What is Withholding Tax in KSA?

Withholding Tax (WHT) in Saudi Arabia (KSA) is a tax deducted at source on payments made to non-resident entities for services, royalties, dividends, or other taxable transactions. The payer (Saudi company) deducts the tax and remits it to the Zakat, Tax and Customs Authority (ZATCA).

KSA Withholding Tax Rate Table

These rates can be reduced or eliminated under a Double Taxation Treaty (DTT) between KSA and the UAE.

Impact of KSA Withholding Tax on UAE Businesses

For UAE businesses providing services to Saudi clients, WHT can significantly impact cash flow and profitability.

• Lower Profit Margins: A 5%-20% tax deduction directly reduces income.
• Double Taxation Risk: The UAE business may pay KSA WHT while also being subject to UAE corporate tax.
• Delayed Cash Flow: The Saudi entity withholds tax before payment, affecting liquidity.

To mitigate these impacts, businesses must either claim back WHT or prevent it from being deducted using tax treaty benefits.

How to Treat KSA Withholding Tax in UAE Taxable Income

As of June 2023, UAE corporate tax (CT) applies at 9%, and KSA WHT must be correctly accounted for:

1.     Include Gross Revenue in UAE Taxable Income

• Report total revenue before KSA WHT deduction.
• Example: If a UAE business invoices SAR 100,000, but receives SAR 95,000 after 5% WHT, the full SAR 100,000 must be declared as revenue.

2.     Claim Foreign Tax Credit (FTC) in UAE

• If UAE tax is payable, the KSA WHT can be offset against it.
• Example: If UAE corporate tax liability is AED 10,000, but KSA deducted AED 5,000 in WHT, only AED 5,000 is payable in UAE after claiming FTC.
• Note: Excess FTC cannot be carried forward or refunded in the UAE.

3.     Maintain Proper Documentation

• Keep WHT deduction certificates from KSA to support tax filings in UAE.

How to Claim Back KSA Withholding Tax or Prevent Deduction

1.    Prevent KSA From Deducting WHT (Apply for Exemption or Reduction)

To avoid or reduce WHT, UAE businesses should apply for tax treaty benefits under the UAE-KSA Double Tax Treaty (DTT).

·        Obtain a UAE Tax Residency Certificate (TRC) from the UAE Federal Tax Authority (FTA).

·        Submit TRC to the Saudi Payer (Client) and request them to apply the tax treaty benefits.

·        The Saudi client must file Form Q7B with ZATCA before payment to get approval for reduced or no WHT.

·        Ensure proper classification of services to apply the correct tax treaty rate.

If approved, WHT can be reduced to 0% or 5% instead of higher standard rates.

2.    Claim a Refund for Withholding Tax Already Deducted

If WHT has already been deducted, businesses can apply for a refund from ZATCA in KSA.

·        File a WHT Refund Request with ZATCA through the Saudi payer.

·        Provide supporting documents (TRC, WHT deduction proof, invoices, bank statements).

·        Claim Foreign Tax Credit (FTC) in UAE to offset UAE corporate tax. Refund claims must be submitted within 5 years of the WHT deduction.

What is Form Q or Q7B in KSA Withholding Tax?

Form Q is the Withholding Tax Declaration Form required by ZATCA to report WHT deductions.

Role of Form Q in WHT Compliance

·        The Saudi payer must file Form Q to report and pay WHT to ZATCA within 10 days of month-end.

·        It contains details of the payer, recipient, nature of payment, WHT amount, and tax treaty benefits.

·        If WHT was deducted but should have been exempt under a tax treaty, Form Q can be corrected for a refund.

How Bens Chartered Accountants Can Help

Navigating KSA withholding tax and UAE corporate tax regulations can be complex. Bens Chartered Accountants specializes in such tax structuring and can help your business:

·        Prevent KSA WHT deductions by applying tax treaty benefits (Form Q7B & TRC).

·        Claim back WHT refunds from ZATCA in KSA.

·        Ensure proper UAE corporate tax treatment of foreign WHT.

·        Optimize tax planning to minimize double taxation risks.

·        Handle all tax filings & compliance for UAE.

We have a strong presence in:

• UK – Bens Advisory Ltd
• UAE – Bens Chartered Accountants
• Pakistan – Bens Management Consultants

Contact Us Today:
Email: info@bensauditors.com
Call: +971 4 443 3612

Let’s ensure your business stays tax-efficient and compliant!

Disclaimer: This is not a tax advice neither it should be taken as reference to make a tax decision, please contact your tax advisors for advice.