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Saudi Arabia applies withholding tax (WHT) to many payments from KSA residents (or PEs) to non-residents, with the rate determined by the type of service. The two categories that often trigger questions are management fees and technical/consulting services. This guide explains when each rate applies, how to classify services correctly, and how to reduce exposure via double tax treaties and documentation.
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Quick Snapshot of KSA WHT Rates (Service-Focused)
| Payment / Service Type | Typical KSA WHT Rate | Notes |
|---|---|---|
| Management fees | 20% | Broadly covers centralized oversight, strategic direction, supervision and corporate management support charged by non-residents. |
| Technical & consulting services | 5% | Engineering, IT implementation, advisory, professional/technical services. Watch for re-characterization (e.g., embedded IP → royalty). |
| Royalties / use of IP | 15% | Licences, software IP rights, know-how; sometimes overlaps with service deliverables. |
| Dividends / Interest | 5% / 5% | Domestic statutory rates; treaty may reduce. |
| Air/sea freight, international telecoms, rent (selected items) | 5%–15% | Specific rate depends on category; confirm with current ZATCA guidance and contracts. |
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Classifying Your Service Correctly (Management vs. Technical)
What typically looks like “Management” (20%)
- Group oversight, strategic direction, C-suite “stewardship” fees.
- Centralized decision-making, performance supervision, policy setting.
- Charges based on group allocations without specific deliverables.
What typically looks like “Technical/Consulting” (5%)
- Engineering and implementation services with defined scope & milestones.
- IT integration, ERP deployment, data migration, cybersecurity reviews.
- Professional advisory: legal, accounting, tax, HR/compensation studies.
Red flags for re-characterization
- Software/licensing bundled into a “service” (may be royalty → 15%).
- Marketing intangibles or brand rights embedded in management support.
- Services performed outside KSA but used in KSA (still in scope).
Documentation that helps defend your rate
- Detailed SOWs, timesheets, deliverables, acceptance documents.
- Transfer pricing support for cost allocations and mark-ups.
- Invoices splitting service vs IP/licence and other elements.
Treaty Relief & Special Regimes
Double Tax Treaties (DTTs)
- Some treaties reduce WHT for services/royalties. Obtain a valid Certificate of Residence and meet beneficial ownership and limitation-on-benefits tests.
- Apply the treaty rate at source (if conditions are already met) or reclaim later with supporting evidence.
Regional Headquarters (RHQ) incentives
Qualifying RHQ models may enjoy special tax incentives, including potential 0% WHT on certain outward service payments that are necessary for RHQ activities (subject to meeting program conditions and exclusions). Always verify eligibility before applying any exemption.
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Compliance Flow (Month by Month)
- Identify & classify each non-resident payment line (management vs technical vs royalty, etc.).
- Apply the rate (20%, 5%, 15%, etc.) or treaty rate where conditions are satisfied.
- Withhold, file, and pay by the 10th day of the following month through the ZATCA e-portal (SADAD bill generated).
- Archive invoices, contracts, CoR, and working papers supporting your classification and rate.
Worked Examples
Example 1 — Management fee (20%)
A KSA company pays SAR 1,000,000 to a non-resident parent for centralized management oversight. WHT = SAR 200,000. Net remittance = SAR 800,000. File and pay by the 10th of next month.
Example 2 — Technical services (5%)
Non-resident IT firm implements ERP in KSA for SAR 2,500,000. WHT = SAR 125,000. Ensure SOW and deliverables show it’s a technical service, not a software licence (royalty).
Example 3 — Mixed service + IP
Advisory engagement includes brand licence. Split fees: services (5%), licence (15%). If not split, ZATCA may re-characterize the bundle at the higher royalty rate for the relevant portion.
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Checklist — Before You Pay a Non-Resident
- Do we have a clean classification memo (management vs technical vs royalty)?
- Is there a relevant treaty? Do we hold a valid CoR and meet all conditions?
- Are invoices and SOWs split between services and IP/licensing where appropriate?
- Have we diarized the 10th-day WHT deadline and approval steps?
- Are we archiving all supporting evidence to defend the rate on audit?
FAQs
- Does “performed outside KSA” avoid WHT?
- No. If the service is used in KSA or relates to a KSA activity, WHT can still apply even if work is performed abroad.
- Our parent calls its charge “management & technical support.” Which rate?
- Sub-split the invoice. Pure management oversight generally → 20%; genuine technical/advisory deliverables generally → 5%. If IP/brand elements exist, that portion may be royalty → 15%.
- Can we gross-up?
- Yes, if the contract requires net-of-tax payment, compute WHT on a grossed-up basis and disclose accordingly in the WHT filing.
- How fast are penalties triggered?
- WHT should be paid by the 10th of the following month; late payment can trigger recurring delay penalties until settlement. Keep strict calendars and controls.
References & Official Links
- PwC — Saudi Arabia: Withholding taxes (rates 5%, 15%, 20%)
- Andersen Saudi Arabia — WHT categories (incl. management fees 20%)
- DLA Piper — Technical/consulting services commonly 5%; software/royalty distinctions
- PwC — RHQ incentives (including potential 0% WHT on qualifying payments)
- PwC — KSA tax overview (deadlines and WHT context)
Disclaimer: This guide is general information for corporate taxpayers in Saudi Arabia. Confirm classifications, treaty positions, and rates on the ZATCA portal and with a licensed Saudi tax advisor before filing or paying.
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