Withholding tax in Saudi Arabia is a tax on income paid to non-residents for income generated from Saudi sources. we’ll cover the essentials of WHT in the Kingdom of Saudi Arabia (KSA), from rates and payment deadlines to exemptions, reductions, and compliance obligations.

What is withholding tax in Saudi Arabia?

Withholding tax (WHT) is a type of income tax levied on payments made to non-residents by Saudi entities or individuals. This tax applies to various income types, including royalties, service fees, dividends, and more, ensuring Saudi Arabia collects taxes on income generated within its borders.

The payer of this income, referred to as the “withholding person,” is responsible for deducting the tax and remitting it to the Saudi zakat, tax, and customs authority (ZATCA).

Who pays withholding tax in KSA?

Withholding tax applies when a Saudi-based business or individual makes payments to a non-resident for services rendered or other taxable income. The tax is generally deducted by the Saudi payer from payments made to the non-resident, covering a range of income types, such as:

• Management or consulting fees.
• Dividends.
• Rental income.
• Royalties for intellectual property licenses.
• Interest from loans.
• Insurance/reinsurance premiums.

Withholding tax ates in Saudi Arabia :

WHT rates in Saudi Arabia are governed by the Income Tax Law (ITL), specifically Article 63. Unless reduced by a tax treaty.

Filing obligations for withholding tax in Saudi Arabia:

WHT returns must be filed monthly through the ZATCA online portal, with payments due within the first ten days of the following month. Additionally, annual withholding tax returns are required:

• 120 days from the year-end for companies.
• 60 days for partnerships.

Failure to meet these deadlines results in late fees and other penalties.

Exemptions and reductions :

In certain cases, withholding tax may be reduced or exempted:

• Tax treaties: If a non-resident’s country has a tax treaty with Saudi Arabia, lower rates or exemptions may apply.
• Business activity exemptions: Non-residents supplying construction materials are exempt from withholding tax to promote infrastructure development in KSA.

These exemptions require the proper documentation to ensure compliance and avoid any penalties.

Double tax treaties (DTT) with the UAE and other countries

Saudi Arabia’s DTT with the UAE, effective since January 2020, provides reduced rates and exemptions for UAE-based companies:

• Service fees: WHT exempt unless tied to a permanent establishment.
• Interest payments: WHT exemption.
• Royalties: Reduced to 10%.
• Dividends: Reduced to 5%.
• Sovereign wealth funds: Exempt from WHT on capital gains and dividends.

These agreements are designed to facilitate cross-border trade and reduce the burden of double taxation.

Consequences of non-compliance :

Non-compliance with WHT regulations in Saudi Arabia can lead to significant penalties:

• Late fees: 1% of the tax value per 30-day delay.
• Evasion penalty: If ZATCA suspects tax evasion, an additional 25% fine may be imposed.

Withholding tax in Saudi Arabia is essential for non-residents deriving income from Saudi sources. Proper compliance with WHT regulations helps avoid penalties, and tax treaties can provide favorable rates.

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