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• Rents, air tickets, air freight, maritime freight and international communications services: 5 per cent.
• Royalties: 15 per cent.
• Management fees: 20 per cent. For example, if an entity that is required to withhold tax owns a ship and there is an agreement with a non-resident company to manage this ship, then these management fees are subject to a withholding tax rate of 20 per cent.
• All other payments: No more than 15 per cent.
The entity required to withhold tax must register with the DZIT before settlement of the first tax payment. Thereafter, the withholding entity must settle with the DZIT the tax withheld within the first 10 days of the month following the month in which the taxable payment is made. For instance, if the amount was paid to the beneficiary on 1 September 2012, then the withholding tax must be settled with the DZIT no later than 10 October 2012.
If the person who is required to withhold tax does not pay the required tax amount to DZIT in time, then the payer is subject to delay penalties of 1 per cent of the unpaid tax amount for every 30 days' delay, starting from the due date of the tax.
Zakat is an Islamic tax levied on Saudi or GCC nationals and firms that are wholly owned by GCC nationals. Although the exact calculation of zakat is complex, it effectively results in a rate of 2.5 per cent of net worth for a person or of total capital resources for a company, excluding capital invested in fixed assets, long-term investments and deferred costs. However, it includes profit from foreign investments that do not consist of investment in real property (profits from that are estimated to be 15 per cent of revenue in instances where no specific information is provided). For income tax and zakat purposes, citizens of GCC countries will be liable to the same extent as Saudi entities.
How are official tax payments determined?
Tax obligations are assessed by the DZIT on the basis of audited financial statements, which must be provided in Arabic. However, in certain instances, firms that operate in Saudi Arabia, but are headquartered in another jurisdiction, may be taxed on a presumptive basis. That means no financial statements are provided and the tax liability is assessed on presumptive profits.
How is income calculated in Saudi Arabia?
The Tax Law in Saudi Arabia does not generally distinguish between different income categories. Instead, gross income consists of all profits, gains and other net income derived from business transactions carried out within the kingdom.
Generally, income is considered to be from a source in Saudi Arabia if it is derived from an activity that occurs in the kingdom, in full or in part. Accordingly, if transactions are only carried out in part, all income derived from such transactions will be considered taxable income.
For income tax purposes, a contract to supply goods to Saudi Arabia is not considered a source of income serviced from an activity in the kingdom unless it includes related work that is performed in the country. In such instances, only the income relating to the work performed in Saudi Arabia is considered to be derived from an activity in the kingdom and is therefore taxable.
Are there taxes for parties providing payments to related entities?
Withholding tax rates on payments made by a branch to its head office or by a company to a related entity are subject to a 15 per cent withholding tax rate.
