🔍 Introduction
Withholding Tax (WHT) is a critical part of Saudi Arabia’s tax system. It mainly applies to payments made to non-residents for specific services. As international business continues to grow, understanding and properly applying WHT is essential for local businesses engaging with foreign entities.
🧾 What is Withholding Tax?
WHT is a tax deducted at source from payments made by a resident entity in Saudi Arabia to a non-resident supplier in exchange for certain services. The deducted tax must be remitted directly to ZATCA (Zakat, Tax and Customs Authority).
🧭 Scope of Application
WHT generally applies to payments related to:
- Technical and consultancy services
- Royalties
- Equipment rentals
- License fees
- Dividends paid to non-residents
- Interest payments
- Management fees
📊 Withholding Tax Rates by Payment Type
| Payment Type | WHT Rate |
| Technical or Consultancy Services | 5% |
| Royalties | 15% |
| License Fees | 15% |
| Interest Payments | 5% |
| Equipment Rentals | 5% |
| Other Payments to Non-Residents | 15% |
| Management Fees | 20% |
💡 Note: A 20% WHT rate applies to management fees paid to a non-resident, unless a Double Tax Treaty (DTT) applies and reduces the rate.
🧩 Practical Examples:
🔹 Case 1:
A Saudi company hires a non-resident trainer to provide remote training sessions.
✅ Subject to 15% WHT under “Other Payments”.
🔹 Case 2:
A local company engages a foreign consultancy firm to conduct a feasibility study.
✅ Subject to 5% WHT under technical/consultancy services.
Proposed Topic: The Difference Between Value-Added Tax (VAT) and Withholding Tax in Saudi Arabia
📌 Key Notes:
- The Saudi company is responsible for deducting the tax before making the payment.
- The non-resident supplier can benefit from a reduced tax rate if covered under a valid Double Tax Treaty and submits a tax residency certificate.
- Accurate classification of the payment is critical to avoid incorrect tax treatment.
🧾 Conclusion
Withholding tax is a legal obligation that cannot be overlooked. Failing to apply it correctly can result in financial penalties and reputational risk. Businesses should ensure compliance by consulting tax professionals, especially when engaging with non-resident service providers.
