Withholding Tax in KSA | Tax Essentials

Planning to do business in Saudi Arabia? One key tax regulation that foreign companies and investors need to understand is the withholding tax in KSA. It is important to know how withholding tax works while you are making payments across borders, as well as while dealing with overseas consultants, so that unintended penalties can be avoided and tax-efficient operations ensured.

1. Introduction

Withholding tax in Saudi Arabia is a very important feature of the overall tax framework in Saudi Arabia, particularly for businesses making payments to non-residents. A tax is withheld at source for cross-border transactions like royalties, interest, and service fees.

The tax is very important for anyone planning to do business setup in Saudi Arabia or looking into company formation in KSA, which is increasingly attracting foreign investors through Vision 2030 incentives and pro-business policies. Withholding tax has an impact on costs and, accordingly, on the structure of international agreements and payments.

2. What is Withholding Tax in KSA?

Withholding tax in KSA is a tax on payments made by a Saudi-resident party to a non-resident entity. The tax is withheld from the payment and remitted to the Zakat, Tax and Customs Authority (ZATCA) by the local payer.

The tax is predicated on the following assumptions:

• Payments made to non-residents without permanent establishments in KSA
• Payments for services: consulting, royalties, or dividends
• Cross-border payments for foreign suppliers or licensors

The basis of withholding tax is that it is expected to serve Saudi Arabia more as a tool to govern foreign transactions and guarantee tax compliance for income generated from activities in the Kingdom.

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3. Withholding Tax Rates in Saudi Arabia

The rates depend upon the type of payment and vary accordingly. The succinct version for the latest update of 2025 is as follows:

Type of Payment	Withholding Tax Rate
Dividends	5%
Royalties	15%
Management Fees	20%
Technical Services	15%
Interest Payments	5%

Tax rates may be lowered by some Double Taxation Agreements (DTAs) made between Saudi Arabia and some other countries.

4. Applicability of Withholding Tax

It does not affect all entities equally. Here is where it hits the hardest:

• Saudi companies making payments to non-resident service providers, licensors, or consultants;
• Non-resident suppliers receiving payment from within Saudi Arabia;
• Consultants and freelancers based outside KSA offering remote services.

Resident entities would not be subjected to withholding tax on transactions performed internally. 

However, free zone businesses operating in Saudi Arabia may still be subject to it if they have been dealing across borders.

5. Compliance and Filing Process

The Saudi entity making the payment is responsible for:

• Tax deduction at the applicable rate
• Filing the withholding tax return via the ZATCA portal
• Tax remittance to the authority within 10 days of the month following the payment

Non-compliance leads to penalties, delays in clearance, and more scrutiny into the audit.

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6. Withholding Tax Exemptions and Treaties

It has signed Double Taxation Avoidance Agreements (DTAAs) with over 50 countries. These treaties achieve their aims by:

• Reducing or exempting withholding tax on certain payments
• Preventing double taxation in two jurisdictions with the same income
• Stimulating foreign investments by extending tax incentives

To reap the benefits of the treaty provisions, businesses are required to:

• Have a residency certificate
• Submit a treaty relief application via ZATCA

7. Why Withholding Tax Matters for Foreign Investors

For foreign investors, withholding taxes in KSA will have a direct impact on:

• Cash Flow due to reduced income from tax deductions on outbound payments
• Profit Margins, especially in cases of high-fee services or royalties
• Investment strategy, especially when targeting jurisdictions with better treaty terms

Understanding and planning for this tax can shape the way foreign businesses look at company formation in Saudi Arabia and at structuring their contracts.

8. How Arnifi Can Help?

At Arnifi, we help foreign investors and businesses find their way through tax regulations in Saudi Arabia. Our team, from determining tax requirements to filing accurate returns, ensures that you remain compliant while also optimizing costs.

We deal with:

• Withholding tax assessments
• DTAA applications
• Filing and remittance support
• Structuring cross-border contracts

Arnifi will smooth the process and minimize tax risk for startups or international expansion.

9. FAQs

1. Who pays withholding tax in KSA?

The Saudi entity making the payment to a non-resident is responsible for deducting and remitting the tax.

2. What is the standard rate for royalties or dividends?

Royalties are taxed at 15 per cent, while dividends are taxed at 5 per cent.

3. How do I claim exemption under a tax treaty?

Submit a valid certificate of tax residency and apply through ZATCA to claim DTAA benefits.

4. Is withholding tax applicable to free zone entities?

Yes, if the free zone entity is engaged in cross-border payments to non-residents, withholding tax may apply.

10. Conclusion

Withholding tax in Saudi Arabia is mandatory for all individuals involved in international transactions. A compliance plan disputes penalties and grants sustainable operations and investor confidence.

Need assistance in navigating tax and compliance in KSA? Get in touch with Arnifi for professional advice on business setup and withholding tax.