Saudi Arabia has shifted its focus to creating an environment that promotes investment and welcomes multinational companies to the country. With the increase of foreign companies within Saudi Arabia, the Zakat Tax and Customs Authority (ZATCA) updated the taxation policy in 2024. This was done to ensure infrastructure and economic development.
The taxes in Saudi Arabia are regulated by the Tax Law 2004, publications from the Department of ZATCA, royal decrees and decisions taken by the councils of ministers of the country. Here, we specifically focus on understanding the Withholding Tax (WHT) in Saudi Arabia. Read on to learn about its characteristics, the procedure to file for withholding tax, and other necessary details.
What is Withholding Tax?
Withholding tax in KSA is a special tax that is taken out of the payment given to non-residents of Saudi Arabia. Under Article 63 of the Income Tax Law, any individual with no Permanent Establishment (PE) earning through different sources using the country’s resources is liable to pay withholding tax in Saudi Arabia.
Withholding Tax Rates in Saudi Arabia
The tax rates are categorised under different jurisdictions and types of income earned through related or non-related parties. They are mentioned in the table below-
|
Type Of Income |
Related Party (Offshore & Onshore Services) |
Non-Related Party (Onshore Services) |
Non-Related Party (Offshore Services) |
|
Interest on loans |
5% |
N/A |
5% |
|
Royalties |
15% |
15% |
15% |
|
Dividends |
5% |
N/A |
5% |
|
Rent |
5% |
5% |
N/A |
|
Management fees |
20% |
20% |
20% |
|
Technical & Consultancy Service |
15% |
5% |
5% |
|
International telecommunications services |
15% |
N/A |
5% |
|
Airline tickets, air or maritime freight |
5% |
5% |
5% |
|
Supervisory services |
15% |
5% |
5% |
|
Engineering services |
15% |
5% |
5% |
|
Legal services |
15% |
5% |
5% |
|
Advertisement services |
15% |
5% |
5% |
|
Advertisement publishing (excluding any design work) |
15% |
N/A |
15% |
|
Catering Services |
15% |
N/A |
15% |
|
Procurement services |
15% |
N/A |
15% |
|
Marketing & sales services |
15% |
N/A |
15% |
|
Storage expenses |
15% |
N/A |
15% |
|
Tourism services |
15% |
N/A |
15% |
|
Maintenance services |
15% |
5% |
5% |
|
Accounting consultancy |
15% |
5% |
5% |
|
Accounting services (excluding consultancy) |
15% |
N/A |
15% |
|
Insurance Brokerage |
5% |
5% |
5% |
|
Business Brokerage |
15% |
N/A |
15% |
|
International seminar/conference |
15% |
N/A |
15% |
|
Subscription in news reports |
15% |
N/A |
15% |
Note: These rates are applicable as of June 2024. To know the exact figure visit the ZATCA website.
Double Tax Agreements (DTAs)
Business setup in Saudi Arabia has become extremely popular among entrepreneurs globally due to the favourable tax environment. The country has signed double tax treaties with over 50 countries, fostering international trade and promoting foreign investment. A double Taxation Agreement is a treaty signed between two or more countries to prevent the same income from getting taxed twice. This agreement helps reduce the gross withholding tax by providing relief on specific incomes/payments such as royalties, dividends, and service fees.
Withholding Tax Penalties in Saudi Arabia
All non-residents liable to pay withholding tax in KSA must file monthly WHT returns within the first 10 days of every month through the ZATCA portal. Additionally, you must also file an annual audit within 120 days from the end of the financial year.
If you fail to pay the liable withholding tax within the given deadline, a fine of 1 percent is applied to the due amount every 30 days. You can be subjected to paying an additional 25 percent penalty on top of the unpaid liability if ZATCA suspects you of avoiding withholding tax in Saudi Arabia.
How to File Withholding Tax in Saudi Arabia
Let us look at the steps for filing withholding tax in KSA and avoid auditory errors and penalties.
Step 1 - Identify all the income that is subjected to Saudi's withholding tax.
Step 2 - Apply the rates and calculate the amount liable to be withheld.
Step 3 - Pay the liable WHT amount after calculating the applied deductions to the expats in due time.
Step 4 - Prepare a record by tracking all your WHT deductions based on the format provided by ZATCA.
Step 5 - Pay the requisite withheld amount through the ZATCA portal within the deadline.
Step 6 - Keep a detailed record of all the WHT transactions to file your yearly audit.
Step 7 - Apply for deductions and exemptions to reduce gross tax liability.
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Can a payer request a ruling on withholding tax from the authorities of Zakat?
Yes, payers can request an advance ruling from ZATCA on the withholding tax applied for specific transactions. It includes royalty payments on intellectual property and interest on foreign loans.
How is withholding tax calculated for mixed contracts?
For mixed contracts that include both goods and services, the withholding tax is only applicable to the service provided. The person liable for WHT must separate the value of services from the total contract value to determine the taxable amount.
Does withholding tax apply to payments made in foreign currency?
Yes, withholding tax applies to payments made in foreign currency. The tax amount must be converted to Saudi Riyals at the exchange rate applicable on the date of payment.