GAZT is a government agency headquartered in Riyadh and organisationally linked to the Ministry of Finance. The aim is to tax non-resident parties earning income from a source in the Kingdom.
WHT will be deducted from payments made to the consultant/contractor in accordance with the law and tax regulations of KSA (explained in more detail below).
The client is required to declare and make payment of the relevant amount of WHT direct to the General Authority of Zakat and Tax (GAZT). The client is obliged to file and settle WHT monthly tax returns to GAZT within 10 days of the month-end in which the payment is made and is required to submit an annual WHT return at the fiscal year end. Failure by the client to withhold WHT or pay the WHT to GAZT timeously will result in the client being liable to pay ‘late submission fines’ in the WHT that was initially due.
Double Taxation rules may provide relief to withholding taxes payable. If you have a concern that double taxation relief may apply, you should take independent advice from a tax specialist.
WHT is due irrespective of whether the related cost is deductible for tax or Zakat purposes or not. Note:- Zakat is an obligatory payment originating from the religious rules of Islam. Originally, the requirements were addressed to individuals and only in recent times have rules for corporate zakat payers been developed.
The client whilst engaging with consultants/contractors should establish clear definitions of the payment terms within their contracts to ensure there is no dubiety when it comes to paying for services rendered in line with the WHT conditions. All service contracts with non-resident entities should be reviewed from a tax perspective before signing (ie, the wording and definition of the Scope of Services, the tax liability clause, etc).
If a supply contract includes a service portion, the value for the services should be stated clearly to avoid deemed taxable profit computation. The non-resident service provider maybe entitled to tax credits in their home countries against the WHT borne in KSA.
During the contract award, determine the percentage of WHT to be applied to different services, be it 5%, 10%, 15%, or 20% and secondly to separate out those portions of payments which are for goods/equipment which are exempt from WHT.
WHT Rates differ between 5%-20% based upon the type of service and whether the beneficiary is a related party, as follows;
During the contract award, whether traditional or lump sum, it is in the suppliers’ interest to provide a breakdown of the tender price to determine the labour, plant and materials costs, as construction materials are exempt from WHT, minimizing the tax exposure.
WHT rates range from 0%-5% based upon the type of service and whether the beneficiary is a related party, as follows;
The Method of Fee Calculation
1. The client will deduct and retain the ‘Withholding Tax’ WHT element of all international payments due to the consultant / contractor (in the manner set out in the example below).
2. The client will pay the WHT payments directly to the GAZT and will supply the consultant/contractor with auditable document reports to confirm that the payments have been affected.
3. Where specifically directed and authorised by the consultant/contractor, the client will make stage and interim fee payments directly to the appointed sub-consultants which are licenses within KSA – consequently these payments will be free of KSA WHT regulations. All direct payments will be made in full compliance with KSA Tax, applicable regulations and Laws.
Worked Example of Payment to ‘Out of Kingdom’ (non-resident/registered) consultants/contractors
WHT will be applicable on “(D)”, the gross amount payable to the consultant/contractor.
* Payment to the consultant is calculated gross value x 95%