Zakat, Tax and Customs Administration (ZATCA), Saudi Arabia recently published a guide on withholding tax. This guide provides additional information and guidance on how to apply withholding tax (“WHT”). Under the law and tax regulations of the Kingdom of Saudi Arabia (Saudi Arabia), all customers are required to pay withholding tax (WHT) on all payments “outside the Kingdom” to non-resident parties/companies/registered directly with the General Zakat and Tax Authority (GAZT). Withholding tax is levied when payments are made by a permanent establishment or a resident party or to a non-resident party for services rendered. The withholding tax is levied on the total amount paid to a non-resident, regardless of the expenses incurred to generate that income, and notwithstanding the total or partial allowance/exclusion as a deduction from that payment. The successful candidate should keep records of compliance with the provisions on withholding tax, provided that, at least ten years after payment, he has, in addition to any supporting documents, the name and address of his beneficiaries, the method of payment, the amount and the amount withheld. Within the Kingdom of Saudi Arabia (KSA), all companies that do not reside throughout the Kingdom and that trade or provide services throughout the Kingdom are subject to withholding tax (WHT), often referred to as deductible tax, as confirmed by the General Zakat and Tax Authority (GAZT). Service providers are often unaware of the tax structure throughout the kingdom, so the notion of withholding tax is often omitted from the contractual agreement and invoicing. It is important to understand your tax obligations and ensure that they are effectively documented and taken into account outside of the originally agreed fees. Otherwise, the service provider must incur losses of up to 15% of the value of the costs. Non-residents who do not have a legal registration or permanent establishment in Saudi Arabia are subject to withholding tax on their income from a source in Saudi Arabia. A Saudi-based company must withhold taxes on payments to these non-residents in connection with Saudi Arabia`s income.

This rule applies regardless of whether or not the Saudi company is a taxpayer. The withholding tax rates are as follows: The withholding tax applies to the Kingdom of Saudi Arabia to the total amount paid to the non-resident on 30.07.2004. Saudis and nationals of other Gulf Cooperation Council (GCC) countries residing in Saudi Arabia are not subject to income tax in Saudi Arabia. The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Non-Saudi nationals and non-GCC residents and companies with a permanent establishment in Saudi Arabia are subject to income tax on their business income in Saudi Arabia. Payments to non-residents are subject to withholding tax. Except for tax treaty, the withholding tax rate applicable to non-resident companies is summarized as follows: WHT applies to “(D)”, the gross amount payable to the consultant/contractor. A withholding tax is an amount that an employer deducts from employees` wages and pays directly to the government. It is also known as deductible tax because the tax is paid by the payer of the income and not by the recipient to the government. Tax is deducted or withdrawn or from the income due to the beneficiary. According to the provisions of Article 68 of the Income Tax Act (ITL), withholding tax should be levied on the total amount paid to the non-resident on the basis of the nature of the services, and the rates are defined as follows: for non-payment of withholding tax, a penalty of 1% of the unpaid tax is imposed for every 30 days of delay from the due date.

An additional penalty of 25% can be levied on the unpaid tax if the authorities suspect tax evasion. The Saudi Arabian Zakat, Taxation and Customs Authority (ZATCA) has issued a withholding tax directive in English dated July 6, 2021, which provides guidance on the application of the withholding tax (WHT) provisions of the Income Tax Law and its regulations. The Policy includes sections on: 1. The Client must deduct and retain the WHT “Withholding Tax” element from all international payments due to the Consultant/Entrepreneur (as described in the following example).2. The Client must pay the WHT payments directly to GAZT and provide the Consultant/Contractor with verifiable document reports to confirm that the payments are affected.3. To the extent expressly instructed and authorized by the consultant/contractor, the client must make instalment and intermediate fee payments directly to the designated sub-consultants who are licenses within KSA – therefore, these payments are exempt from KSA WHT regulations. All direct payments are made in full compliance with the KSA tax, regulations and applicable laws. Double taxation rules can reduce the withholding taxes payable. If you are concerned that the double taxation relief may apply, you should seek independent advice from a tax professional. Gains from the sale of assets that are not used in a commercial activity are also exempt from tax. Saudi Arabia has also concluded limited tax treaties with the United States and certain other countries on reciprocal exemption from tax on income from the international operation of aircraft and ships.

In accordance with the implementing provisions of the Income Tax Act, the WHT is levied on the total amount paid to the non-resident enterprise, regardless of the expenses incurred to generate the income; full allowances/non-exemptions deducted from this payment. GAZT is a government agency based in Riyadh and linked to the Ministry of Finance. The aim is to tax non-resident parties who derive income from a source in the Kingdom. Saudi Arabia has tax treaties with 51 countries. When awarding the contract, determine the percentage of WHT to be applied to different services, be it 5%, 10%, 15% or 20%, and second, separate the parts of the payments intended for goods/equipment exempt from WHT. As mentioned above, the GAZT offers a choice; Taxpayers can continue to withhold taxes and comply with the refund procedure. Zakat is evaluated according to the following rules: WHT rates differ between 5% and 20%, depending on the type of service and whether the beneficiary is a related party, as follows; An advance payment of tax for the year is payable in three instalments until the end of the sixth, ninth and twelfth months of the taxation year. Read our 10-step guide to moving abroad to make sure everything is covered. Capital gains – In principle, foreign persons are taxed on income from investments in Saudi projects at a rate of 20%.

However, these investments do not include the opening of all types of bank accounts (current, temporary and savings accounts) or the trading of shares of companies listed on the Saudi Stock Exchange by residents who are not subject to tax if certain conditions are met. It is recommended that foreigners seek professional advice to tax their capital gains. The GAZT offers the choice of the automatic application of the tax treaty concerned without going through the refund procedure. The election is given to residents of Saudi Arabia or PEs of non-residents who make payments subject to WHT in Saudi Arabia. You can apply reduced rates or full relief at checkout. The following conditions apply to taxpayers who opt for the automatic application of the DVB-T: Payment means any consideration paid in the form of benefits in kind or in cash, including settlements, compensations, accounting corrections and liabilities A default penalty of 1% for a delay of 30 days is calculated after the expiry of the first 30 days from the due date of the tax until the payment of the tax in upstream. When awarding contracts, whether traditional or flat-rate, it is in the interest of suppliers to provide a breakdown of the bid price in order to determine the costs of labour, equipment and materials, since building materials are exempt from whT, thus minimising the tax burden. WHT is due regardless of whether the associated costs are deductible for tax or zakat purposes or not. Note: – Zakat is a mandatory payment resulting from the religious rules of Islam. Originally, the requirements were aimed at individuals and it is only recently that rules for zakat payers have been developed by companies. Usually, the articles of a contract do not deal with technical services (except Vietnam/Malaysia, where it is part of the royalties), so the country of origin should not have a tax law unless an MOU is created by the non-resident in Saudi Arabia.

Nor does the Treaty with Spain contain an article entitled `EP services`. .