, such as compensation for necessary goods or services, might be exempt.
  • Saudi Premium Residency: Individuals and businesses holding Saudi Arabia’s Premium Residency may be eligible for certain tax benefits or exemptions, including possible reduced withholding tax rates on payments related to their business activities in the Kingdom.

What Are the Double Tax Treaties with Saudi Arabia?

Saudi Arabia has entered into several double tax treaties (DTTs) with various countries to avoid double taxation on income. These treaties ensure that individuals and businesses are not taxed on the same income in both Saudi Arabia and the other contracting country.
The key benefits of these treaties include:

  • Reduction in Tax Rates: Tax treaties typically offer reduced withholding tax rates on income such as dividends, interest, and royalties.
  • Tax Relief for Residents: Tax residents in one country may receive relief on taxes paid in the other country, reducing their overall tax burden.
  • Prevention of Tax Evasion: The treaties provide guidelines to prevent tax evasion and ensure that businesses pay tax in the appropriate jurisdiction.

What Is the Tax Treaty Between Saudi Arabia & the United Arab Emirates (UAE)?

The Saudi-UAE tax treaty is designed to facilitate cross-border trade and investment by offering reduced tax rates on specific payments, such as:

  • Dividends: A reduced withholding tax rate on dividends paid between the two countries.
  • Interest: Lower tax rates on interest payments, promoting financial exchanges.
  • Royalties: Reduced tax rates on royalties, benefiting businesses in sectors such as technology, entertainment, and intellectual property.

Frequently Asked Questions

1. Who is liable to file withholding tax returns in Saudi Arabia?

All Saudi-resident entities shall return withholding tax on any payment given to a nonresident.

2. Are all foreign payments made to nonresidents mandatorily subject to withhold taxes?

Of course not. Certain payments are exempted under the regulations of the Saudi authorities and by the specific tax treaties signed into force.

3. How will the business avoid penalties when there is a late payment for withholding tax?

The current deduction, remittance, and returns filing will ensure that a firm avoids paying penalties for delinquencies.

4. Are the withholding tax rates lower in tax treaties?

Indeed, double-tax treaties allow for the cutting of some applicable double tax rates applied over some payments of goods crossed from the country to other countries.

5. What documents must be submitted to obtain a certificate of conformity under the withholding tax regulations?

This business enterprise will have an account showing payment and computation of tax and return submitted.

About the Editorial Staff
About the Editorial Staff

Editorial Staff at Migrate World is a team that handles news, events, and other press release from the company, its affiliates and programs. We are a well-versed company with over a decade’s worth of experience in the field of residency and citizenship by investment.

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