The Withholding Tax is one of the types of taxes imposed by the Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia, and it is enforced based on specific conditions and regulations.

In today’s article, we will discuss the Withholding Tax in Saudi Arabia and explore its key aspects according to the applicable executive regulations.

Withholding Tax Regulations

The Withholding Tax is a form of income tax in Saudi Arabia, levied on non-residents in exchange for payments they receive for certain services.

These services include any activity performed by a non-resident for financial compensation, excluding activities related to the buying and selling of goods and merchandise.

To ensure proper legal governance, Saudi authorities have issued executive regulations for the Withholding Tax, which clearly define the tax, the liable parties, and the taxable services.

Key services subject to this tax include:

• Income derived from the use of industrial and commercial facilities.

• Profit distributions by resident companies to non-resident entities.

• Payments related to lease agreements.

• Profits generated from commercial activities in Saudi Arabia that benefit non-residents.

• Consultancy or technical services provided by a non-resident to a resident.

• Domestic land transportation services.

Article 63 of the Income Tax Law

Saudi Arabia’s tax system is comprehensive and interconnected, with Withholding Tax governed under Article 63 of the Income Tax Law.

According to Article 63, non-resident individuals or entities must pay tax on any income earned from sources within the Kingdom.

It’s important to differentiate between Withholding Tax and income tax:

• Income tax applies to both residents and non-residents, while Withholding Tax applies only to non-residents earning income from within Saudi Arabia.

• Withholding Tax rates range from 5% to 20%, depending on the nature of the payment.

• Income tax rates vary by investment type and range from 20% to 85%.

Refunds and Exemptions

Tax refunds may be requested if the withheld amounts are found to be excessive.

The law also specifies certain exemptions from Withholding Tax, including:

• All capital gains from the disposal of publicly traded securities, under specific conditions.

• Profits from disposing of property not related to business assets.

How is Withholding Tax Calculated?

To calculate the Withholding Tax, the following formula is used:
Tax Amount = (Supply Value excluding VAT) × 15%

For example:

1. If the original price of a product is SAR 100 (excluding VAT),

2. The tax is calculated as 100 × 15% = SAR 15,

3. The final price becomes 100 + 15 = SAR 115.

Our Services at Business Pillars

At Business Pillars, we provide a full range of accounting, legal, and tax services across Saudi Arabia. Our team of experts assists clients with:

• Tax and Zakat services, including filing objections and appeals.

• Bookkeeping and accounting services.

• Internal and external audit procedures.

• Local content services for enterprises.

• Preparation of financial statements.

Read also:

Guidelines for Selective Taxation

Corporate Income Tax in Saudi Arabia and How to Calculate It

Corporate Zakat in Saudi Arabia and How to Calculate It

Value Added Tax Calculation in Saudi Arabia

Submitting the Income Tax Return and How to Pay the Tax