Introduction
Doing business in the Kingdom? Withholding tax in Saudi Arabia is essential to understand. Saudi Arabia uses a destination-based taxation system. This means any income received in the Kingdom by non-residents faces withholding at the source. Both individuals and companies are included in it.
Think of it as a safeguard: Saudi authorities collect this tax upfront to prevent revenue leakage. But the rulebook is detailed in 2025 with the complete rollout of ZATCA-approved e-invoicing. This guide walks you through the scope, rates, treaties, and invoicing mandates. Discover the best practices to stay compliant and penalty-free.
What is Withholding Tax in Saudi Arabia?
Who Does It Affect? Scope of WHT
- Non-resident payees: Includes individuals or corporations without a Permanent Establishment (PE) in Saudi Arabia.
- Saudi-source income: Includes earnings from services, property rental, royalties, interest, dividends, equipment leases, telecom, transport, and more.
- Exemption for PEs: If a non-resident operates through a licensed Saudi PE, WHT doesn’t apply. They pay standard corporate income tax instead.
WHT Rates by Payment Type (2025)
| Type of Payment | WHT Rate |
| Dividends |
5% |
| Interest |
5% |
| Royalties (IP, copyright, franchise) |
15% |
| Management, consulting & technical services |
15–20% |
| Real estate rent |
5% |
| Lease of movable property |
5% |
| Insurance/reinsurance fees |
5% |
| B2B telecom and freight services |
15% |
| Airline tickets |
5% |
| Land transport services |
15% |
Domestically, these are the standard rates, but Double Tax Treaties (DTTs) may lower them for residents of treaty countries.
Does a DTT Apply? Treaty Relief Explained
Saudi Arabia’s WHT treaties may reduce or eliminate rates on dividends, interest, and royalties for residents of partner nations. Typical treaty rates:
- Dividends: 0–5%
- Interest: 0–10%
- Royalties: 5–10%
If you have a valid resident certificate from your home country, you may apply for the reduced rate. Just don’t forget to file paperwork with ZATCA.
How to Calculate and Withhold
- Check payment type → find applicable WHT rate.
- Check DTT applicability → adjust rate if valid.
- Multiply the gross payment by the rate. → This is the tax amount.
- Deduct this from your payment.
- Remit it to ZATCA by the 10th day of the next month.
Example:
Paying SAR 1,000,000 in royalties (15% WHT): Withhold SAR 150,000, and remit it. Transfer the remaining SAR 850,000 to the non-resident.
Key Deadlines: Remittance & Reporting
Do remittances within 10 days after the month-end. Right when payment occurs. Report payments made and taxes withheld by the same 10-day deadline. The annual return for standard entities is within 120 days of the fiscal year-end. On the other hand, in partnerships 60 days of year-end closure. Penalties apply for late filing or payment.
WHT + E‑Invoicing FATOORA: Why It Matters
Saudi Arabia mandates e-invoicing under FATOORA Phase 2. This system ensures every B2B invoice is electronically cleared and tax data is shared with ZATCA. How withholding interacts:
- Withheld WHT must be reflected on the e-invoice or linked credit note.
- Payers must ensure that WHT is reported in the same system used for VAT compliance. Especially across Riyadh-based transactions.
- Non-compliance can lead to separate fines under both VAT and withholding regimes.
Do You Need a WHT Certificate?
Yes! Upon remitting withholding tax in Saudi Arabia, the payer can issue a formal WHT certificate to the payee via ZATCA’s portal. This serves as proof of tax paid and can be used to claim credit in home country tax filings. It also supports DTT benefits and maintains transparency and audit readiness.
Record‑Keeping & Audit Obligations
Saudi payers must keep WHT records. This may include invoices, contracts, certificates, and ZATCA returns for 10 years. ZATCA may request records during audits or tax inquiries. Therefore, ensure electronic versions and audit trails are well-managed.
Penalties for Non-Compliance
There are several penalties that occur in case of non-compliance. The late remittance can cause 1% of unpaid WHT per 30-day delay. An additional 25% penalty on unpaid tax if deliberate intent is found. Penalties may also apply under regulatory provisions. This may involve fines and potential interest charges.
Withholding Tax Saudi Checklist
Follow this step-by-step flow to ensure compliance:
- Identify any payment to a non-resident.
- Classify payment type and rate.
- Check for treaty relief & valid certificate.
- Generate compliant e-invoice & credit note (linking WHT).
- Deduct WHT and pay the net amount.
- Remit WHT to ZATCA within 10 days of the month-end.
- File a monthly WHT return.
- Issue a WHT certificate to the payee.
- File the annual return timely.
- Archive records for 10 years.
Common Pitfalls & Practical Tips
| Pitfall | Tip |
| Misclassifying payment type | Create a centralized list of WHT rates for each service category. |
| Forgetting treaty relief | Collect and validate residence certificates before payment. |
| Ignoring e-invoicing requirements | Ensure your ERP/invoicing system links WHT and FATOORA seamlessly. |
| Missing remittance deadlines | Set calendar reminders to avoid late-filing penalties. |
| Poor documentation | Maintain an archive-ready folder with contracts, invoices, and certificates. |
Conclusion
In Saudi Arabia, withholding tax ensures ZATCA collects revenue at the source from non-residents. Rates range from 5–20% depending on payment type. It may drop under treaties, but compliance hinges on timing, accurate e-invoicing, record-keeping, and proactive tax certificates.
Now fully integrated with FATOORA e-invoicing as of 2025, withholding tax is not a standalone concept. It’s part of your digital tax ecosystem. Use the checklist provided and consider professional support to avoid common missteps and penalties.
Looking for help? Company Formation Saudi has the full knowledge. We’ll equip you with how to comply with withholding tax in Saudi Arabia. Guiding you to the way to avoid the penalties and operate a business with full compliance.
Would you like to Learn more about withholding tax Saudi Arabia? Visit our insights section to learn more about this and other topics. If you have any questions, contact Company Formation Saudi. You can email us at contact@companyformationsaudi.com or also call us on +971 43 316 688 and you will talk to one of our representatives, who will answer your questions.
FAQs
- Are payments to a Saudi PE exempt from withholding tax?
Yes, payments to a Permanent Establishment in KSA are not subject to WHT; they fall under corporate income tax instead. - Can treaty relief apply automatically?
No. You must obtain and submit a valid residence certificate from your home country and claim the reduced treaty rate at the time of withholding. - What happens if I miss the 10-day payment deadline?
You’ll face a 1% penalty per 30 days late, and deliberate delays could trigger an additional 25% penalty for evasion - . How long must I retain withholding records?
You must store all WHT-related documentation and e-invoices for at least 10 years. ZATCA can audit at any time within that period.