When and How to File Withholding Tax Returns in KSA?

Withholding Tax (WHT) in Saudi Arabia is a tax applied to payments made by a resident entity to a non-resident for services rendered within the Kingdom. Entities required to deduct withholding tax must do so at the source, remit the payment to the Zakat, Tax, and Customs Authority (ZATCA) within 10 days of deduction, and file both monthly and annual returns within the specified deadlines.

This blog explains what withholding tax is, the process for payment and return filing, the associated deadlines, and the penalties for non-compliance.

What is Withholding Tax (WHT) in Saudi Arabia?

Withholding Tax is part of Saudi Arabia's destination-based taxation system, where income earned within the Kingdom is taxed, irrespective of the recipient's residency. It applies to payments made to non-residents for services rendered partially or wholly in Saudi Arabia.

When Charged: WHT is charged on payments to non-residents by Saudi entities.

Rates: Rates vary based on the type of income:

• Dividends: 5%
• Interest/loan fees: 5%
• Royalties: 15%
• Management fees: 20%
• Technical and consulting services: 5%

Who is Liable: Any resident entity making payments to non-residents is responsible for deducting the withholding tax, remitting the tax to the government and filing monthly and annual returns.

How do you file a withholding tax return in Saudi Arabia?

Companies are required to file two types of returns: a monthly return, which must be submitted within 10 days of the month-end, and an annual return, which must be filed within 120 days of the fiscal year-end. For partnerships, the annual return must be submitted within 60 days of the fiscal year-end.

Steps:

1. Access the ZATCA Portal: Visit the Zakat, Tax, and Customs Authority (ZATCA) website and log in to your account.
2. Navigate to Returns: After logging in, go to the "Returns" section, then select "View Returns," and choose "Monthly Withholding Tax."
3. Create a New Return: Click on "New Monthly Withholding Tax Return" to initiate the filing process.
4. Complete the Form: Fill in the required details, including information about the non-resident beneficiary, payment type, amount, and the tax withheld.
5. Submit the Return: After completing the form, submit it through the portal.
6. Receive Confirmation: Upon submission, you'll receive a confirmation of receipt, a copy of the tax return, and an invoice.

Withholding Tax Payment: Time, Process, and Modes

The withheld tax must be paid to ZATCA within 10 days after the end of the month in which the payment was made. However, penalties are only imposed after a grace period of 29 days, meaning penalties start accruing on the 40th day from the original due date.

Example: Suppose a payment to a non-resident was made on January 15. The withheld tax must be remitted to ZATCA by February 1.

Withholding Tax Payment Process

Follow these steps to remit withholding tax:

1. Deduct the withholding at the time of payment to the non-resident.
2. Log in to the ZATCA online platform using your credentials.
3. Go to the returns or payment section and select "Monthly Withholding Tax."
4. Provide information about the non-resident, payment type, amount, and tax withheld.
5. Use one of the approved methods such as SADAD, Mada, or direct bank transfer to remit the tax.
6. After payment, obtain a receipt, a copy of the tax return, and an invoice as proof of compliance.

Penalties for Non-Compliance

Failure to comply with WHT regulations may result in the following penalties:

1. Late Payment Penalty: 1% of the unpaid tax for every 30 days of delay.
2. Misreporting Penalty: 25% of unpaid tax if false information or tax evasion is proven.
3. Additional Actions: Legal consequences or inability to claim benefits under tax treaties.

Common errors to avoid during WHT filing in KSA

Here are the common errors to avoid when filing Withholding Tax (WHT) in Saudi Arabia:

1. Incorrect Identification of Withholding Person: Ensure the correct entity is registered as the withholding person.
2. Incorrect Tax Rate Application: Apply the correct tax rate for each type of income.
3. Incorrect Taxable Amount Calculation: Calculate the taxable amount before applying the tax rate.
4. Late Filing and Payment: File returns and make payments within the due date to avoid penalties.
5. Missing Documentation: Submit required documents like the tax return, payment receipt, and invoices.
6. Omitting Tax Credit Information: Account for tax credits or exemptions based on tax treaties.
7. Failure to Keep Records: Maintain records for at least 10 years for audit purposes.

Conclusion

Entities liable for withholding tax must ensure that the payment is made within 10 days of the month-end for monthly returns, and the annual return must be filed within 120 days of the fiscal year-end (or 60 days for partnerships).

Failure to make the payment or file the return within these timeframes may result in penalties, including a 1% fine for every 30 days of delay in payment, along with potential additional penalties for non-compliance or tax evasion.