Withholding tax is the tax that surprises more Saudi businesses than any other, because it is not charged on your income — it is charged on what you pay to non-residents: a software vendor abroad, a consulting firm in Dubai, a parent company charging management fees, a foreign bank collecting loan interest. If you do not withhold it from the payment and remit it to ZATCA on time, you become personally liable for it, with a delay penalty on top.
This guide is built on the text of the Income Tax Law issued by Royal Decree No. (M/1) dated 15/1/1425H (Articles 5 and 68) and its Implementing Regulation (Article 63, with the rate table as amended by Ministerial Decision No. 25 dated 8/1/1445H).
Who has to withhold: broader than most people think
Article 68(a) requires withholding by every resident — whether or not it is a taxpayer under the Law — and by the permanent establishment of a non-resident in the Kingdom, whenever they pay an amount to a non-resident from a source in the Kingdom. A Saudi company that is subject only to zakat and pays no income tax at all is still required to withhold, exactly like a foreign-owned one. The same conditions apply to a natural person for payments relating to his business.
When is a payment “from a source in the Kingdom”?
This is the question that decides whether a payment is caught, and Article 5 answers it. The cases that touch businesses most often:
- amounts paid by a resident for services performed wholly or partly in the Kingdom;
- amounts paid by a resident company for services to its head office or a related company — wherever the service is performed;
- dividends, or management and directors’ fees, paid by a resident company;
- income from leasing movable property used in the Kingdom, or from the sale or licensing of industrial or intellectual property in the Kingdom.
Note the difference between the first two items. A service performed by an independent foreign supplier entirely outside the Kingdom needs its source examined before it is treated as caught; where the recipient is a related company, the payment is caught wherever the service is performed.
The rate table as it stands in the Regulation
Tax is withheld from the gross amount at the following rates (Article 63/1 of the Regulation, as amended in 1445H):
| Type of payment to a non-resident | Rate |
|---|---|
| Management fees (hotel-management, travel-management and similar contracts) | 20% |
| Royalties | 15% |
| Technical or consulting services · international telecommunications · rent · air tickets, air or sea freight · dividends · loan interest · insurance or reinsurance premiums | 5% |
| Any other payments | 15% |
The Regulation defines each heading. Technical and consulting services cover technical, technological and scientific services of any kind — studies, research, surveys, consulting, supervisory and engineering services including drawings (Art. 63/3). Management fees are amounts paid under management-services contracts such as hotel management and travel management (Art. 63/2). Dividends cover any distribution by a resident company to a non-resident shareholder and profits transferred by a permanent establishment to related parties, with a partial or full liquidation distribution above paid-up capital treated as a distribution (Art. 63/6).
A point often missed: the air-ticket and freight heading means payments for international tickets departing from the Kingdom and freight paid to carriers or their agents in the Kingdom — it does not cover amounts paid for shipping goods from abroad to Saudi ports (Art. 63/4).
The procedural obligations: ten days, no more
Under Article 68(b) the person withholding must:
- register with ZATCA and remit the amount withheld within the first ten days of the month following the month of payment to the beneficiary;
- give the beneficiary a certificate showing the amount paid and the tax withheld;
- provide ZATCA at the end of the tax year with the beneficiary’s name, address and registration number and any other information it requests;
- keep the records proving the withholding — the Regulation requires at least the beneficiary’s name and address, the type and value of the payment and the amount withheld, retained with supporting documents for no less than ten years after payment, and longer while any matter remains under review (Art. 63(c) of the Regulation).
The monthly deadline is where even those who know about the tax go wrong: a payment on 25 March means the withholding is due before 10 April — not with the annual return.
Personal liability, and a tax that is final
The most serious part of Article 68 is paragraph (c): the person responsible for withholding is personally liable for the unpaid tax and the delay penalties where it failed to withhold, withheld but did not remit, or did not file the withholding statements. The non-resident beneficiary also remains liable to ZATCA for it (paragraph (d)) — ZATCA may pursue either party.
The delay penalty is fixed by Article 77(a): 1% of the unpaid tax for every thirty days of delay, expressly including delay in remitting tax that should have been withheld, calculated from the due date to the date of payment.
In return, tax withheld on a payment to a non-resident is final: no further tax is imposed on the same income and nothing is refunded (paragraph (e)) — unless the beneficiary operates through a permanent establishment in the Kingdom and the payment relates to its business, in which case it enters that establishment’s tax base (paragraph (f)), or the amount is included in a taxpayer’s base, in which case the tax withheld is credited against its tax (paragraph (g)).
Double taxation treaties
Many of the countries the Saudi market deals with have treaties with the Kingdom that reduce withholding rates or exempt certain payments. A treaty is not applied automatically: the beneficiary’s tax residence in the treaty country must be evidenced, and ZATCA’s procedures for applying the reduced rate or refunding the difference must be followed. Do not reduce the rate on your own judgement without those documents — the shortfall is your personal liability.
A worked example: two faces of the same contract
You engage a non-resident consulting firm for a study worth SAR 100,000, part of which is performed in the Kingdom. The service is consulting, so the rate is 5%:
- If the contract price is gross: you withhold SAR 5,000, transfer SAR 95,000 to the supplier, and remit the SAR 5,000 to ZATCA within the first ten days of the following month.
- If the contract says the amount is net of all taxes: the supplier must receive the full SAR 100,000, so the gross is recomputed so that the net after withholding equals 100,000 — SAR 105,263 gross and SAR 5,263 withheld. The difference is a cost to you, decided by the wording of a single clause.
If remittance in the first case were three months late: a penalty of 1% × 3 = SAR 150 on a small amount. The real problem is not the penalty — it is that the tax itself becomes a personal debt of the business if it was never withheld, at a rate that can reach 20% if the service is characterised as management fees.
The five most common mistakes
- “We are subject only to zakat, so this does not concern us.” The text is explicit: every resident, taxpayer or not.
- Characterising a payment by its label rather than its substance. An invoice headed “services” may in substance be a software licence (royalty, 15%) or management fees (20%). Characterisation follows the contract, not the invoice title.
- Bundling withholding with the annual return. Withholding is monthly: the first ten days of the month after payment.
- Paying foreign cloud services and subscriptions by personal card in the company’s name, so they never reach the withholding records.
- Not issuing the withholding certificate to the beneficiary — a separate statutory duty, and the foreign supplier needs it to claim credit at home.
What is withholding tax in Saudi Arabia?
A tax withheld from the gross amount that a resident in the Kingdom — or a non-resident’s permanent establishment — pays to a non-resident for income from a source in the Kingdom, under Article 68 of the Income Tax Law, at rates between 5% and 20% depending on the type of payment.
Does a company subject only to zakat have to withhold?
Yes. The Law requires every resident, “whether or not a taxpayer” under the Law, to withhold. A Saudi company subject only to zakat must withhold when it pays a non-resident.
What are the withholding tax rates?
20% on management fees; 15% on royalties; 5% on technical and consulting services, rent, air tickets and air or sea freight, international telecommunications, dividends, loan interest and insurance or reinsurance premiums; and 15% on any other payments, under Article 63 of the Implementing Regulation.
When must withheld tax be remitted?
Within the first ten days of the month following the month of payment to the beneficiary, together with a withholding certificate to the beneficiary and an annual statement of beneficiaries to ZATCA.
What is the penalty for late remittance of withholding tax?
1% of the unpaid tax for every thirty days of delay from the due date until payment (Article 77(a)); in addition, a payer that failed to withhold or remit becomes personally liable for the tax itself.
Can a double taxation treaty reduce the rate?
Yes, where the beneficiary is tax-resident in a country whose treaty with the Kingdom provides a lower rate, provided its tax residence is evidenced and ZATCA’s procedures for applying the treaty or refunding the difference are followed.
How we help
Al-Mousa & Al-Tamimi Certified Public Accountants builds a “withholding filter” over our clients’ foreign payments: characterising every contract before signature (service, royalty, management fee, interest) and the cost effect of a net-of-tax clause; a monthly remittance schedule inside the ten-day window; withholding certificates for suppliers; a treaty file for beneficiaries entitled to reduced rates — and a review of past payments to correct them before they become a personal debt.
See our zakat and tax service · Read next: the zakat return — deadline, documents and late-filing consequences · Contact us
Sources: Income Tax Law — Saudi Laws Portal (Articles 5, 68 and 77); Implementing Regulation of the Income Tax Law — ZATCA (Article 63 as amended up to Ministerial Decision No. 25 of 1445H). This article is general guidance and is not a substitute for advice on a specific case.
