Withholding Tax in Saudi Arabia: A Business Guide

When Withholding Tax Applies

This tax applies to specific payments a Saudi company pays to a non-resident party, such as service fees, royalties, or interest, and the withholding rate differs based on payment type.

Withholding tax obligations are often overlooked in arrangements between sister companies, between the Saudi entity and its foreign parent company or subsidiaries, which may expose the company to violations if not carefully reviewed.

Regulatory Basis

This obligation draws on the Income Tax Law and its implementing regulations, which set withholding rates for each payment type.

How It's Calculated and Paid

The paying Saudi company is obligated to withhold the specified ratio from the amount paid to the non-resident party, then remit this amount to the Zakat, Tax and Customs Authority within specified deadlines.

Who Needs to Review This Obligation

Saudi companies paying amounts to foreign parties as service fees or royalties.

International groups exchanging payments between the parent company and its Saudi branches.

We review these arrangements carefully under our zakat and tax service, particularly when payments are recurring and tied to administrative services from the parent company, and we coordinate this review with any service agreements signed between the two parties to ensure the contractual description aligns with the actual tax treatment.

Practical Takeaway

Withholding tax is an obligation easily overlooked in arrangements between sister companies, and deserves proactive review rather than late discovery.

Recurring payments to foreign parties deserve periodic review to confirm the correct withholding rate applied to them.