WITHHOLDING
TAX IN
SAUDI ARABIA
Our Withholding Tax service in Saudi Arabia is part of our tax consultancy services in Saudi Arabia.
Withholding tax is a tax deducted at a source levied on payments made to a non-resident alien, which does not have a permanent establishment in the country, yet generates an income from a resident source within the country. The non-resident alien refers to a foreign individual, foreign corporation, foreign partnership, foreign trust, or foreign estate. As such, the non-resident alien bears the withholding tax burden.
WITHHOLDING TAX IN THE GCC REGION
Within the GCC region, withholding tax is not applicable in Bahrain. Furthermore, in the UAE, 0% withholding taxes will be applicable on cross-border and certain domestic payments under the new UAE corporate tax regime.
Withholding tax is imposed in Saudi Arabia, Qatar, Kuwait, and Oman.
WHAT IS THE WITHHOLDING TAX RATE IN GCC COUNTRIES?
HOW DO I CALCULATE WITHHOLDING TAX?
The withholding tax mechanism stipulates that payments made from a resident party or a Permanent Establishment (PE) to a non-resident party for services performed are subject to withholding tax (WHT). However, when making payments to non-residents providing services, Double Taxation Treaties should be given due consideration. Any withholding tax rate mentioned in a tax treaty will take precedence over the withholding tax rate given in the domestic law of a country.
WHAT ARE THE EXAMPLES OF WITHHOLDING TAX IN KSA?
Withholding tax in Saudi Arabia is primarily imposed when a non-resident performs a service for a beneficiary resident in the Kingdom of Saudi Arabia, where the Zakat, Tax and Customs Authority (“ZATCA”) obligates the resident person (the beneficiary of the service provided by a non-resident) to withhold a tax called “withholding tax” at specific percentages of the amount paid in return for a service received from a non-resident.
WHEN IS THE INCOME CONSIDERED FROM A SOURCE IN THE KINGDOM OF SAUDI ARABIA?
- If it arises from an activity carried out in the Kingdom.
- If it arises from immovable property located in the Kingdom; including profits resulting from the disposal of a share in such immovable property, and from the disposal of shares in a company whose assets consist directly or indirectly, of shares in immovable property in the Kingdom.
- If it arises from the disposal of shares or partnership in a resident company.
- If it arises from leasing movable property used in the Kingdom.
- If it results from the sale or license to use industrial or intellectual property in the Kingdom.
- Dividends or disbursement of management and directors’ fees paid by a resident company.
- Amounts for services paid by a resident company to its head office or to an associate company.
- Amounts paid by a resident for services that were fully or partially completed in the Kingdom.
- Amounts for the exploitation of a natural resource in the Kingdom.
- If the income relates to a permanent establishment of a non-resident located in the Kingdom.
CONDITIONS FOR A PAYMENT TO BE SUBJECT TO WITHHOLDING TAX
- An amount paid from a resident person or from a permanent establishment in Saudi Arabia to a non-resident.
- The amount must be from a source of income in the Kingdom of Saudi Arabia.
WHO IS THE PERSON RESPONSIBLE FOR WITHHOLDING TAX IN SAUDI ARABIA AND SUPPLYING IT TO THE AUTHORITY?
In Saudi Arabia, the responsibility for withholding tax lies with the resident entity or individual making payments to non-residents. This means that if a Saudi company engages a non-resident service provider, it must calculate, withhold, and remit the appropriate tax amount to the Zakat, Tax and Customs Authority (ZATCA). The resident payer must ensure compliance with tax regulations and timely remittance to avoid penalties. Learn about your responsibilities as a payer!
WHO IS SUBJECT TO WITHHOLDING TAX IN SAUDI ARABIA?
Withholding tax in Saudi Arabia is imposed on a non-resident who does not have a permanent establishment in the country and has generated income from a source in the Kingdom of Saudi Arabia, the service provider bears the tax burden.
WHAT ARE THE OBLIGATIONS OF THE ENTITY CHARGED WITH WITHHOLDING TAX?
The resident of the Kingdom of Saudi Arabia is required to file the tax return for withholding within the first ten days of the month following the month in which the amount was paid to the non-resident service provider.
WHAT ARE THE WITHHOLDING TAX EXEMPTIONS?
At present, the law exempts companies engaged in natural gas investments, oil, and hydrocarbons from paying Withholding Tax on their distributed dividends. There are no other exemptions or reductions of Withholding Tax rates under the current law. However, Withholding Tax relief can be availed under a Double Taxation Treaty (DTT) with KSA.
WHAT ARE THE PENALTIES FOR NOT PAYING WITHHOLDING TAX?
Improper transfer pricing can expose businesses to significant risks, including tax audits, penalties, and adjustments by tax authorities. In Saudi Arabia, non-compliance may result in increased tax liabilities, fines, and reputational damage. Additionally, disputes with tax authorities over transfer pricing methods can lead to costly litigation and resource diversion. Similarly, failure to pay withholding tax on time can result in penalties, such as a 1% fine for every 30 days of delay and another 1% for underpayment, along with a severe 25% fine for concealing or providing false information. Our team at Creation Business Consultants is dedicated to mitigating these risks by ensuring that your transfer pricing practices and withholding tax obligations are compliant and well-documented.
SAUDI WITHHOLDING TAX REGULATIONS
TAXATION OF RESIDENTS AND NON-RESIDENTS:
In Saudi Arabia, residents and non-residents receiving payments for various services are subject to withholding tax.
RESIDENTS RECEIVING PAYMENTS:
- Payments for management fees, royalties, technical services, dividends, rent, etc.
- Tax withheld from payments to resident persons within Saudi Arabia.
- Withholding tax rates: 5% to 20% depending on the nature of payments.
NON-RESIDENTS RECEIVING PAYMENTS:
- Payments for management fees, royalties, technical services, dividends, rent, etc.
- Tax withheld by payer at rates: 5% to 20% depending on nature of payment.
- Withholding on the full amount paid to non-resident, regardless of expenses incurred.
TAXPAYER OBLIGATIONS:
Taxpayers of withholding tax have specific obligations. Monthly Deduction Statement:
- Submission according to the form prepared by the Authority.
- Submission within the first ten days of the month following the payment month.
WHAT ARE THE SOURCES OF INCOME SUBJECT TO WITHHOLDING TAX? AND HOW MUCH IS THE PERCENTAGE?
WITHHOLDING TAX IN SAUDI ARABIA FAQs
Withholding tax (WHT) in Saudi Arabia is a tax levied on payments made to non-residents for services rendered within the Kingdom. The tax is withheld at the source, meaning that the resident entity or individual making the payment is responsible for deducting the tax amount before remitting the payment to the non-resident. The rates vary depending on the type of service provided, ranging from 5% to 20%. Learn more about WHT rates in Saudi Arabia!
In Saudi Arabia, various types of payments are subject to withholding tax. This includes management fees, which are charged for administrative services; royalties paid for the use of intellectual property; dividends distributed to shareholders; interest payments on loans; and payments for technical services, including consulting and advisory roles. Each of these payment types has specific rates of withholding tax that must be adhered to. Contact us for a comprehensive list of taxable payments!
The withholding tax rate in Saudi Arabia is determined based on the nature of the payment being made to a non-resident. For instance, payments for management fees are subject to a 20% rate, while royalties, commissions, and certain service payments attract a rate of 15%. Interest, dividends, and technical fees are taxed at a rate of 5%. It’s crucial for businesses to correctly classify their payments to ensure the appropriate tax rate is applied. Get detailed information on specific tax rates!
Double Taxation Treaties (DTTs) play a significant role in reducing the burden of withholding tax in Saudi Arabia. These treaties are agreements between Saudi Arabia and other countries that aim to prevent double taxation on income. Under a DTT, a resident may benefit from reduced withholding tax rates or even exemptions on certain types of income, such as dividends, interest, and royalties. To take advantage of these benefits, businesses must ensure they comply with the requirements set forth in the treaty, often necessitating the submission of specific documentation. Consult us to explore how DTTs can benefit your business!
To support withholding tax payments in Saudi Arabia, several key documents must be maintained. These include contracts with non-resident service providers that outline the terms of service and payment amounts, detailed invoices that specify the nature of the services provided, and payment records such as bank statements or transfer confirmations. Additionally, tax clearance certificates from non-residents may be required to prove compliance with local tax laws. Having these documents organized is essential for substantiating withholding tax filings and ensuring smooth operations during audits. Request a checklist for necessary documentation!
Non-compliance with withholding tax obligations in Saudi Arabia can lead to several penalties. The Zakat, Tax and Customs Authority (ZATCA) imposes a 1% penalty for every 30 days of delay in the payment of withholding tax. If the amount withheld is less than required, another 1% penalty applies for each 30-day period of underpayment. Moreover, a significant penalty of up to 25% may be imposed for the concealment of income or providing false information, which could be classified as tax evasion. These penalties underscore the importance of timely and accurate tax compliance. Learn about penalty mitigation strategies with our experts!
In Saudi Arabia, businesses are required to file withholding tax returns on a monthly basis. These returns must be submitted within the first ten days of the month following the month in which the payment was made to the non-resident service provider. The returns need to include detailed information such as the amounts paid, the nature of the services, and the withholding tax amounts deducted. Regularly filing these returns is critical to maintain compliance and avoid potential penalties. Find out about your filing deadlines!
Yes, withholding tax in Saudi Arabia can be refunded under certain circumstances. If a non-resident has had excess tax withheld—perhaps due to applying the domestic rate instead of a lower rate specified in a Double Taxation Treaty—they can file for a refund with ZATCA. The refund process generally requires the submission of documentation proving the overpayment, and it may take time for the refund to be processed. It’s advisable for non-residents to keep meticulous records of payments and taxes withheld to facilitate any potential refund claims. Contact us for assistance with the refund process!
Non-residents providing services in Saudi Arabia should be aware that withholding tax will be deducted from their payments for services rendered. The rates can vary significantly depending on the nature of the service provided. Non-residents can benefit from Double Taxation Treaties, which may reduce the applicable withholding tax rates or provide exemptions. Additionally, non-residents should ensure that they provide the necessary documentation to the resident payer to claim any benefits under the treaty. Understanding the implications of withholding tax is crucial for non-residents to manage their tax obligations effectively. Get expert guidance on managing your withholding tax liabilities!
The withholding tax rate in Saudi Arabia differs based on the type of service provided. For example, management fees are taxed at a rate of 20%, while royalties and certain related services are subject to a 15% rate. Payments made for technical services, dividends, and interest are taxed at a lower rate of 5%. This differentiation is crucial for businesses to understand, as applying the correct rate is essential for compliance and financial planning. Request a detailed breakdown of withholding tax rates for your services!
Businesses in Saudi Arabia often encounter several challenges related to withholding tax compliance. One major challenge is navigating the complex regulations, which can vary significantly from one GCC country to another. Many businesses struggle with a lack of awareness regarding their withholding tax obligations, leading to potential non-compliance. Additionally, managing documentation and maintaining accurate records of payments and tax filings can be cumbersome. Finally, understanding and effectively utilizing Double Taxation Treaties can be difficult, particularly for companies operating internationally. Contact us for strategies to overcome withholding tax challenges!
Businesses can take several proactive steps to minimize their withholding tax liabilities in Saudi Arabia. First, they should leverage Double Taxation Treaties to ensure they are benefiting from reduced withholding rates where applicable. It’s also important for businesses to review their payment structures and contracts to ensure they are classified correctly and that the correct rates are applied. Engaging with tax professionals can provide valuable insights and strategies for optimizing tax obligations. Lastly, maintaining comprehensive and organized records can help substantiate claims for reduced rates under DTTs. Schedule a tax strategy session with our consultants!
While the general rule is that withholding tax applies to various payments, there are specific exemptions for certain industries, particularly those involved in natural gas and oil. Companies operating in these sectors may not be subject to withholding tax on dividends distributed to shareholders. However, it’s essential for businesses to verify current regulations and consult with tax professionals to determine any applicable exemptions based on their industry and activities. Inquire about industry-specific withholding tax exemptions!
To prepare for a withholding tax audit in Saudi Arabia, businesses should ensure that all relevant documentation is organized and easily accessible. This includes contracts with non-resident service providers, invoices, payment records, and any communications with ZATCA regarding withholding tax matters. Companies should conduct internal audits to verify compliance and identify any potential issues before the official audit occurs. Additionally, having a clear understanding of applicable tax laws and regulations can help businesses respond effectively to inquiries from tax authorities. Contact us for assistance with audit preparation!
The process for claiming a refund of withholding tax in Saudi Arabia typically involves submitting a formal request to ZATCA. Non-residents must provide documentation that demonstrates the excess tax withheld, such as payment records and proof of eligibility under a Double Taxation Treaty if applicable. The refund application must be carefully completed to meet ZATCA’s requirements. The processing time for refunds can vary, so it’s advisable to follow up regularly to ensure that the claim is being reviewed. Get assistance with your refund application process!
Withholding tax can significantly impact a business’s cash flow, particularly for companies that frequently engage non-resident service providers. The requirement to withhold a portion of payments reduces the immediate cash available to businesses, which may affect their operational liquidity. This can be especially challenging for startups or smaller enterprises that operate on tight margins. To mitigate these effects, businesses should budget for withholding tax obligations and consider strategies such as negotiating payment terms with service providers. Contact us for cash flow management strategies!
Withholding tax regulations in Saudi Arabia can evolve frequently, with updates announced by ZATCA to enhance compliance and streamline processes. Recent changes may include adjustments to rates, amendments in the classification of services subject to tax, or new requirements for documentation. Businesses must stay informed about these changes to ensure compliance and adapt their financial planning accordingly. Regularly consulting with tax professionals can help organizations remain up-to-date on regulatory developments. Stay updated on the latest regulatory changes!
Businesses can effectively manage their withholding tax obligations in Saudi Arabia by implementing a structured approach to tax compliance. This involves training staff on withholding tax regulations, establishing clear processes for documenting and reporting payments, and conducting regular reviews of tax filings to ensure accuracy. Engaging with tax professionals can provide valuable insights and ensure that businesses take full advantage of available exemptions and deductions. Additionally, utilizing technology and software solutions can streamline record-keeping and reporting processes, making compliance more manageable. Schedule a consultation to streamline your tax management!
HOW CREATION BUSINESS CONSULTANTS CAN HELP
We assist clients in the preparation and submission of their withholding tax returns. Some of the services we offer to our clients include:
- Monthly and annual Withholding Tax compliance.
- Responding to queries from tax authorities.
- Assistance in filing objections against assessments.
- Withholding Tax health check.
