Understanding of Withholding Tax in the Saudi Arabia
The Middle East is the place to go when you want to give your business the boost it needs. However, local laws will demand you to comply with regulations directed to non-residents of countries like Saudi Arabia. More specifically, we will address the withholding tax in Saudi Arabia.
Navigate through this article to discover everything about the Saudi Arabia withholding tax. For instance, you will encounter its interest rates, exemptions and reductions, and more. So, learn how to comply with this essential piece of legislation in KSA by reviewing the following topics:
Types of Payments Subject to Withholding Tax
Moving or working in another country implies learning several aspects of its way of living. For instance, you cannot become an Emirates resident without researching the minimum wage in the UAE. But what must you know if your future destination is Saudi Arabia?
One of the essential aspects of working as a non-resident in KSA is the withholding tax in Saudi Arabia. Indeed, the Saudi Arabia withholding tax is an income tax you must pay after generating income from a local source. Therefore, it only applies to non-residents providing services in the country.
Nonetheless, only several types of payments apply to the Saudi Arabia withholding tax. For example, non-resident consultants making an income by working in KSA must pay this Saudi tax after receiving management fees, insurance premiums, or travel expenses.
On the other hand, is withholding tax applicable in Saudi Arabia for international contractors? Yes. Above all, these companies, which may include payroll outsourcing providers, will pay this Saudi tax depending on their industry. We will address the specific branches later on.
In summary, the withholding tax represents an essential part of taxes in Saudi Arabia today. After all, it is a country where numerous international companies are doing business. Let us now address its dividend policy.
As happens with every tax in any country worldwide, Saudi Arabia’s taxes have specific interest rates and dividends policy. Assuredly, it is essential information to know as a foreign consultant or contractor in Saudi Arabia, even if you are a remote worker.
In this sense, the withholding tax in Saudi Arabia has a substantially specific dividend policy. Indeed, it establishes that dividends or profit remittances will have a WHT rate of 5%. Furthermore, this rate may increase to 10%, depending on your country.
On the other hand, the ownership of the consultant or contractor could also influence the dividends related to the Saudi Arabia withholding tax. For example, your Professional Employment Organization could pay a different rate if it is government-owned or not.
In short, it is simple to determine the dividends regarding the withholding tax in Saudi Arabia. Now, it is time to dig into its interest rates.
Foreigners can use immigration services to settle in several countries in the Middle East. Nonetheless, is withholding tax applicable in Saudi Arabia for you? If you generate an income as a non-resident, yes. Therefore, let us explain its interest rates in detail.
Fortunately, the withholding tax in Saudi Arabia defines its interest rates without complexity. Indeed, they are 5% for every payment regarding interest rates. Remember, this Saudi tax applies if you are a non-resident receiving interest payments from a local source.
In summary, you now understand if your relocation services could generate a Saudi Arabia withholding tax regarding dividends and interest payments. However, you may have inquiries regarding how to calculate it.
But how can we help you regarding these Saudi Arabia taxes? Indeed, we can begin by showing you how to calculate and deduct them in our following subject.
Calculation and Deduction
Determining the tax payments of an HR management companies is no different from calculating your income taxes at home. Nevertheless, you may think it varies regarding the withholding tax in Saudi Arabia. In other words, how can you determine it adequately?
Above all, it is essential to remember that WHT is a specific type between the different taxes in Saudi Arabia. Indeed, it only applies to the income you may gain from a local source. In this sense, let us show you how to calculate it.
Let us imagine you receive an interest payment of 50,000 SAR today. The regulations regarding the withholding tax in Saudi Arabia will demand you to pay 5% of such sum to authorities. As a result, 2,500 SAR will go as your Saudi Arabia withholding tax, and you will receive 47,500 SAR.
Furthermore, one paramount aspect of this Saudi tax is the time frame you have to pay it. Assuredly, your friend in the Ministry of Labor in Egypt will not be happy if your payment passes the due date. We will address this in more detail later down the road.
Let us keep walking to find the Saudi Arabia withholding tax rates on the following topic.
Withholding Tax Rates
Indeed, a UAE Professional Employment Organization will reveal all the opportunities waiting for you in the Emirates. It is similar to what happens when we dig into the withholding tax rates in Saudi Arabia. Let us study them in detail to help you in your journey.
First, it is worth mentioning that the tax rate in Saudi Arabia varies regarding the WHT for every type of payment. For instance, you will discover that management fees have the highest withholding tax rate at 20%, followed by royalty or license fees at 15%.
On the other hand, the income from consulting services and contractors will generate withholding tax in Saudi Arabia at a 5% rate. The same happens with payments regarding international communications and rent. It seems high, but trust us, Saudi Arabia is worth it.
As we stated earlier, knowing how much your Saudi Arabia withholding tax will be is not your only focus. After all, it is a Saudi tax with specific obligations to comply with. Do you want to analyze them? Our following topic will give you what you need.
Withholding Tax Obligations
Taxes involve complying with regulations in every country worldwide, including Middle Eastern nations like Oman. Therefore, it is reasonable to think that the withholding tax in Saudi Arabia does not escape this reality. In this sense, let us assess the withholding tax obligations in Saudi Arabia.
First, the WHT, as all Saudi Arabia tax, has a payment deadline. Indeed, the General Authority of Zakat and Tax (GAZT) will ask you to pay the withholding tax during the first ten days of the following month after the related payments. Therefore, it is a monthly process.
Furthermore, failing to comply with this deadline could make you face severe penalties that we will address later. Hence, avoid committing this fault and always pay the correct Saudi Arabia tax rate. Indeed, you do not want problems with Saudi authorities any time soon.
So, the withholding tax in Saudi Arabia must be on your to-do list if you are a non-resident generating income from a Saudi source. Nonetheless, your friend in the Ministry of Labour in Bahrain states that exemptions may apply in your case.
But what exemptions and reductions does the withholding tax in Saudi Arabia cover?
Withholding Tax Exemptions and Reductions
Countries like Turkey have tax systems where exemptions may apply depending on factors such as your income source. Logically, the withholding tax in Saudi Arabia works similarly, having exemptions and reductions that may apply to your profit. Let us study them in detail to help you discover if they do.
In summary, the Saudi Arabia withholding tax has two exemption categories. One relates to several domestic transactions that do not generate a WHT in KSA. The others are exemptions applicable to your country of origin in the form of tax treaties. By all odds, we will study both categories.
Moreover, it is worth mentioning that you must demonstrate that one or more of these exemptions apply to your case. Therefore, it is essential to keep your payment documents and your contract. This way, Saudi authorities will not ask you about the lack of your Saudi tax payments.
So, as your friend in Qatar may say, let us begin with the first category of exemptions: domestic transactions.
Domestic Transaction Exemptions
Paying your withholding tax in Saudi Arabia and keeping a record of it is mandatory if you are an Israeli national working in the Kingdom. However, you could be exempt from paying it if your payment belongs to the exemptions list regarding domestic transactions. But what does this mean?
Above all, you will be exempt from the Saudi Arabia withholding tax if your income relates to materials supply. For example, this exemption applies to you if you provide construction materials from overseas to a Saudi national. Logically, it is a way Saudi authorities promote local development and infrastructure.
Unfortunately, payments for material supply are the only domestic exemption regarding the withholding tax in Saudi Arabia. Nonetheless, we think it is time you know the consequences of not paying this Saudi tax. So, what could happen?
Consequences of Non-Compliance
Remember what we said earlier about a deadline applicable to the Saudi Arabia withholding tax? Here is where your friend with a new mobile number in the UAE will explain the consequences of non-compliance. Indeed, they can be substantially severe in countries like Saudi Arabia.
The first penalty you could face for not paying the withholding tax in time is having to pay more. In this sense, Saudi authorities can impose a penalty of 1% of the unpaid tax for every thirty days of delay.
A worst-case scenario could happen if Saudi authorities suspect you are committing tax evasion. Indeed, they can apply an additional penalty of 25% if that is the case. Hence, give them no reason to believe so, even if you come from a neighboring country like Kuwait.
At this point, we must now address the second category of exemptions related to the withholding tax in Saudi Arabia. In other words, let us talk about the Saudi tax treaties.
The Kingdom of Saudi Arabia, aiming to promote projects like the Saudi Vision 2030, uses strategies to encourage foreign investment and international alliances. Nonetheless, does it apply to you regarding your withholding tax if you are from Libya?
In this sense, Saudi Arabia’s withholding tax involves tax treaties with numerous countries worldwide. The goal is to promote the work of non-residents in Saudi Arabia to improve the local economy. Let us review some examples of these exemptions.
For instance, citizens from the United Arab Emirates are exempt from paying the withholding tax in Saudi Arabia regarding interest payments. It also applies to dividend payments if the non-resident working in KSA comes from Argelia.
Therefore, review if your country has tax treaties with Saudi Arabia today. As a result, you may discover if your income could not generate this Saudi tax.
Remittance and Reporting
Lastly, we cannot end this article without addressing how to pay and report the withholding tax in Saudi Arabia today. Logically, technological advances allow this process to be faster and more efficient in the Kingdom. Let us reveal what this means.
First, you can pay these tax rates in Saudi Arabia using digital tools like bank transfers. On the other hand, you can also attend a General Authority for Zakat and Tax location to deliver your payments using physical currency. But how can you report when you pay your WHT?
Reporting the withholding tax in Saudi Arabia is a process you can perform online. Indeed, your Employer of Record company can visit the GAZT website to declare and register your tax payments. Remember, you should keep these records for future audits.
In short, the withholding tax in Saudi Arabia is a mandatory aspect of generating income in KSA as a non-resident. Nevertheless, it will not keep you from enjoying the advantages of working in the Middle East today. It is the location that will give your business the boost it needs!