Saudi Arabia imposes withholding tax (WHT) on payments made to non-resident entities and individuals for services rendered. These WHT rates range from 5% to 20% depending on the nature of the payment. This guide will help corporate taxpayers in Saudi Arabia understand applicable rates, compliance requirements, and strategies to avoid penalties.
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What is Withholding Tax in Saudi Arabia?
Withholding tax is a tax deducted at source when a Saudi resident entity makes certain types of payments to a non-resident. It ensures that tax is collected from foreign entities earning income in Saudi Arabia without having a physical presence in the Kingdom.
The Saudi Zakat, Tax and Customs Authority (ZATCA) enforces strict WHT compliance, with penalties for late or incorrect filing.
Applicable WHT Rates for Service Payments
| Type of Payment | WHT Rate |
|---|---|
| Technical and Consulting Services | 5% |
| Air Ticket Sales (Airlines) | 5% |
| Rentals of Equipment | 5% |
| Royalties | 15% |
| Insurance or Reinsurance Premiums | 5% |
| Dividends | 5% |
| Management Fees | 20% |
Compliance Obligations for Corporate Taxpayers
- Deduct WHT at the correct rate when making payments to non-residents.
- File WHT returns with ZATCA on a monthly basis.
- Pay the withheld tax within the statutory deadline to avoid penalties.
- Maintain detailed contracts and invoices to justify the payment classification.
Penalties for Non-Compliance
Failure to deduct, file, or pay WHT on time can result in:
- Late payment penalties (1% of unpaid tax per month).
- Additional fines for incorrect filing or underreporting.
- Possible restrictions on renewing business licenses or visas.
Strategies to Reduce WHT Burden
- Check if a Double Tax Treaty (DTT) exists between Saudi Arabia and the non-resident’s country.
- Structure service agreements to optimize tax efficiency within legal limits.
- Ensure service classifications are correct to avoid being charged the higher rates (such as 20% on management fees).
Key Takeaways
- WHT rates in Saudi Arabia range from 5% to 20% based on the nature of the payment.
- Corporate taxpayers must ensure correct deduction, filing, and payment to remain compliant.
- Double Tax Treaties may help reduce applicable rates if documentation is in order.
