Any resident entity in Saudi Arabia, including the branch of a foreign company, that pays a non-resident for income sourced in the Kingdom must withhold tax and pay it to ZATCA. The rate depends on what is being paid for.
- Rates run from 5% to 20% depending on the type of payment.
- Tax withheld in a month is filed and paid within the first ten days of the following month.
- Treaty relief is available, but only with the right documents in place before payment.
Withholding tax rates by type of payment
| Payment to a non-resident | Rate |
|---|---|
| Management fees | 20% |
| Royalties | 15% |
| Payments for services to a head office or related party | 15% |
| Technical and consulting services | 5% |
| Rent | 5% |
| Dividends and loan returns | 5% |
| International telecommunication, air tickets, freight, insurance and reinsurance premiums | 5% |
| Other payments | 15% |
The classification drives the rate, and the same invoice can contain more than one type of payment. A support agreement with a group company that combines management oversight, software licences and consulting can fall into three rates; splitting the invoice by its substance avoids applying 20% to the whole amount, or 5% where ZATCA would see a royalty.
Filing and payment
Tax withheld in a calendar month is reported on the monthly withholding tax return and paid within the first ten days of the following month. An annual withholding tax return summarising the year's payments is filed after year-end, within 120 days. Late payment attracts a penalty of 1% of the unpaid tax for each 30 days of delay, on top of the tax itself.
Treaty relief
Saudi Arabia has a wide network of double tax treaties that can reduce or remove withholding tax. Relief is not automatic: the payer needs the non-resident's tax residency certificate and the forms ZATCA prescribes, and must keep them on file. Where the documents are not in place at the time of payment, the domestic rate applies and the refund route is slower.
Regional headquarters
Licensed regional headquarters benefit from a dedicated tax regime that, for qualifying activities, removes withholding tax on specified payments. The conditions are strict and activity-specific, so payments outside the approved RHQ activities still need to be assessed under the general rules.
The mistakes we see most often
- Not withholding on payments to the head office because "it is the same company". A branch is resident in its own right.
- Grossing up incorrectly when the contract states a net amount: the tax is calculated on the grossed-up amount, not the invoice.
- Applying a treaty rate without the residency certificate on file.
- Classifying management fees as consulting to apply 5% instead of 20%.
- Missing the monthly deadline in months with no withholding, then losing track of the payments that do fall due.
Withholding tax is one of the areas we cover for foreign branches and regional headquarters, alongside accounting, zakat and corporate income tax.
