What is Withholding Tax on Salaries?
Withholding Tax is a tax deducted from payments made by a resident in Saudi Arabia to a non-resident (outside the Kingdom) for certain services or revenues. In other words: if you or your company benefit from services provided by an entity outside Saudi Arabia, you are obligated to deduct a tax percentage before transferring the amount.
Who is Subject to Withholding Tax?
- Saudi companies and institutions that contract with entities outside the Kingdom
- Resident individuals (including citizens and residents) when paying non-residents
- Branches of foreign companies within Saudi Arabia
- Permanently related establishments (PE) in the Kingdom
Withholding Tax Rates in Saudi Arabia
According to the Income Tax Law and its executive regulations, the rate varies depending on the type of payment:
- Dividends: 5% of the total amount
- Interest: 5% of the total amount
- Royalties and franchise fees: 15% of the total amount
- Technical, consulting, and administrative services: ranges between 5% – 20% depending on the type of service
How to Pay Withholding Tax?
- Register the payment via the Zakat, Tax and Customs Authority portal (zatca.gov.sa)
- Calculate the tax = (Amount × Tax Rate) ÷ (1 – Tax Rate) — because the tax is calculated on the total amount
- Pay within 10 days from the end of the month in which the payment was made
- Submit the declaration within the periodic tax declaration (monthly or quarterly)
What is the Difference Between Withholding Tax and Income Tax?
Withholding tax is deducted at the source (before transfer) and paid to the authority. Income tax, on the other hand, is calculated on the net profits of the establishment for the entire year. The key difference: Withholding tax ensures that the authority collects tax from non-residents without the need for them to submit a declaration in Saudi Arabia.
Double Taxation Avoidance Agreements
Saudi Arabia has signed more than 50 double taxation avoidance agreements with countries such as China, the UK, France, India, and Germany. Under these agreements, the withholding tax rate may be reduced or completely waived. It is important to verify that the agreement is in effect with the beneficiary country before applying it.
Practical Examples
Example 1: A Saudi company hired a consultant from India for 10,000 SAR. The withholding tax rate for consulting services is 15%. The company deducts 1,764 SAR and pays it to the authority, transferring 8,236 SAR to the consultant.
Example 2: A company pays dividends to a non-resident shareholder amounting to 100,000 SAR. The withholding tax rate is 5% = 5,000 SAR paid to the authority.
Frequently Asked Questions
Q: Is a foreign employee subject to withholding tax on their salary?
A: No. Withholding tax does not apply to the salaries of employees residing within Saudi Arabia. The tax applies only to payments to non-residents outside the Kingdom.
Q: What happens if I delay paying withholding tax?
A: Penalties stipulated in the Income Tax Law apply, which may reach up to 25% of the unpaid tax, in addition to monthly late payment penalties.
Q: Does withholding tax apply to purchases from e-commerce stores?
A: Yes, if the store is not registered in Saudi Arabia and does not have a permanent establishment (PE) in the Kingdom, purchases may be subject to withholding tax depending on the nature of the goods or service.
Q: How can I benefit from double taxation agreements?
A: A tax residency certificate must be provided from the beneficiary state to the Authority, and compliance with the conditions in the agreement must be ensured. You can refer to the Authority or a certified tax consultant.
Q: Are online expertise and consulting services subject to withholding?
A: Yes, any service performed from outside the Kingdom and used within it is subject to tax withholding, including digital services.
Last updated: July 2026 — Source: Zakat, Tax and Customs Authority (zatca.gov.sa)
