Saudi Arabia imposes withholding tax on amounts paid to a non-resident from a source in the Kingdom, at rates that vary by the type of payment: 5% on rent, 15% on royalties, 20% on management fees, and 5% on international air and sea freight tickets and international telecommunications services.
Who Must Withhold the Tax?
Every resident, whether or not a taxpayer under the Income Tax Law, as well as a non-resident's permanent establishment in the Kingdom, that pays an amount to a non-resident from a source in the Kingdom must withhold tax from the amount paid.
Withholding Tax Rates by Type of Payment
- Rent: 5%.
- Royalty: 15%.
- Management fees: 20%.
- Payments for air tickets, air freight, or sea freight: 5%.
- Payments for international telephone services: 5%.
For any other payments specified by the Implementing Regulations, the tax rate may not exceed 15% where the amounts are paid by a natural person to whom the withholding conditions relating to payments for his activity apply.
Obligations of the Withholding Party
A person who withholds the tax must register with the Department and pay the withheld amount to it within the first ten days of the month following the month in which payment was made to the beneficiary, in addition to providing the beneficiary with a certificate showing the amount paid and the amount of tax withheld.
Is the Withheld Tax Final?
If an amount is paid to a non-resident and tax is withheld from it under this article, that tax is final, no other tax is imposed on the income from which it was withheld, and amounts paid as tax in this manner are not refunded.
The Effect of Withholding Tax on Contracting with Non-Resident Parties
Under the withholding tax rules, a resident entity in Saudi Arabia that contracts with a non-resident party, such as a foreign consultant or a rights holder outside the Kingdom, must compute the appropriate withholding rate for the type of payment and deduct it before transferring the funds, rather than simply transferring the full agreed amount. It is advisable to take this into account when drafting contracts and setting prices with non-resident parties, to avoid unexpected additional obligations for the paying entity.
Personal Liability for Unwithheld Tax
A person responsible for withholding tax under this article is personally liable to pay the amount of unpaid tax if he fails to withhold it as required, or withholds it but does not pay it to the Department. Conversely, if the tax is not withheld at all, the beneficiary himself remains indebted to the Department for its amount.
Is a Final-Withholding-Only Taxpayer Required to Register?
The general registration requirement with the Department does not apply to taxpayers subject only to final withholding tax; it is sufficient in this case for the paying party to withhold the tax and remit it, without the need for a separate activity registration for a non-resident whose only income in the Kingdom is such amounts.
Legal References
- Income Tax Law, Article Sixty-Eight, and Article Fifty-Seven.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.