Department of Zakat and Income Tax - Saudi Arabia - The New Income Tax Law - Tax o...

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Tax On Non-residents : Withholding Tax

Withholding obligation: Every resident, whether or not a taxpayer according to the Income Tax Law, and a permanent establishment in the Kingdom of a non-resident which pays an amount to a non-resident from a source in the Kingdom shall withhold tax from the paid amount. Income is considered derived from a source in the Kingdom in any of the following: 1. Income is derived from an activity in the Kingdom: a. Loan charge (proceeds) in any of the following cases: - the debt is secured by movable or immovable property located in the Kingdom, - the borrower is a resident of the Kingdom, - the loan is related to an activity carried out in the Kingdom. b. Insurance/reinsurance premiums in any of the following: - insured asset is located in the Kingdom, - the insurer is a resident of the Kingdom, - insurance of activities or risks related to activities carried out in the Kingdom. c. Income derived from technical or consulting services in any of the following: - the service is given to a person resident in the Kingdom, - the service is related to an activity carried out in the Kingdom.

2. If it is derived from immovable property located in the Kingdom, including gains from the disposal of a share in such immovable properties and from the disposal of shares, stocks or partnership in a company the property of which consists mainly, directly or indirectly of shares in immovable properties in the Kingdom. 3. If it is derived from the disposal of shares or a partnership in a resident company. 4. If it is derived from lease of movable properties used in the Kingdom. 5. If it is derived from the sale or license for use of industrial or intellectual properties used in the Kingdom. 6. Dividends, management or directors' fees paid by a resident company. 7. Amounts paid against services rendered by a resident company to the companys head office or to an affiliated company. 8. Amounts paid by a resident against services performed in whole or in part in the Kingdom. 9. Amounts for exploitation of a natural resource in the Kingdom. 10. If the income is attributable to a permanent establishment of a nonresident located in the Kingdom, including income from sales in the Kingdom of goods of the same or similar kind as those sold through such a permanent establishment, and income from rendering services or carrying out another activity in the Kingdom of the same or similar nature as an activity performed by a non-resident through a

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permanent establishment. Place of payment of the income shall not be taken into account in determining its source.

Withholding Tax Rates:

Withheld amount from gross amount paid shall be as follows:

Type of payment - Management fees - Royalties or proceeds; payments for services to a head-office or related company - Payments for rent; payments for technical and consulting services; payments for air tickets, air freight and maritime freight; payments for international telecommunications services; dividends; loan charges; insurance or reinsurance premiums - Other payments

Rate 20% 15% 5%

15%

* Management fees means payments for management services contracts, such as hotel management contracts, ship management contracts, etc.

* "Royalties" means payments received for use of or the right to use intellectual rights, including, but not limited to, copyright, patents, designs, industrial secrets, trademarks and trade names, know-how, trade and business secrets, goodwill, and payments received against the use of information related to industrial, commercial or scientific expertise, or against granting the right to exploit natural and mineral resources. *" Rent" means payments for rent contracts, such as rental of equipment, machines, houses and Information networks. * Technical and consulting services" means any type of technical, technological and scientific services, including studies and research on different fields, surveying work of scientific, geological and industrial nature, consulting or supervisory services, or any type of engineering services including relevant designs. * Payments for air tickets, air freight and maritime freight means any payment for air tickets, air freight and maritime freight paid in the Kingdom to air and maritime transport companies, their agents or representatives in the Kingdom. * Payments for international telecommunications services means any amounts paid to a non-resident party in return for services related to provision of international telecommunications services from the Kingdom. * Dividends means any distribution by a resident company to a non-resident shareholder, and any profits transferred by a permanent establishment to related parties; the following should be considered: a. Dividends by companies engaged in natural gas investment, oil and hydrocarbons are not subject to withholding tax. b. Partial or full liquidation of a company is deemed to be dividends for payments in excess of paid-in capital. c. Subjection of a distributing company to income tax shall not preclude imposition of withholding tax on its dividends. * Loan charge (proceeds/interest)" means any amount paid to a non-resident for the use of money. * Other payments means payments from a source in the Kingdom to a non-resident for services other than services mentioned in this Article (1) above.

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Withholder's Obligations: A person, natural or corporate, required to withhold tax is obligated to do the following: 1. Registering with the Department. 2. Withholding due amount and paying of withheld amount to the Department within the first 10 days of the month following the month of payment to the beneficiary using the prescribed monthly form. 3. Filing the annual withholding form within 120 days of the end of the financial year, and within 60 days for partnerships. 4. Providing the beneficiary with a certificate stating the beneficiary's name, amount of payment, value of tax withheld and number and date of payment receipt. 5. Maintaining records required to prove the correctness of the withheld tax. Withholder's Liability a. The person responsible for withholding tax under the Income Tax Law who fails to withhold tax as required, fails to pay withheld tax, or fails to report withholding statements to the Department is personally liable to pay the unpaid tax and any resulting delay fines in accordance with paragraph (a) of Article Seventy Seven which is 1 percent of unpaid tax for every 30 days of delay from calculated from the due date to the date of payment. b. A withholder who hides information, or submits incorrect information to the Department with the intent to evade taxes is personally liable to pay the penalty amount as stipulated in Article 77(b) which is 25 percent of unpaid taxes. Other Withholding Provisions:

a. The withholding tax as of rates stated in 2 (above) shall be imposed on total amount paid to the non-resident as of 13/6/1425H (30/07/2004). b. The withholding tax is imposed on gross amount paid notwithstanding expenses incurred to make the income, and notwithstanding full or partial allowance/disallowance, as a deduction, of such payment; it shall also be even imposed on payments attributed to contracts concluded before the effective date of the Law. c. Withholding tax provisions shall not apply to a natural person who conducts no activity. d. A payment by a permanent establishment is deemed to be a payment by a resident company. e. If an amount is paid to a non-resident and for which tax is withheld, that tax shall be final, taking into consideration that no further tax shall be imposed on the income from which the tax was withheld, and no refund of any amount paid as withholding tax. f. If the amount is paid to a non-resident who conducts business in the Kingdom through a permanent establishment, and the amount paid was directly connected with the business of the establishment, such amount shall be calculated in determining the tax base of the non-resident. g. If tax is withheld for an amount paid to a taxpayer which is included in its tax base, the tax withheld shall be deducted from the tax due on the taxpayer's tax base. h. If tax is not withheld and paid within the legally prescribed time, the recipient remains liable to the Department for the amount of tax. The Department may recover the tax from the recipient, its agent or sponsor.

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Withholding Tax Forms

1. Withholding Tax Monthly Form:

This form is considered to be a monthly self-assessment return of withheld tax. The withholder must file this form with the Department within the first 10 days of the month following the month of payment to the recipient.

2. Withholding Tax Annual Form:

The withholder must file the withholding tax annual form filled out within 120 days of the end of the financial year, and within 60 days for partnerships.

http://www.dzit.gov.sa/en/NewIncomeTaxLaw/NewIncomeTaxLaw4_3.shtml

4/7/2011