Our Withholding Tax service in Saudi Arabia is part of our tax consultancy services in Saudi Arabia.
Withholding tax is a tax deducted at a source levied on payments made to a non-resident alien, which does not have a permanent establishment in the country, yet generates an income from a resident source within the country. The non-resident alien refers to a foreign individual, foreign corporation, foreign partnership, foreign trust, or foreign estate. As such, the non-resident alien bears the withholding tax burden.
WITHHOLDING TAX IN THE GCC REGION
Within the GCC region, withholding tax is not applicable in Bahrain. Furthermore, in the UAE, 0% withholding taxes will be applicable on cross-border and certain domestic payments under the new UAE corporate tax regime.
Withholding tax is imposed in Saudi Arabia, Qatar, Kuwait, and Oman.
WHAT IS THE WITHHOLDING TAX RATE IN GCC COUNTRIES?
WHAT ARE THE EXAMPLES OF WITHHOLDING TAX IN KSA?
Withholding tax in Saudi Arabia is primarily imposed when a non-resident performs a service for a beneficiary resident in the Kingdom of Saudi Arabia, where the Zakat, Tax and Customs Authority (“ZATCA”) obligates the resident person (the beneficiary of the service provided by a non-resident) to withhold a tax called “withholding tax” at specific percentages of the amount paid in return for a service received from a non-resident.
WHEN IS THE INCOME CONSIDERED FROM A SOURCE IN THE KINGDOM OF SAUDI ARABIA?
- If it arises from an activity carried out in the Kingdom.
- If it arises from immovable property located in the Kingdom; including profits resulting from the disposal of a share in such immovable property, and from the disposal of shares in a company whose assets consist directly or indirectly, of shares in immovable property in the Kingdom.
- If it arises from the disposal of shares or partnership in a resident company.
- If it arises from leasing movable property used in the Kingdom.
- If it results from the sale or license to use industrial or intellectual property in the Kingdom.
- Dividends or disbursement of management and directors’ fees paid by a resident company.
- Amounts for services paid by a resident company to its head office or to an associate company.
- Amounts paid by a resident for services that were fully or partially completed in the Kingdom.
- Amounts for the exploitation of a natural resource in the Kingdom.
- If the income relates to a permanent establishment of a non-resident located in the Kingdom.
CONDITIONS FOR A PAYMENT TO BE SUBJECT TO WITHHOLDING TAX
- An amount paid from a resident person or from a permanent establishment in Saudi Arabia to a non-resident.
- The amount must be from a source of income in the Kingdom of Saudi Arabia.
WHO IS THE PERSON RESPONSIBLE FOR WITHHOLDING TAX IN SAUDI ARABIA AND SUPPLYING IT TO THE AUTHORITY?
The resident (individual or entity) of Kingdom of Saudi Arabia who benefits from the service and pays the amounts subject to withholding tax for non-residents is responsible for withholding, collecting and remitting the amount of withholding tax to ZATCA.
WHO IS SUBJECT TO WITHHOLDING TAX IN SAUDI ARABIA?
Withholding tax in Saudi Arabia is imposed on a non-resident who does not have a permanent establishment in the country and has generated income from a source in the Kingdom of Saudi Arabia, the service provider bears the tax burden.
WHAT ARE THE OBLIGATIONS OF THE ENTITY CHARGED WITH WITHHOLDING TAX?
The resident of the Kingdom of Saudi Arabia is required to file the tax return for withholding within the first ten days of the month following the month in which the amount was paid to the non-resident service provider.
WHAT ARE THE WITHHOLDING TAX EXEMPTIONS?
At present, the law exempts companies engaged in natural gas investments, oil, and hydrocarbons from paying Withholding Tax on their distributed dividends. There are no other exemptions or reductions of Withholding Tax rates under the current law. However, Withholding Tax relief can be availed under a Double Taxation Treaty (DTT) with KSA.
WHAT ARE THE PENALTIES FOR NOT PAYING WITHHOLDING TAX?
- The taxpayer is obliged to pay 1% for every 30 days of delay in payment of tax required to be withheld.
- Another 1% fine for every 30 days of underpayment.
- A 25% fine for concealing or providing false information, fraud in intention of tax evasion.
WHAT ARE THE SOURCES OF INCOME SUBJECT TO WITHHOLDING TAX? AND HOW MUCH IS THE PERCENTAGE?
WITHHOLDING TAX IN OMAN
Foreign companies which do not have a permanent establishment in Oman and yet realize their income from Oman are subject to a 10% Withholding Tax.
The Omani-based entity is required to file the tax return for withholding within 14 (fourteen) days from the end of the month in which the amount was paid or payment is due to the non-resident service provider. The statement of remittance is to be submitted electronically only through the Oman Tax Portal of the Secretariat General.
- Dividends and interest (suspended until May 5th, 2024, under the Economic Stimulus Plan – Oman Vision 2040).
- Management Fees.
- Consideration for research & development services.
- Consideration for the use of or right to use computer software.
- Provision of services (excluding the below exemptions).
- Dividends paid by a limited liability company are exempt from WHT; as profit distributions from ownership in a limited liability company are not considered as dividends of shares.
- Payments related to the provision of the following services: freight charges and related insurance, air ticket and accommodation costs abroad, board of directors meeting, participation in training, conferences, seminars & exhibitions, reinsurance payments, and services provided to businesses or property located outside Oman.
- Distributions paid by governmental authorities and banks on issued bonds and sukuk.
- Interest payable on bank-to-bank facilities for liquidity management purposes.
- Interest payable on bank deposits in Oman.
WITHHOLDING TAX IN QATAR
Non-resident and non-registered individual or company in Qatar who derives its income from an activity, carried out wholly or partially in Qatar is subject to a Withholding Tax at a rate of 5%.
The taxpayer is required to file the Withholding Tax return for withholding electronically to the “Dariba” platform before the 16th day of the month following the month in which the tax was withheld.
Failure to submit the Withholding Tax imposes a financial penalty equivalent to the Withholding Tax amount and a penalty of 2% of the tax per month on delays in remitting tax withheld subject to the full amount of the withholding tax due.
- Fees and other service payments.
A retention tax of 3% of the contract value or the final contractual payment (whichever is higher) applies to payments made to a temporary branch in Qatar by the Qatar government or government agency for a particular project contract.
The retention is released when the temporary branch completes its contract and submits a No Objection Letter issued by the General Tax Authority. The retention system is not applicable to resident companies in Qatar or permanent branches.
WITHHOLDING TAX IN KUWAIT
The tax law in Kuwait does not impose withholding tax, rather, it imposes a somehow a Retention System in which all public and private entities operating in Kuwait are required to retain 5% from the contract value or payment made to a service provider; until the latter submits a tax clearance certificate from the Ministry of Finance (“MoF”). All operational entities in Kuwait are obliged to inform the MoF of the companies they have contracts, agreements, or transactions with and provide a copy of the related contracts.
HOW CREATION BUSINESS CONSULTANTS CAN HELP
We assist clients in the preparation and submission of their withholding tax returns. Some of the services we offer to our clients include:
- Monthly and annual Withholding Tax compliance.
- Responding to queries from tax authorities.
- Assistance in filing objections against assessments.
- Withholding Tax health check.