Withholding TAX in Saudi Arabia

Comprehending Withholding Tax in the Kingdom of Saudi Arabia

A withholding tax is an amount that an employer withholds from employees’ wages and pays directly to the government. It is also known as retention tax as the tax is paid to the government by the payer of the income and not the recipient. The tax is deducted or withdrawn or from the income due to the receiver.

The withholding tax is applicable in the Kingdom of Saudi Arabia on the full amount paid to the non-resident as of 30.07.2004.

Withholding tax is applicable when payments are made from a permanent establishment or a resident party or to a non-resident party for services performed. Withholding tax is imposed on the full amount paid to a non-resident irrespective of any expenses incurred to earn this income, and notwithstanding full or partial allowance/disallowance, as a deduction, of such payment.

According to the General Authority of Zakat & Taxes (GAZT), it is required to declare and make payment of the relevant amount of WHT direct to the General Authority of Zakat and Tax (GAZT). The client is obliged to file and settle WHT monthly tax returns to GAZT within 10 days of the month-end in which the payment is made and is required to submit an annual WHT return at the fiscal year-end. Failure by the client to withhold WHT or pay the WHT to GAZT timeously will result in the client being liable to pay ‘late submission fines’ in the WHT that was initially due.

Based on the law & tax regulations of the Kingdom of Saudi Arabia (KSA), there is a responsibility for each client to pay withholding tax (WHT), on all ‘out of kingdom’ international payments to non-Saudi resident/registered parties/companies directly to the General Authority of Zakat and Tax (GAZT).

What is the withholding tax rate prevailing in Saudi Arabia?

According to the provisions of article 68 of the Income Tax Law (ITL), the withholding tax should be imposed on the total amount paid to the non-resident based on the nature of services, and the rates defined are as follows: 

  • 20% - Management fees
  • 15% - Royalties
  • 15% - Amount paid to the head office or any of its other offices to the permanent establishment of any kind
  • 5% - Technical and consulting services paid to a non-related party
  • 5% - Payment for international telecommunication services paid to non-resident party
  • 5% - Payment for rental of movable property used in the Kingdom of Saudi Arabia
  • 5% - Dividends
  • 5% - Loan Charge (proceeds/interest)

The UAE – KSA Double Tax treaty provides for the elimination of double taxation by way of a credit against tax payable in the UAE and the KSA. Residents covered under the treaty include any person who is liable to tax by reason of domicile, residence, place of incorporation or place of management, corporate entities, Sovereign Wealth Funds, and similar government entities and other persons that are exempted from tax.

If you have a concern about Withholding TAX in Saudi Arabia & that double taxation relief may apply, ARC Associates being one of the leading tax consultants assists you and provide independent advice relating to TAX and allied services in KSA.

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