Withholding tax is applicable when payments is made from a permeant establishment (PE) or a resident party or to a non-resident party for services performed. The rates may vary between 5%, 15%, and 20% based on the type of service and whether the beneficiary is a related party. The domestic rate for WHT is 5% on dividends, 5% on interest, and 15% on royalties paid to non-resident, unless the rate is reduced under a tax treaty. According to General Authority of Zakat & Taxes GAZT , it is required to declare and make payment of the relevant amount of WHT direct to GAZT and settle WHT monthly tax returns to GAZT within 10 days of the month-end in which the payment is made. Its mandatory to submit an annual WHT return at the fiscal year end.
Nature of payments and rates are as follow
1 Management Fee 20%
2 Royalties or proceeds; payments for services to a head office or related company 15%
3 Payments for rent; payments for technical and consulting services; payments for air tickets, air freight and maritime freight; payments for international telecommunications services; dividends; loan charges; insurance or reinsurance premiums 5%
4 Other Payment 15%
Implementation of Tax treaty related measures
On September 18,2018, Saudi Arabia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. Saudi Arabia becomes the 84th jurisdiction to join the Convention as noted in the OECD release. These convention updates the existing network of bilateral tax treaties and is intended to reduce opportunities for tax avoidance by multinational enterprises. This model treaty may provide certain relief including WHT on dividends, interest and royalties. Saudi Arabia has entered into tax treaties with several countries. A number of other treaties are at various stage of negotiation, General Authority of Zakat and Tax portal provides details of these conventions / tax treaties. The General Authority of Zakat and Tax propose a choice of automatic application of relevant tax treaty without going through the refund procedure. The option is given to residents or PEs of non-residents that make payments subject to WHT in Saudi Arabia. They can apply reduced rates or claim full relief upon making the payment.
Taxpayers should carefully consider all relevant scenarios in advance, taking into account the wordings of tax indemnity clauses and other provisions of service agreements.