# A Business Guide to Withholding Tax in Saudi Arabia: What It Is and How to Pay It *Everything you need to know about paying non-resident suppliers without walking into a penalty* > **In short:** Withholding tax in Saudi Arabia explained: who pays it, the 5%, 15% and 20% rates, filing deadlines, treaty relief, and record-keeping rules. - **URL:** https://www.snad.io/en/blog/withholding-tax-saudi-guide-for-business - **Arabic original:** https://www.snad.io/blog/withholding-tax-saudi-guide-for-business - **Category:** Explainers — ZATCA & Tax - **Tags:** withholding tax, ZATCA, tax, tax compliance, cross-border payments - **Published:** 2026-01-29 - **Updated:** 2026-08-02 - **Publisher:** Snad (snad.io) Withholding tax is one of the least understood parts of the Saudi tax system — most business owners meet it for the first time when a penalty notice arrives from ZATCA. Understanding it in advance is what keeps it from becoming an expensive surprise. ## What is withholding tax and who is liable for it? Everyone knows Value Added Tax (VAT). Withholding tax, on the other hand, stays vague for a great many business owners. Put simply: if you pay money to an entity or a person who is a **non-resident** in Saudi Arabia in return for services they provided to you — consulting, Google Ads, software licences, engineering work — you are required to withhold a percentage of that payment and remit it to the Zakat, Tax and Customs Authority (ZATCA). In that transaction you act as a collection agent for the Authority: the liability sits with you, the Saudi business, not with the foreign supplier. ## The common withholding tax rates Rates differ according to the type of service provided: - **5%:** on items such as rent, international air tickets, and dividends. - **15%:** on management fees and royalties (for example, the use of a trademark or intellectual property rights). - **20%:** on other services such as technical consulting fees. Identifying the service type precisely when you record the invoice in Snad is essential — it is what drives the correct rate and keeps you from remitting late, which triggers a late-payment penalty (1% for every 30 days of delay). ## How to document these transactions in Snad When an invoice arrives from an international supplier — a software company, say — it should be entered in the purchases module in Snad as a foreign supplier. The system lets you record the gross value and flag the withholding tax due on it. That digital trail is what makes preparing the monthly **withholding tax return** straightforward; the return must be filed within the first 10 days of the month following the month of payment. With the reports already sitting in Snad, you are not digging manually through international bank transfers to rebuild the picture. ## Withholding tax vs. VAT The two are routinely confused. Withholding tax is deducted from **what you owe the foreign supplier** and paid to the Authority, whereas VAT on imported services is accounted for under the **reverse charge mechanism**. In some cases you will be liable for both on the same invoice. Snad's accounting system is built to treat the two taxes separately and accurately, so your financial position reflects your company's real tax obligations without the two overlapping. ## Avoiding the costly mistakes in withholding tax The biggest mistake is paying the foreign supplier the full amount and only later discovering that the tax has to come out of your own pocket. The golden rule is to include a clear clause in your international contracts stating that the amounts paid are subject to withholding tax. You should also keep every foreign supplier invoice and every bank payment receipt archived inside Snad, because the Authority can ask for them at any time during a compliance audit. ## The rate is set by who the beneficiary is, not by what the service is called The most expensive error is not forgetting to withhold — it is withholding at the wrong rate. The rate is not determined by the name of the service alone, but by your relationship with the beneficiary. Technical and consulting services and international telecommunication services are withheld at 5% when paid to an independent party, and rise to 15% when paid to a head office or a related company. Same invoice, same description, two different rates. This is the table as set out in Article 63 of the Implementing Regulations of the Income Tax Law, which the Zakat, Tax and Customs Authority republished in its circular on the application of withholding tax under double taxation avoidance agreements (first edition — January 2025): | Type of payment | Independent party | Head office or related company | |---|---|---| | Management fees | 20% | 20% | | Royalties or proceeds | 15% | 15% | | Technical or consulting services | 5% | 15% | | International telecommunication services | 5% | 15% | | Rent | 5% | 5% | | Air tickets and air or maritime freight | 5% | 5% | | Dividends | 5% | 5% | | Loan charges (interest) | 5% | 5% | | Insurance or reinsurance premiums | 5% | 5% | | Any other payments | 15% | 15% | **Management fees**, as the Regulations define them, are amounts paid under management service contracts — hotel management contracts, ship management contracts and the like. **Technical and consulting services** cover studies and research, survey work of a scientific, geological or industrial nature, and supervisory and engineering services including the related drawings and designs. ## Payments where no withholding arises at all Not every transfer abroad is subject to withholding. Four situations come up repeatedly in practice where no withholding applies: - **Payments between residents inside the Kingdom.** No withholding tax is imposed on a payment from one resident to another, nor on a payment to a permanent establishment of a non-resident inside the Kingdom, because those amounts already fall within the scope of income tax or zakat. If your foreign supplier has a branch or a registered permanent establishment in the Kingdom and you contracted with it, there is no withholding. - **Freight for goods shipped from abroad to Saudi ports.** The line item covering air tickets and air or maritime freight applies to amounts paid inside the Kingdom to carriers or to their agents and representatives; it does not extend to amounts paid for shipping goods from abroad into Saudi ports. - **International roaming services.** The Ministry of Finance determined that international roaming payments are not subject to withholding, because the activity is performed entirely outside the Kingdom — unlike other international telecommunication services, cable capacity and satellite capacity, which are subject to withholding at 5%. - **Dividends of gas and oil companies.** Dividend distributions in companies engaged in the investment of natural gas, oil or hydrocarbon materials are not subject to withholding tax. ## The tax applies to the gross amount — and this is where grossing up comes in The Regulations state that the tax is imposed on the **full amount paid** to the non-resident, regardless of any expense the non-resident incurred to earn that income, regardless of whether the amount or part of it is accepted as a deductible expense, and even where the amounts arise from contracts concluded before the Law came into force. You do not net off the supplier's costs or the transfer fees before calculating. Here is where the practical problem shows up: most international contracts are priced **net**, meaning the supplier expects to receive a specific figure in full. In that case the withholding comes out of your pocket, and you have to gross the amount up before calculating: `Gross amount = Net ÷ (1 − rate)` An independent consultant who wants SAR 10,000 net at 5%: the gross is SAR 10,526.32, the amount withheld is SAR 526.32, and the supplier receives SAR 10,000. The gap looks marginal on a single invoice; across a year of subscriptions and licences it becomes a real line item. Run your own numbers through the [withholding tax calculator](/tools/finance/withholding-tax-calculator) before you sign off on the contract wording. ## The annual form and the records: the obligation that quietly slips The monthly return is well known. It is the annual obligation that tends to slip: - **The monthly form:** there is no need to file it in a month in which no amounts subject to withholding were paid. - **The annual form:** mandatory even if there is nothing to declare for the entire financial year. It is filed within a period not exceeding one hundred and twenty days from the end of the financial year, and sixty days for partnerships. - **The records:** they must include the beneficiary's name and address, the type of payment, its value, and the amount withheld, and they must be kept together with their supporting documents for no less than **ten years** after the date of payment — extended if the matter is still under review by the Authority. - **The late-payment penalty:** 1% of the unpaid tax for every thirty days of delay from the due date, and it does not apply if the delay is less than thirty days. Ten years is a long time to rely on an archive scattered across email and bank statements. Linking every non-resident supplier invoice to its transfer receipt inside a single [accounting system](/accounting) turns the annual form into a report you pull, rather than a search you repeat every year. ## Two routes to benefiting from double taxation treaties The Kingdom has concluded more than fifty-six double taxation avoidance agreements, and they override domestic law. But the existence of a treaty does not reduce the rate automatically: the benefit is claimed through one of two routes defined by the Authority, each with its own documentation. | | Exemption at source | Tax refund | |---|---|---| | Timing | Before the tax is withheld and remitted | After remittance at the statutory rate | | Documents | Tax residency certificate from the foreign tax authority + treaty application request on the Authority's form + an undertaking from the resident taxpayer to settle any tax or penalties arising from incorrect information (form Q/7C) | Tax residency certificate + authorisation from the non-resident beneficiary to receive the refund + treaty application request + a copy of the withholding return and the payment receipt + an attested letter from the Chamber of Commerce confirming the amount has not been refunded previously | | Attestation of documents | The Saudi embassy in the beneficiary's country, or an apostille certificate | The Saudi embassy in the beneficiary's country, or an apostille certificate | The limitation period for submitting the claim — or for the Authority to audit it — is five years, after which the right to treaty benefits lapses. Exemption at source is the better route for cash flow, because the money never leaves in the first place, but it requires the attested documents to be ready before the payment date rather than after it. Review the [compliance requirements with the Zakat, Tax and Customs Authority](/zatca) before signing any recurring international contract. ## Regional headquarters: zero percent for thirty years If your entity is licensed as a regional headquarters for a multinational group, the treatment is fundamentally different. The regional headquarters incentives grant a withholding tax rate of **zero percent** for a renewable period of thirty years, counted from the date the regional headquarters licence is issued in the Kingdom, and covering: - Dividends. - Payments to related persons. - Payments to unrelated persons for services necessary to the activity of the regional headquarters. Qualifying for the incentive requires meeting the eligibility criteria and the economic substance requirements issued by the Authority. The exemption does not apply where the payment relates to non-qualifying activities, or in cases of tax avoidance. And most importantly: the incentive lowers the rate, it does not remove the procedure — the monthly form when payments occur, and the annual form, both remain due. ## Frequently asked questions ### When do I have to remit withholding tax to the Authority? The tax must be remitted and the return filed within the first ten days of the month following the month in which the payment was made to the foreign supplier. ### Does the tax change if there is a double taxation treaty in place? Yes. The rate may be reduced or eliminated under the agreements between Saudi Arabia and other countries, but this requires submitting a tax residency certificate for the supplier to the Authority. ### Do I withhold tax on an invoice from a foreign company's branch registered in the Kingdom? No. The Kingdom does not impose withholding tax on payments between residents inside the Kingdom, nor on payments to a permanent establishment of a non-resident inside the Kingdom, because those amounts fall within the scope of income tax or zakat. What matters is the status of the recipient in the Kingdom, not the nationality of the parent company. ### The service was performed entirely outside Saudi Arabia — is it still subject to withholding tax? Yes, if it is a technical or consulting service. Technical and consulting services are subject to withholding tax regardless of where they are performed, as long as the payment comes from a source in the Kingdom. The rate is 5% if paid to an independent party, and 15% if paid to a head office or a related company. ### Do I file a withholding return for a month in which I paid nothing to a non-resident? No. The monthly form does not have to be filed if no amounts subject to withholding were paid in that month. The annual form, however, is mandatory even if there is nothing to declare for the entire financial year, and it is filed within a period not exceeding one hundred and twenty days from the end of the financial year, and sixty days for partnerships. ### How long must withholding tax records be kept? No less than ten years after the date of payment, extended if the matter is still under review by the Authority or the competent bodies. The records must contain at minimum: the beneficiary's name and address, the type of payment, its value, and the amount withheld, together with the supporting documents. ### What is the penalty for remitting withholding tax late? 1% of the unpaid tax for every thirty days of delay from the due date. The late-payment penalty does not apply if the delay is less than thirty days from the due date. ### Is freight on goods imported from abroad subject to withholding tax? Amounts paid for shipping goods from abroad to Saudi ports are not covered by the air tickets and air or maritime freight item in the Implementing Regulations. Amounts paid inside the Kingdom for ticket purchases or air or maritime freight costs to carriers or to their agents or representatives in the Kingdom are subject to withholding at 5%. --- ## About the publisher **Snad (سند)** — a private Saudi software company based in Riyadh, founded 2025. Legal form: Sole proprietorship. Commercial registration: 7038154642 VAT number: 310959226500003 Only official domain: snad.io > Snad is a private commercial business-management platform. It is not a > government body, not a bank, and not a government services portal, and it > is not affiliated with any government entity. Any site or app with a > similar name is unrelated to Snad.