Definition of Withholding Tax in Saudi Arabia

Withholding tax is a direct tax deducted from amounts received by non-residents from sources within the Kingdom. Implementation of withholding tax began in 2004. This tax aims to ensure collection of taxes due from non-resident individuals and companies that generate income from Saudi sources.

Historical Background

The tax system related to withholding tax in Saudi Arabia was issued by Royal Decree and Ministerial Resolution on 11/6/1425H, representing one of the pillars of the tax system in Saudi Arabia. Withholding tax was previously known as "non-resident tax."

Who is Subject to Withholding Tax?

Non-Residents

Imposed on non-residents who do not have a permanent establishment in the Kingdom when they generate income from a source within the Kingdom. A non-resident person means someone who does not qualify as a resident in the Kingdom, i.e., does not hold Saudi nationality or those treated similarly.

Practical Examples

An American company provides technical services within the Kingdom and has no permanent establishment in the Kingdom, therefore tax must be withheld from the amount paid for these services.

Who is Responsible for Withholding Tax?

The party responsible for withholding and remitting the tax amount to ZATCA is the resident who pays amounts subject to "withholding tax" in the Kingdom to a non-resident.

Entities Responsible for Remittance

Withholding tax is remitted by the following entities:

• Any company or individual conducting business activity and meeting residence conditions specified in the system
• Permanent establishments in the Kingdom employing non-residents
• Government departments, ministries, public authorities, and any legal entity or institution in the Kingdom

Withholding Tax Rates in Saudi Arabia 2025

Withholding tax is a fundamental component of the Saudi tax system, with rates varying according to the type of service or income provided to non-residents. The following table shows official rates approved by ZATCA:

Type of Income	Withholding Rate
Dividends	5%
Interest and loan fees	5%
Rent	5%
Technical and consulting services	5%
Air tickets and air/maritime freight	5%
International telecommunications services	5%
Insurance and reinsurance premiums	5%
Royalties	15%
Other services (training, recruitment, accounting, marketing) partially performed in KSA	15%
Management fees	20%

Important Notes:

• Technical and consulting services rate reduced from 15% to 5% effective September 2023
• Rates may differ under double taxation avoidance agreements with other countries
• Companies qualifying for Regional Headquarters program may receive special tax exemptions

How to Calculate Withholding Tax

Basic Formula

Tax is calculated using this simple formula: Tax Value = Supply Value excluding VAT × Withholding Rate

Practical Example

If a non-resident's salary is 1,000 SAR with a 15% withholding rate, the tax amount equals supply value (1,000 SAR) × 15% = 150 SAR (withheld amount), with remaining amount (850 SAR) delivered to beneficiary.

Withholding Tax Declaration Procedures

Basic Steps

1. Access ZATCA electronic portal zatca.gov.sa
2. Create withholding form and complete financial data
3. Upload form for automatic calculation
4. Issue invoice and pay through SADAD system

Required Timing

Withholding tax declaration in Saudi Arabia must be submitted within 10 days of the month following the transfer or payment to non-resident.

Payment Deadlines

Withholding tax must be paid no later than the 10th day of the month following the month in which amounts were received from the non-resident.

Timing Example

American company provides technical services within the Kingdom without permanent establishment. Resident company paid amount for services on January 5, 2018. Resident company must withhold tax from amount paid to American company and remit due tax within first 10 days of February 2018.

Penalties and Fines

Late Payment Penalty

1% of unpaid amount for every 30 days delay

Detailed Penalties

Financial penalty of 1% of unpaid tax value imposed for each month payment wasn't made, plus payment of tax value not yet paid by its statutory deadline.

Manipulation Penalty

For intentional non-disclosure of withholding tax data or providing false data, financial penalty of 25% of unpaid tax value is imposed.

Entity Obligations

Basic Obligations

• Register with ZATCA
• Submit withholding form through ZATCA portal account
• Pay dues according to withholding form
• Provide withholding operation information for each fiscal year
• Maintain withholding-related records for at least 10 years

Installment Option

You can request installment payment of withholding tax amounts and penalties by submitting application to ZATCA. Application must include tax obligation details and related fiscal periods, with reasons for inability to pay on due dates and supporting documents.

Responsible Authority

ZATCA (formerly General Authority for Zakat and Income) is a government entity aiming to collect zakat, taxes, and customs while providing high-quality services to taxpayers.

Conclusion

Withholding tax in Saudi Arabia is an important part of the tax system ensuring tax collection from non-residents earning income from Saudi sources. Understanding different rates (5%, 15%, 20%) and submission/payment procedures enables entities to ensure full compliance and avoid penalties.

Important Compliance Tips:

• Pay on time (within 10 days of following month)
• Keep all documents for at least 10 years
• Use ZATCA electronic portal
• Calculate correct rate based on service type
• Contact ZATCA for installment requests if unable to pay

For more information and updates, visit ZATCA's official website or consult a specialized tax advisor.