A Comprehensive Guide on Withholding Tax in Saudi Arabia

Updated on: Feb 23rd, 2024

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4 min read

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Among other taxes, Saudi Arabia levies Withholding Tax (WHT) on businesses operating in Saudi Arabia. Hence, businesses must understand the intricacies of KSA's WHT system.

This article explains all about withholding tax, including what, purpose, applicability, calculation, payment, and reporting.

What is Withholding Tax (WHT) in Saudi Arabia?

Saudi Arabia follows a destination-based taxation system, which means income earned within the Kingdom is subject to tax, regardless of the recipient's residency. WHT serves as a mechanism to collect taxes at the source of certain payments made to non-residents, ensuring timely revenue collection for the government.

Purpose of withholding tax in KSA

  • Secures tax revenue: By collecting taxes upfront, KSA minimises the risk of non-payment by non-residents.
  • Simplifies tax administration: Withholding taxes ease tax collection and compliance for the government and taxpayers.
  • Prevents tax evasion: The system is a deterrent against non-residents attempting to avoid paying taxes on income earned in KSA.

Applicability of withholding tax in KSA

WHT applies to various payments made to non-residents, including:

  • Dividends: 5% for certain qualifying entities, 10% otherwise.
  • Interest: 5% on most interest payments.
  • Royalties: 15% on royalties for intellectual property rights and natural resources.
  • Technical and professional services: Rates vary between 5%, 15%, and 20%, depending on the service type and relationship between parties.

How to calculate withholding tax in KSA?

Calculating WHT involves:

  1. Identifying the applicable rate: Refer to the table or seek professional guidance for specific cases.
  2. Determining the gross payment amount: This forms the base for tax calculation.
  3. Multiplying the rate by the gross amount: This final step provides the WHT amount due.

KSA withholding tax treaties with other countries

Double taxation treaties (DTTs) exist between KSA and several countries. These treaties may reduce or eliminate WHT rates for treaty residents under specific conditions. Consulting a tax professional is recommended for navigating DTTs and claiming potential benefits.

Payment and reporting of withholding tax in KSA

  • Payment: Applicable businesses must pay WHT within ten days of the month following the payment date. Electronic payment through the Zakat, Tax and Customs Authority (ZATCA) portal is mandatory.
  • Reporting: File a WHT return electronically through the ZATCA portal within 20 days of the month following the payment date.

 

Frequently Asked Questions

Who is considered a non-resident for WHT purposes?

Anyone without a permanent establishment (PE) in KSA is generally considered a non-resident.

How can I obtain a WHT exemption certificate?

You can apply for a certificate from your resident country's tax authorities if eligible under a DTT.

What are the penalties for non-compliance with WHT regulations?

Penalties include fines, interest charges, and potential legal action.

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