Monthly and Annual Withholding Tax Submissions: A Practical Checklist

The withholding tax, which is also referred as “tax at source,” is a tax that businesses deduct before paying various types of income, like royalties, interest, dividends to a non-resident entity or individual. Despite waiting for the invoices to later manage the taxes, the company asks for money in advance and then remits it to the government. Withholding tax in Saudi Arabia is a core part of tax collection, as it ensures that the country is collecting taxes on income that is generated within its region by non-Saudis. The Zakat Tax and Custom Authority looks after the WHT to safeguard the Kingdom against any tax breaches and non-compliance.

Governing withholding tax in Saudi Arabia involves both monthly and yearly submissions, and to comply with it efficiently, it is important to classify the taxes accurately, with correct rate computation, time remittance, and organization of supporting paperwork. This article will cover a practical checklist to manage monthly and annual submissions in Saudi Arabia, best strategies for complete compliance, and how SS&CO, which is one of the best accounting firms in KSA, facilitates WHT compliance.

Comprehending Withholding Tax in Saudi Arabia

The concept of withholding tax is not as complicated as it may seem; it is important to make sure that the taxes are paid right away when few types of payments move across borders. In KSA, WHT is applied whenever payments are made to non-residents for their services or income, they obtained from KSA. The tax obligations are applied to the payer, which is the Saudi-based company that subtracts the applicable tax at the time of payment or credit, and then they remit it to ZATCA. However, if the non-resident owns a permanent establishment (PE) in KSA, then the payment will be treated in a different manner and usually considered corporate income tax instead of withholding tax.

Payments that are Subject to Withholding Tax in KSA

Withholding tax is applicable on different types of payments that are made to non-residents, which generally include,

• Dividends that are paid by Saudi companies to non-resident shareholders with a 5% fixed rate.
• Loan fees that are paid to international lenders at 5% rate
• Royalties that are utilized for trademarks, technology, and intellectual properties at 15% fixed rate
• Consulting fees or management fees paid to service providers that are not resident at a rate of 20%
• Technical or professional services that are completely or partly carried place in KSA with a rate varying from 5% to 15% depending on various factors

While the computation of WHT, it is also necessary to find out if there is any double tax treaty between KSA and the Payee’s region, as these treaties can lower or even fully eliminate the taxes on certain payments.

Monthly and Annual Withholding Tax Reporting Obligations

Two types of reports are filed by the Saudi Taxpayers, which are either filed every month or on an annual basis. It includes,

1. Monthly Withholding Tax Return, which is submitted to ZATCA every month and comprises every detail of payment that is made to non-residents.
2. The Annual Withholding Tax Submission Report includes all details, including payments, deductions, and remittances that are made during the fiscal year.

The complete documentation for withholding tax must be properly managed with records for a minimum of ten years, which must have copies of agreements, payment records, proof of tax deductions, certificates from the resident country for DTA, and filed withholding tax return documents. This documentation is crucial for compliance since it guards businesses during audits and disputes.

A step-by-step guide to Monthly Withholding Tax Reporting

It is essential to file the withholding tax returns each month with precise calculations, and at times, this is important to maintain compliance. Below, we will break it down into steps for better clarity

Step 1: Identify Payments Made to Non-Residents

Start off by gathering and analyzing all the payments made to separate the payments made to non-residents. This comprises payments that are related to technical, management, or consultancy services, along with royalties and interest. These payments must be classified properly to reduce errors, overpayments, and non-compliance

Step 2: Determine the Correct Withholding Rate

Once all the payments are organized, each category has its fixed rate, which must be applied, and the right amount must be determined. If the payee country falls in the category of DTA with Saudi Arabia, make sure that if the reduced rate is applied or not. The payees must present a valid certificate of tax residence to gain this benefit. Likewise, any permanent establishment that is non-resident is also not obliged to pay WHT but income tax in Saudi Arabia.

Step 3: Calculate the Tax Base and Deduct the Tax

Find out the withholding tax on the basis of the gross amount of each payment rather than the net, and make sure that the subtracted amount is clearly mentioned on the payment voucher and in the financial records of the company.

Step 4: Remit the Tax to ZATCA

Once you have deducted the tax, it’s time to hand over this withheld amount to ZATCA by using the official payment methods. This payment must reach ZATCA within 10 days after the month’s end as per compliance regulations. In case of any delay in transmission, businesses are exposed to penalties and fines. Hence, it is essential to proactively manage WHT by scheduling automated reminders and outlining the deadlines in the company’s calendar.

Step 5: File the Monthly Withholding Tax Return

Sign up for the ZATCA e-portal if you haven’t done it already. Now file the monthly withholding tax return by submitting the form, which requires details of payment, deducted tax, and supporting documents like invoices and certificates. Now is the time to submit the form and wait for ZATCA’s review. Once it is done, you will receive confirmation as part of your compliance file.

Step 6: Reconcile Data with Accounting Records

After filing the return, thoroughly compare the withholding tax date with your existing accounting and ERP systems. Make sure that the withheld amount matches the transferred amount, and no payment to the non-residents must be ignored. To protect against any legal hurdles later, it is mandatory to reconcile monthly and annual reports completely. If ZATCA finds out any errors in submissions, file an amended return through ZATCA’s portal

A Step-by-Step Guide to Annual Withholding Tax Reporting

Monthly filings are important for recurring obligations, while the annual withholding tax returns are crucial to consolidating all the activities for a complete financial year. Let’s further have a look at the mandatory steps involved in annual withholding tax reporting.

Step 1: Compile an Annual Summary

At the end of the financial year, compile a summarized document with details of each payment that is made to a non-resident, along with withholding taxes. This must have the payment dates, amounts, eligible taxes, deductions, and remittance data.

Step 2: Verify Accuracy and Completeness

Coordinate the annual data against the monthly returns filed with ZATCA; every single detail must match with precision. In case of any irregularities between both, it leads to compliance risk. Therefore, resolving the issues before submission enhances audit readiness.

Step 3: Prepare and File the Annual Return

The withholding tax return must be filed during the time span of 120 days after the end of the taxpayer’s financial year. For some businesses, this time span is reduced to 60 days. Just like monthly returns, annual returns are also filed through ZATCA’s e-portal, which must include all the supporting documentation.

Step 4: Maintain Records and Documentation

Make certain that all the relevant data for the financial years, including the contracts, invoices, receipts, and treaty documents, must be fully organized and stored for a minimum of 10 years. It also streamlines audits and guards against any legal consequences.

Step 5: Conduct Internal Review and Sign-Off

Once the annual return is complete, it is important to review it thoroughly and confirm that all the payments are classified properly, the rates applied are correct, all remittances are timely, and treaty reliefs must be substantiated.

Recommended Approaches for WHT Compliance

Withholding Tax Compliance is vitally important to operate in a legally sound environment in Saudi Arabia. It involves the following core practices to ensure compliance.

• Implement automated tracking systems by deploying advanced software that underlines any discrepancies and finds out the correct rates of WHT
• Conduct a compliance review continuously to forecast imperfections and to stay protected from year-end challenges
• Keep the staff trained to ensure that the accounting and procurement teams are familiar with the WHT obligations and legislation.
• Hire external tax experts if the internal teams are not competitive, as they know the best ways to handle ZATCA guidelines, documentation requirements, and management of cross-border services.

Why Hire SS&CO for Efficient Management of Taxes

SSCOKSA is one of the best accounting firms in KSA, with expert tax consultants on board. We help you not just manage monthly tax compliance but also annual tax submissions as per the ZATCA reporting standards. Our support covers,

• End to-end compliance management with all the data regarding monthly and annual filing
• Digital submission and handling of the ZATCA e-portal and deployment of advanced accounting software
• Expert advisory on the guidance of clients regarding the right rates for non-resident payments and the category in which they fall
• Complete maintenance of records and a schedule that fulfils the tax audits and up to the mark of ZATCA
• Sending notifications of the deadlines to protect from penalties and to make sure of smooth operations
• Preparing and presenting the yearly WHT summary to keep the financial closings in line with tax requirements.

SS&CO refines the withholding tax compliance process by focusing on strategic practices, professional guidance, fine monitoring, and proper execution that ensures that your monthly and annual filings meet the expectations and standards set by ZATCA.