May 12, 2025

What Is Withholding Tax In Saudi Arabia?

What Is Withholding Tax In Saudi Arabia?

Finding the right talent for your business in the UAE can prove challenging. First, you need to locate candidates with the right skills and experience. Then, you must ensure they are a good fit for your organisation. Finally, you need to navigate the recruitment process in the UAE, which can be complex for overseas employers.

Along with this, an important aspect of hiring overseas workers is understanding the tax implications, particularly when dealing with candidates from Saudi Arabia. Withholding tax is one of these considerations, which can be complex. This article outlines what withholding tax is in Saudi Arabia and how it may impact your hiring process.

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What is Withholding Tax in Saudi Arabia?

tax papers - Withholding Tax Saudi Arabia

Withholding tax is a tax collected at the point of payment. It applies when a resident of Saudi Arabia makes a payment to a non-resident for services or income connected to the Kingdom.

The tax is deducted at source and remitted to the Zakat, Tax and Customs Authority (ZATCA), ensuring that income generated in Saudi Arabia is taxed, even when the beneficiary is not based in the country.

Who Does Withholding Tax Apply To?

Withholding tax (WHT) generally applies to non-resident individuals or legal entities without a registered presence or permanent establishment (PE) in Saudi Arabia. The responsibility to withhold tax lies with the Saudi payer, the withholding person, who must ensure the correct amount is deducted and reported.

What Payments Are Subject to Withholding Tax?

The scope of WHT is defined and includes various types of cross-border payments, such as:

Technical and consultancy services: Payments for expertise delivered to Saudi clients, wholly or partially, within the Kingdom.
Royalties and licensing fees: Income from using intellectual property, software, or other rights in Saudi Arabia.
Dividends and interest: When paid to non-resident shareholders or lenders.
Rental payments: For movable property used within the Kingdom, including equipment or vehicles.
Capital gains: In some instances, such as the sale of shares in companies holding immovable property in Saudi Arabia.

If the non-resident maintains a permanent establishment in Saudi Arabia, income directly linked to that establishment is taxed under the general income tax regime rather than through WHT.

What are the Filing and Compliance Requirements?

Saudi payers must file a monthly WHT return through ZATCA’s e-portal, stating the payments made to non-residents, the type of income, and the tax withheld. This return is due by the 10th day of the month following the payment.

In addition, an annual return must be submitted:

Within 120 days of the fiscal year-end for most entities.
Within 60 days for certain types of entities, such as partnerships.

To demonstrate compliance, it is essential to maintain accurate records, including:

Documentation on payment types
Beneficiaries
Treaty eligibility (if applicable)

Withholding Tax Process In Saudi Arabia

Withholding tax is an income tax applicable to non-residents earning income in Saudi Arabia. When a Saudi resident makes certain payments to a non-resident, they must withhold tax on behalf of the Zakat, Tax and Customs Authority (ZATCA). This process ensures that the government collects tax on income sourced in the Kingdom, even if the beneficiary is a foreign entity or individual.

Who Qualifies as a Non-Resident for WHT Purposes in Saudi Arabia?

A non-resident for withholding tax purposes is an entity or individual who does not have a permanent establishment (PE) in Saudi Arabia. The assessment of WHT obligations occurs when a resident makes a payment to a non-resident for:

Services rendered
Royalties
Dividends
Other income-generating activities

Entities and individuals may avoid WHT if a tax treaty exists between the Kingdom and the non-resident’s country of residence and certain conditions are met.

How to Comply with Withholding Tax in Saudi Arabia

Complying with withholding tax in Saudi Arabia involves a straightforward process. The ZATCA oversees this obligation, which applies when a Saudi resident makes certain payments to a non-resident. Failure to comply with WHT regulations can result in penalties, interest, and harm to the withholding person’s reputation.

The Step-By-Step Process for WHT in Saudi Arabia

Identify the Withholding Person: The withholding person is the Saudi resident (whether a company, government agency, or other organisation) responsible for paying a non-resident. This entity is legally required to assess and deduct the appropriate tax.
Calculate the Withholding Tax: The tax must be calculated on the full (gross) amount of the payment due to the non-resident. The applicable rate depends on the nature of the income as defined under Saudi tax regulations, such as:
1. Dividends
2. Royalties
3. Service fees
Deduct the Tax at Source: The withholding person must deduct the calculated amount before the payment is made to the non-resident. This ensures the tax is collected upfront rather than retrospectively.
Remit the Withheld Amount to ZATCA: The withheld tax must be paid to ZATCA by the 10th day of the month after the payment was made or accrued. Timely payment is essential to avoid penalties or interest.
File the Withholding Tax Returns: A monthly WHT return must be submitted via ZATCA’s electronic portal, disclosing details such as the non-resident's name and country, the nature and amount of the payment, and the tax withheld. An annual return is also required: for most entities, it must be filed within 120 days of the fiscal year-end, and for entities such as partnerships, it must be filed within 60 days.

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Withholding Tax Rate In Saudi Arabia

Withholding tax in Saudi Arabia applies to payments made to non-residents. The rate depends on the nature of the income. The tax is deducted at source by the Saudi payer and calculated on a gross basis, meaning the total amount paid without deductions for costs or expenses.

An Overview of Standard Withholding Tax Rates in Saudi Arabia

Saudi Arabia applies varying withholding tax rates based on the type of income.

Below are the standard WHT rates:

Dividends: 5%
Interest and loan fees: 5%
Royalties: 15%
Management fees: 20%
Rent, technical and consulting services, international transport (air and maritime freight), air tickets, international telecommunications services, and insurance/reinsurance premiums: 5%
Other services (such as training, recruitment, bookkeeping, and marketing), where part of the service is performed in the Kingdom: 15%

Key Considerations Regarding Withholding Tax in Saudi Arabia

Technical Services: The standard rate for technical and consultancy services is 5%, though some services may be subject to different rates depending on their classification under Saudi tax regulations.
Double Taxation Treaties: Saudi Arabia has signed double taxation treaties (DTTs) with numerous countries. These agreements may offer reduced WHT rates or exemptions, subject to submission of the required documentation, such as a valid Tax Residency Certificate from the treaty partner country.
Gross Basis Application: Tax is levied on the gross payment to the non-resident, meaning the recipient bears the full tax burden unless otherwise agreed in the contract.

These rates demonstrate Saudi Arabia’s structured approach to cross-border taxation, ensuring that non-resident entities providing services or making investments in the Kingdom are taxed by established regulations.

Responsibilities of the Withholding Person

In Saudi Arabia, a withholding person is typically a business or individual based in the Kingdom who makes a cross-border payment to a non-resident. The withholding person is responsible for complying with the Kingdom’s withholding tax regulations. Their obligations help support a transparent tax system that facilitates both domestic and cross-border transactions.

What Are The Responsibilities Of The Withholding Person?

The withholding person must:

Deduct the withholding tax: The withholding person must deduct the applicable tax from payments made to non-residents. The rate varies depending on the nature of the payment, such as management fees, royalties, interest, or technical services, and whether a Double Taxation Agreement (DTA) applies. The correct rate must be used per current tax regulations and any relevant treaty provisions.
Remit to ZATCA on time: Once the tax is withheld, it must be remitted to the Zakat, Tax and Customs Authority (ZATCA) via the electronic portal. The payment deadline is ten days after the end of the month when the payment to the non-resident was made or accrued. Late fees may incur penalties.
File monthly and annual returns: The withholding person must submit a monthly WHT return through the ZATCA portal by the 10th day following the payment. An annual return must also be submitted within 120 days of the end of the financial year, or 60 days for certain entities such as partnerships. These returns provide a record of relevant transactions and support overall compliance.
Maintain proper records: Accurate records must be kept for at least ten years. These should include information on recipients, payment amounts, tax withheld, and documentation supporting the classification of payments and any treaty applications. Records must be readily available during an audit or review by ZATCA.
Issue tax certificates to non-residents: Upon request, the withholding person must provide a certificate to the non-resident confirming the amount of tax withheld and paid to the Zakat, Tax and Customs Authority (ZATCA). Recipients commonly require these certificates to claim tax relief or refunds in their home country under a relevant Double Taxation Agreement (DTA).

In meeting these responsibilities, the withholding person helps maintain the consistency of Saudi Arabia’s tax system and supports the proper handling of cross-border payments.

What are Double Taxation Treaties (DTTs) In KSA?

A Double Taxation Treaty (DTT) is an agreement between two countries to prevent individuals and businesses from being taxed twice on the same income. These treaties offer clearer tax guidelines for those involved in cross-border transactions and support international trade and investment.

Saudi Arabia has signed over 50 DTTs with countries including:

The United Kingdom
France
Germany
China
India
Other Gulf Cooperation Council (GCC) members

These agreements demonstrate the Kingdom’s aim to build strong international economic ties and offer foreign investors a clear and consistent tax framework.

Key Aspects of Saudi Arabia’s DTTs

Reduced Withholding Tax Rates

Under many DTTs, income such as dividends, interest, and royalties is subject to a reduced withholding tax rate compared to the standard domestic rate. In some cases, the treaty may allow a full exemption, depending on the terms agreed with the treaty partner.

Treaty Eligibility Requirements

To benefit from a DTT, the non-resident income recipient must provide a valid Tax Residency Certificate issued by the tax authority in their country of residence. Additional documentation may be required to confirm that the treaty provisions apply and that the non-resident is the beneficial owner of the income.

Refund Mechanism for Overpaid Tax

If the lower treaty rate was not applied at the time of withholding, the non-resident may be eligible to request a refund from the Zakat, Tax and Customs Authority (ZATCA). This typically involves submitting a valid Tax Residency Certificate, supporting documents that confirm eligibility for treaty benefits, and evidence of the original tax withheld.

Book a Demo to Speak with Our Team about Our Global HR System

Transform your HR operations with Cercli, which is aligned with the UAE’s vision for business excellence. It is the only platform built specifically for MENA businesses that unifies workforce management needs in one powerful system. Manage your entire team, whether local or distributed across 160+ countries, with our comprehensive solution that handles multi-currency payroll, leave management, onboarding, and compliance documentation tailored to the unique requirements of the MENA region.

Whether you're managing a growing team of 25 or coordinating 500+ employees across multiple countries, Cercli provides the localised expertise and streamlined processes that MENA businesses need to scale confidently and manage remote teams effectively. Experience the only HR platform truly designed for how you do business in the Middle East. Schedule a demo to speak with our team about our international HR platform today

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What Is Withholding Tax In Saudi Arabia?