Understanding Withholding Tax in Saudi Arabia

Withholding tax is a mechanism where the payer of certain income (such as professional services, rental income, or construction contracts) deducts tax on behalf of the government before making the payment to the recipient. This ensures tax compliance and prevents tax evasion.

Common Withholding Tax Rates

• Professional Services: 5% (consulting, engineering, legal services)
• Rental Income: 5% (residential or commercial property rentals)
• Construction Contracts: 5% (subcontractors and suppliers)
• Commission: 5% (sales commissions and agent fees)
• Salaries: 0% (no withholding for employment income)

Who Must Deduct Withholding Tax?

Businesses and government entities making payments subject to withholding tax must deduct and remit the tax. This typically includes:

• Payments to non-resident contractors
• Professional service payments exceeding thresholds
• Rental payments for commercial property
• Construction and supply contracts

Withholding Tax Compliance with GAZT

All withholding tax deductions must be reported monthly to the General Authority of Zakat & Tax (GAZT). Business must:

• Issue a withholding tax certificate (Shahadah Istiqta') to the payee
• Report on monthly VAT/withholding tax return (Form 401 or e-filing)
• Maintain detailed records of all withholding transactions
• Remit withheld amounts on time to avoid penalties