Every month ZATCA reminds businesses to file withholding tax forms for the previous month within the first ten days, and warns that late payment attracts a penalty of 1% of the unpaid tax for each 30 days of delay. The return looks simple, but its errors accumulate month after month until they surface all at once in an audit.
1. Identifying payments from bank accounts only
Some payments to non-residents sit in payables or are settled against related-party balances without a bank transfer. What matters is payment or crediting in favour of the payee, not the transfer alone.
2. Misclassifying the payment
The rate follows the nature of the payment: technical and consulting services (5%), royalties (15%), management fees (20%). An invoice labelled “services” may in substance be a royalty for software or a brand, changing the rate.
3. Overlooking the related-party rate
Amounts paid to head office or a related party for services attract a higher rate (15%) than ordinary services. This is one of the most frequent audit items.
4. Applying a treaty rate without documents
It is not enough that the payee’s country has a treaty with Saudi Arabia; the treaty must be in force, and the tax residency certificate and required forms must be in place before the reduced rate is applied.
5. Confusing net and gross amounts
If the company has agreed to bear the tax on behalf of the payee, the base is the grossed-up amount, not the net amount transferred. Getting this wrong means under-paying every month.
6. Not reconciling monthly returns to the accounts
At year-end, the totals of the monthly returns should agree to the payments in the accounts and to the annual return. Unexplained differences become assessments.
7. Forgetting unusual payments
International air tickets, freight, international telecoms, insurance and reinsurance premiums, and loan returns may all be subject to withholding — and are often missed because they do not go through usual “suppliers”.
Practical takeaway
- Keep a monthly schedule of all non-resident payments drawn from the general ledger, not only the bank.
- Classify each payee once (service type, relationship, country, treaty, documents) and review the classification annually.
- Reconcile totals quarterly, not only at year-end.