COMPLIANCE WITH TAX TREATIES: If applicable, businesses must comply with any tax treaties between Saudi Arabia and other countries that may affect withholding tax obligations. This may involve applying reduced withholding tax rates or claiming exemptions under the terms of the tax treaties.
KSA law allows refund of excess tax paid if DTT between KSA and country of recipient allows for reduce rate of withholding income tax. The payer of the payment shall withhold tax as per KSA and subsequently refund shall be applied if reduced rate is applicable as per Double taxation treaty. Read more on Withholding Tax in Saudi Arabia: regulations, rates, and deadlines here.
COMPLIANCE REQUIREMENTS FOR WITHHOLDING TAX IN SAUDI ARABIA
Compliance requirements for withholding tax in Saudi Arabia involve several key steps and obligations:
- REGISTRATION: Businesses that are liable to withhold tax must register with the Zakat, Tax, and Customs Authority (ZATCA). This registration is necessary to obtain a Tax Identification Number (TIN) and fulfil other tax obligations.
- DETERMINATION OF WITHHOLDING TAX OBLIGATIONS: Businesses must determine whether they are required to withhold tax on payments made to non-residents. This determination involves identifying the types of payments subject to withholding tax and the applicable tax rates.
- WITHHOLDING TAX DEDUCTION: The withholding agent (the entity making payments subject to withholding tax) is responsible for deducting the tax from the payments made to non-residents. The tax amount to be withheld is calculated based on the applicable withholding tax rate.
- REMITTANCE OF TAX: The withholding agent must remit the withheld tax amount to the Saudi Arabian tax authorities within the specified timeframes (e.g. submit an online monthly WHT return and pay the deducted WHT to the tax authority within the first ten days following the end of the month in which the payments were made). The tax must be remitted electronically through the ZATCA’s online portal or other approved channels. In addition, businesses must submit an online annual WHT return within 120 days of the taxpayer’s year end.
- WITHHOLDING TAX REPORTING: Businesses must accurately report withholding tax payments in their tax returns to the ZATCA. This involves providing details of the payments subject to withholding tax, the amounts withheld, and other relevant information. For example, all businesses subject to the WHT must provide the beneficiary with a receipt stating the amount of the payment, nature of payment and the amount of tax withheld. They also must provide the ZATCA with the name, address and registration number of the beneficiary, and any other information requested by the ZATCA. Last but not least, businesses must retain this information for ten years after the relevant payment was made and as long as these payments are under review by the ZATCA or subject of a dispute.
- DOCUMENTATION AND RECORD-KEEPING: Maintaining proper documentation and records related to withholding tax transactions is essential for compliance. This includes records of payments subject to withholding tax, calculations of the tax amounts withheld, and evidence of tax remittances.
OVERVIEW OF WITHHOLDING TAX REPORTING WITH OTHER JURISDICTIONS
Withholding tax reporting practices vary significantly across different countries and legal regimes, general overview can be as follows:
Under US domestic tax laws, a foreign person generally is subject to 30% US tax on the gross amount of certain US-source income. All persons (‘withholding agents’) making US-source fixed, determinable, annual, or periodical (FDAP) payments to foreign persons generally must report and withhold 30% of the gross US-source FDAP payments, such as dividends, interest, royalties, etc. Withholding agents are permitted to withhold at a lower rate if the beneficial owner properly certifies their eligibility for a lower rate either based on operation of the US tax code or based on a tax treaty. Information reporting of the US-source payments is always required even if no withholding applies.
In the U.S., employers withhold federal income tax from employees’ wages based on the information provided on Form W-4. Employers are also responsible for withholding and reporting Social Security and Medicare taxes. Additionally, businesses may be required to withhold tax on certain types of payments made to non-resident aliens or foreign entities.
In the UK, employers are responsible for deducting income tax and National Insurance contributions from employees’ wages through the Pay As You Earn (PAYE) system. Employers must report and remit these deductions to HM Revenue & Customs (HMRC) on a regular basis.
Regarding withholding tax on other payments to non-residents, here is no requirement to deduct WHT from dividends, except in respect of property income dividends (PIDs) paid by UK REITs, which are subject to WHT at 20%, subject to certain exemptions. Therefore, dividends (apart from PIDs) may always be paid gross, regardless of the terms of the applicable DTT.
Furthermore, there is no exhaustive list of all the deductions that might be required to be made in respect of UK tax from payments made to or by companies. In particular, non-resident companies that are subject to UK tax on UK-source rental profits (see the Taxes on corporate income section for more information) will find their letting agent or tenants are obligated to withhold the appropriate tax at source (currently 20% without any allowances) from their rental payments unless the recipient has first applied and been given permission to receive gross rents under the NRL scheme. Companies are also under an obligation to withhold tax from annual payments. Two other important examples are the UK’s deduction at source regime for entertainers and sportsmen, and the scheme under which payments to unregistered subcontractors working on big building projects may need to have tax deducted at source.
In Canada, employers withhold federal and provincial income taxes from employees’ wages based on their tax status and other factors. Employers are also required to withhold and remit contributions for the Canada Pension Plan (CPP) and Employment Insurance (EI). Reporting and remittance are typically done through the Canada Revenue Agency (CRA).
In Germany, employers withhold income tax, solidarity surcharge, and social security contributions from employees’ wages. These deductions are based on the employee’s tax class and other factors. Employers report and remit these withholdings to the tax authorities, typically on a monthly basis.
In Australia, employers are required to withhold pay-as-you-go (PAYG) tax from employees’ wages. The amount withheld depends on the employee’s income and tax status. Employers report and remit these withholdings to the Australian Taxation Office (ATO) periodically.
In Singapore, employers are required to withhold tax on employment income for resident and non-resident employees. The tax withheld is based on the employee’s tax residency status and other factors. Employers report and remit these withholdings to the Inland Revenue Authority of Singapore (IRAS) on a regular basis.
HIGHLIGHTING KEY DIFFERENCES BETWEEN SAUDI ARABIA AND OTHER JURISDICTIONS
VARIATIONS IN TAX RATES
