Withholding Tax in Saudi Arabia

Priyanka Babu | Updated on: November 11, 2024

Saudi Arabia has mandated corporate tax rules for businesses gaining income from business activities conducted in the country. When non-residents of the country generate income from a source in Saudi Arabia, they should pay a Withholding Tax to the authorities.

The Saudi source of income, an individual or establishment that earns money for the non-residents, is known as a withholding person. The withholding person can be a government/ non-government establishment. According to the Income Tax Law (ITL) of Saudi Arabia, withholding tax is charged on the total income that is earned by non-residents from source/ sources in the country.

Who should pay withholding tax in Saudi Arabia?

As mentioned above, non-residents should pay withholding tax if they earn income from a Saudi source. Have a look at entities that can be classified as these non-residents:

• A person or establishment that receives payments for the technical or management of services they provide to the withholding person.
• A person or establishment that receives the following types of payment from a Saudi source:
  • Dividends
  • Fees of management or directors
  • Income from services rendered wholly or partially in KSA
  • Businesses/ business activities conducted in KSA
  • Income from rent, including lease of immovable and movable properties located in KSA
  • Debt claim income if it falls within the WHT regulations
  • Royalty income from licensing industrial/intellectual properties in KSA
  • Interest from loans
  • Premiums of insurance/reinsurance
  • Payment for technical/ consulting services provided, even if the services are provided out of KSA

Current Withholding Tax rates in KSA

The amount of Withholding Tax that non-residents in KSA pay will entirely depend on the income they generate for a particular period from a Saudi source. Currently, the Withholding Tax rates in KSA are as follows:

• Management Fees – 20%
• Royalties – 18%
• Dividends – 5%
• Rental income – 5%
• Insurance/Reinsurance premium – 5%
• Freight (air/sea) and airline tickets – 5%
• Land transportation in KSA – 15%
• Payment from any KSA sources other than these – 15%

Withholding Tax – When to file and exemptions/reductions available

Here are some important Withholding Tax obligations, deadlines, and exemptions you should be aware of:

• A withholding person needs to pay Withholding Tax (WHT) within the first ten days of every month in KSA
• The payment can be made through the official portal of ZATCA (Zakat, Tax & Customs Authority).
• Annual WHT returns should be filed 120 days from the end of that financial year; this deadline is 60 days for partnership firms.
• When non-residents in KSA earn their income from supplying construction materials to the nation, their income is exempt from WHT. Currently, this is the only business activity of non-residents that is exempted from WHT.

WHT Penalties in Saudi Arabia

All tax returns, whether WHT or otherwise, should be filed on time in Saudi Arabia to prevent tax notices and penalties issued by the authorities. If you get a tax evasion notice, you can be charged higher penalties than the usual rates in KSA. Here are the current WHT penalty rules in the country:

• For every 30 days delay from the WHT due dates, non-residents should pay a penalty of 1% tax rate.
• If the ZATCA finds out that you have been evading paying withholding taxes, you will be charged an additional penalty of 25% over and above the usual penalty rates.

Ensure you organize all your income sources to have a detailed view for categorizing exempt and taxable income. Also, keep an eye on tax updates released by ZATCA to see whether there are changes to the current tax rates. This will help you compute taxes accurately and avoid penalties.