A Saudi company engages a consulting firm abroad, pays its fees, and then turns to preparing the withholding tax return. At that moment many people reach straight for the domestic rate. But there is a question that comes first: is there a double tax treaty between the Kingdom and the supplier's country, and what does it say about this particular payment?
The answer may reduce the tax or remove it altogether, and it may also expose a risk the company had not noticed. This article sets out the legal basis briefly, then explains why the treaty should be reviewed before the return is filed rather than after, using the Egypt–Saudi Arabia treaty as an example.
What is withholding tax, and who is responsible for it?
Withholding tax is an income tax on a non-resident that earns income from a source in the Kingdom. In practice it applies to payments made by a person resident in the Kingdom, or by a permanent establishment in the Kingdom, to a non-resident, under Article 68 of the Income Tax Law and Article 63 of its Implementing Regulations. It does not apply to domestic payments between residents.
The party responsible is the payer, not the recipient: the company making the payment withholds the tax from it and remits it to ZATCA, and the supplier receives the net amount. In practice, therefore, the responsibility for getting the rate and the classification of the payment right rests with the paying company.
Rates by type of payment
| Type of payment | Rate |
|---|---|
| Management fees | 20% |
| Royalties | 15% |
| Dividends | 5% |
| Rent | 5% |
| Insurance and reinsurance | 5% |
| Returns on loans | 5% |
| Technical and consulting services | 5% |
| Airline tickets, air or sea freight | 5% |
| International telecommunications services | 5% |
| Any other services from a source in the Kingdom | 15% |
ZATCA's circular points out that technical and consulting services are subject to withholding tax regardless of where they are performed, even if they are performed entirely abroad. So the fact that the supplier works from its own country does not, under domestic law alone, remove the tax.
Note how much the classification matters. The same service could be consulting at 5%, management fees at 20%, or another service at 15%. That is why classifying the payment comes before any calculation.
Deadline and penalty
The return is filed and the tax paid by the 10th of the month following the month of payment. ZATCA charges a penalty of 1% of the unpaid tax for every 30 days of delay after the deadline.
A treaty overrides domestic law
In its circular of January 2025, ZATCA states that the Kingdom has concluded more than 56 double tax agreements, that these agreements take precedence over domestic law, and that taxpayers may benefit from the relief they provide. It adds that eligibility for treaty benefits is assessed case by case.
In other words, a treaty does not work automatically. It allocates the right to tax each type of income between the two countries, and the answer differs by category: business profits, professional services, royalties, dividends or interest.
Example: the Egypt–Saudi Arabia treaty
The treaty was signed in 2016 and entered into force on 1 July 2017. Its provisions were modified by the Multilateral Instrument for the implementation of tax treaty measures, which applies to withholding taxes where the event giving rise to the tax occurs on or after 1 January 2021. The provisions most relevant to a consulting fee are these:
| Article | What it says | Effect on consulting fees |
|---|---|---|
| 7: Business profits | The profits of an enterprise of one country are taxable only in that country, unless it carries on business in the other through a permanent establishment | Fees of an Egyptian firm with no permanent establishment in the Kingdom: the right to tax belongs to Egypt |
| 5(3)(b): Services permanent establishment | A permanent establishment also arises where services, including consultancy, are furnished through employees or other personnel and the activities continue in the other country, for the same or a connected project, for more than 6 months within any 12-month period | A team from the supplier working in the Kingdom for more than 6 months may create a permanent establishment, and the profits attributable to it become taxable |
| 14: Independent personal services | Income of professionals, including accountants, lawyers and engineers, is taxable only in the country of residence, unless a fixed base is regularly available in the other country or the person stays there 183 days or more in any 12-month period | Normally applies to individuals; firms and companies are dealt with under the business profits article |
| 12: Royalties | May be taxed in the source country at no more than 10%. The definition includes information concerning industrial, commercial or scientific experience and technical assistance related to those rights | Licensing know-how or software is not the same as consulting |
| 10 and 11: Dividends and interest | Dividends 5% or 10% depending on the shareholding; interest 10% | Not relevant to services |
The treaty has no separate article for fees for technical services, an article that appears in some other treaties. A payment for a consulting service is therefore dealt with, as a rule, under the business profits article, which is what ZATCA itself confirms in the examples in its circular: a company resident in a treaty country that provides consultancy services remotely to a resident of the Kingdom, and so does not create a permanent establishment, leaves the right to tax its income with its country of residence.
This does not mean every payment to an Egyptian supplier is automatically exempt. The result depends on the underlying facts being true: the recipient must be a tax resident of Egypt, the payment must be described correctly, there must be no permanent establishment or fixed base, and the procedures set out below must be followed.
And where tax is withheld in the Kingdom under the treaty, Article 23 requires the supplier's country of residence to give it a deduction equal to the tax paid in the other country, within the limit of the tax attributable to that income. The supplier will therefore need evidence of the withholding, and it is good practice to give it the payment receipt.
Why review the treaty before filing, not after?
1. Because the amount to withhold may change. A payment may move from 5% to zero if the business profits article applies and there is no permanent establishment.
2. Because the road after payment is harder. ZATCA offers two routes to treaty benefits: at source or by refund. The refund route requires the company to withhold and pay the tax under domestic law first, and then to apply with a substantial set of documents: a tax residency certificate, an authorisation from the supplier to receive the refund, the ZATCA-approved request form, embassy attestation or an apostille, a copy of the return and proof of payment, and a letter from the company, attested by the Chamber of Commerce, confirming that the amount has not been refunded, transferred or set off against any other liability. All of this can be avoided if the matter is settled before payment.
3. Because relief at source needs a procedure, not a judgment call. The paying company applies through ZATCA's portal and obtains its approval after ZATCA verifies that the treaty applies. An internal view on applying a reduced rate is not a substitute.
4. Because the paying company undertakes to bear the consequences of errors. The application documents include an undertaking from the company to settle any tax or penalties due on the supplier as a result of false information, an arithmetic error or a misinterpretation of the treaty. A mistake on the facts, such as overlooking a permanent establishment or working days in the Kingdom, therefore falls on the paying company.
5. Because every payment has its own nature. A contract that combines advice with a licence of know-how or software is not treated as a single item; each element has its own classification and rate. ZATCA says a payment that is not made for the "use of" a right or property is generally business profits rather than a royalty. It is better to settle that split with the supplier before the invoice is issued and paid.
6. Because the time limit is fixed. The time limit to apply, and the time limit for ZATCA to audit, are both five years, after which treaty benefits can no longer be claimed.
Practical steps before filing
- Classify the payment: consulting, management fees, royalties, or a mix? Ask the supplier to split the invoice if necessary.
- Establish the country of residence of the beneficial owner: is there a treaty in force with the Kingdom, does it cover the person and the tax concerned (the first two articles of a treaty usually deal with this), and is the recipient the beneficial owner rather than an intermediary passing the money on?
- Test for a permanent establishment: does the supplier have an office or fixed site in the Kingdom? For how many months has its team worked in the Kingdom within any 12-month period? How many days have individuals stayed?
- Ask for a tax residency certificate: from the tax authority of the supplier's country, which for an Egyptian supplier is the Egyptian Tax Authority. ZATCA accepts the certificate in whatever form the foreign authority issues it, provided it is attested by the Saudi embassy or carries an apostille.
- Choose the route: relief at source before payment, or a refund afterwards.
- Watch the deadlines: the 10th of the month following the month of payment, and five years for the application.
- Keep a file: the contract, the invoice, a description of the service and where it was performed, attendance records for the supplier's team in the Kingdom, the certificate and forms, and the payment receipt.
Common mistakes
- Applying 5% every time without asking about classification or the treaty.
- Assuming that the existence of a treaty means automatic exemption.
- Overlooking a permanent establishment when the supplier's team works in the Kingdom for long periods.
- Requesting the residency certificate long after payment.
- Filing after the 10th of the month.
- Leaving a mixed payment unsplit.
And what about VAT?
The treaty deals only with income taxes. It has no effect on the VAT reverse charge on the same service. We explain that in a separate article: VAT in Saudi Arabia: A Practical Guide for Companies, Including Imported Services.
This article is for general information and is not professional advice on any specific situation. The rules above follow the Income Tax Law and its Implementing Regulations as in force, ZATCA's circular of January 2025 and the text of the Egypt–Saudi Arabia treaty, and were reviewed on 8 October 2026; they may change after that date. If you need a specific case reviewed before filing, you are welcome to contact us.