Saudi Withholding Tax on Foreign Services: 5% or Zero?

A company in Riyadh hires a software firm in Tunis to build an internal system for SAR 200,000. The whole team works from Tunisia; nobody sets foot in the Kingdom. The first invoice reaches finance, which withholds 5% and remits SAR 10,000 to the Zakat, Tax and Customs Authority (ZATCA) before the tenth of the following month.

That is a correct reading of domestic law. It is not necessarily the correct amount. The Saudi–Tunisian double taxation agreement can take the tax to zero, and the software licence inside the same contract can push part of it to 15%. Most pages explaining Saudi withholding tax stop at the rate table and a line saying that "treaties may reduce the rate". This article walks through what actually happens when the vendor is resident in a country that has a treaty in force with the Kingdom. Tunisia is the worked example because its treaty text is published and can be read article by article.

Who carries the obligation, and when it falls due

Withholding tax is an income tax on the non-resident, but the duty to collect it sits with the payer. ZATCA's January 2025 circular on applying withholding tax under tax treaties frames it as three questions. Who withholds? The resident making the payment, or a permanent establishment in the Kingdom. On which payments? Those listed in Article 68 of the Income Tax Law and Article 63 of its Implementing Regulations. From which source? Any payment from a source in the Kingdom.

Three points many finance teams miss:

• Where the work is done does not exempt it. The circular states that technical and consulting services are subject to withholding "even when they are entirely performed abroad". The development firm in Tunis does not leave the domestic scope by never coming to Riyadh.
• The deadline is the tenth of the month after payment. ZATCA repeats it in every monthly notice; for example, December 2024 forms were due by 10 January 2025.
• The late-payment penalty is 1% of the unpaid tax for every 30 days of delay, per ZATCA's own notices. On SAR 10,000, a 90-day delay costs SAR 300, and it keeps accruing while the tax is unpaid.

Withholding does not apply to domestic payments between residents. It is a tax on what leaves the Kingdom for a non-resident with no permanent establishment there.

The rate table today, after the 1445H amendment

Ministerial Decision No. 25 dated 8/1/1445H (July 2023) amended paragraph 1 of Article 63 of the Regulations. The rates now read:

Before that amendment, technical and consulting services paid to a related party were taxed at 15%. The amendment removed the distinction: technical and consulting services are 5% whether the vendor is related or independent, and the 2025 circular's table shows the same rate in both the third-party and related-party columns. If your accounting system still applies 15% to services from a parent company, it is running on a text that no longer exists.

A treaty changes the question: may the Kingdom tax this at all?

The table above is domestic law. The circular says that treaties "take precedence over the domestic law", and that the Kingdom has concluded more than 56 of them. When the vendor is resident in a treaty country, the first question is not "what rate?" but "does the Kingdom have the right to tax this income?"

The treaty with Tunisia was signed on 8 July 2010 and has been in force since 2013; its Arabic text is published on ZATCA's website. Three provisions decide the position of a services firm:

Article 7 (business profits): the profits of an enterprise of a contracting state "shall be taxable only in that state" unless it carries on business in the other state through a permanent establishment there.

The protocol, item 2(b): the term "business profits" expressly includes "the provision of services". Services are not a grey category needing interpretation; under this treaty they are business profits.

No technical-services article: some of the Kingdom's treaties contain a separate article on fees for technical services (Article 12A in the models) that lets the source state tax them up to a capped rate. ZATCA's circular covers that case in paragraph 3.2.11. The Tunisia treaty has no such article. Technical and consulting services supplied by a Tunisian company with no permanent establishment in the Kingdom therefore stay under Article 7, and the right to tax them belongs to Tunisia alone.

The circular itself gives a near-identical example in paragraph 3.2.5: a company resident in a treaty state provides online consultancy to a Saudi resident without creating a permanent establishment, and the taxing right goes to the state of residence.

Three situations that bring the tax back to the Kingdom

Zero is not an absolute rule. The treaty itself says when the Kingdom comes back into the picture:

1. A service permanent establishment. Article 5(3)(b) treats the furnishing of services, including consultancy, through employees or other personnel as a permanent establishment where the activities continue in the Kingdom "for a period or periods aggregating more than six months within any twelve-month period". An implementation project where the vendor sends a team to the client's site for seven months is a different case from one delivered remotely. Periods count for the same project or a connected one.

2. A licence is not a service. Where part of the contract pays for "the use of, or the right to use" a copyright of a scientific work, a design, a formula, or information concerning industrial, commercial or scientific experience, it is a royalty under Article 12. Domestic law withholds 15% on royalties; the Tunisia treaty lets the Kingdom tax them, but capped at 5% of the gross amount where the beneficial owner is resident in Tunisia. ZATCA's circular warns that the royalty concept may be broadened to cover "the use of software", so a contract combining custom development with a licence for an off-the-shelf product needs the two items split in the contract and the invoice, not one rate applied to the total.

3. The individual freelancer. If the vendor is an individual working independently (an engineer or an accountant), Article 14 applies: the Kingdom may tax the income if the person has a fixed base regularly available there, or stays 183 days or more in any twelve-month period.

The exemption does not apply itself

This is where many companies go wrong in the opposite direction: they read the treaty and stop withholding. The circular sets out two routes and only two.

The "benefit at source" route. The payer (the withholding person) applies through ZATCA's portal to apply the reduced rate or exemption directly, and uploads:

• a tax residency certificate for the vendor from its own tax authority, in whatever form that authority issues it;
• a request to apply the treaty on ZATCA's approved forms;
• authentication of those documents by the Saudi embassy in the vendor's country, or an apostille instead;
• an undertaking from the resident payer (Form Q/7C) to settle any tax or penalty arising from false information, an arithmetic error or a misinterpretation of the treaty.

Note the last item: the undertaking makes the Saudi payer, not the vendor, liable for a misclassification. ZATCA accepts an application, or can audit one, within five years; after that, treaty benefits can no longer be claimed.

The refund route. A payer who cannot meet the first route's requirements withholds at the domestic rate, remits, and then claims a refund with the residency certificate, an authorisation from the vendor allowing the payer to receive the refund, the treaty request form, a copy of the withholding return and proof of payment, and a letter attested by the Chamber of Commerce confirming the amount has never been refunded, transferred or offset against another liability.

For the Tunisian vendor, tax withheld without the procedure is stuck: the treaty gives the taxing right to Tunisia, and the route ZATCA sets out to recover it is the refund claim in the Kingdom.

A worked example: a SAR 200,000 contract

The same contract we started with, read four ways:

The second row shows up constantly in foreign-vendor contracts: a clause saying "prices are net of any taxes" means the tax is computed on the grossed-up amount, not on the figure written down. And had domestic law been applied to the licence in the last row without the treaty, the tax would have been SAR 7,500 instead of SAR 2,500.

VAT is an entirely separate track

Withholding is an income tax on the vendor. VAT on an imported service is something else: the VAT-registered Saudi customer accounts for it under the reverse charge at 15%, or SAR 30,000 on the 200,000 contract, and it appears in their VAT return. The treaty does not touch it, because it covers taxes on income only. You can work out the VAT on any amount quickly with the VAT calculator, and check return deadlines and correction penalties in our VAT return guide.

If you have late withholding forms, check what the fines waiver running to 31 December 2026 covers, and what it excludes, before you work out what you owe.

A checklist before the first payment to a foreign vendor

1. Classify every line of the contract: service, licence, or management fee. A single rate on a mixed invoice is the most common error.
2. Check for a treaty in force with the vendor's country of residence, and read whether it has a technical-services article. If it does, expect a reduced rate; if it does not, the answer may be zero.
3. Count the days the vendor's team spends in the Kingdom in any twelve-month period. Going past six months changes the whole analysis.
4. Ask for the tax residency certificate, authenticated or apostilled, before the first payment, not after the claim. Getting it takes time in the vendor's country.
5. Choose the route: "benefit at source" with the payer's undertaking, or full withholding followed by a refund.
6. Remit before the tenth of the following month whenever withholding is due, because the penalty starts the day after the deadline.

If you are on the other side of the transaction, Tunisia's own withholding regime has different rules and rates, which we cover in withholding rates on purchases in Tunisia.

Where this process usually breaks

The problem is rarely understanding the text. It breaks in the plumbing: the purchase order does not carry the payment type, and the payables system knows neither the vendor's country of residence nor when its tax residency certificate expires, so an accountant applies a fixed rate by hand to every outbound transfer. Once you have dozens of foreign vendors, the classification and treaty table has to live inside the system, not in a side spreadsheet. That is the systems and API integration work we do: tying vendor data and payment type to the withholding rule, so the monthly form comes out of the data rather than out of someone's memory. If you want to see what that looks like in code, our tutorial on building a Saudi withholding tax engine in TypeScript encodes the rate table, the Tunisia treaty, the six-month test and the late fine, with tests for every figure in this article.

Want to know what you should actually be withholding on your foreign vendors? Send us a list of your non-resident vendors, their countries and what they supply, and we will return a table showing, for each vendor, the domestic rate, the effect of any treaty, and the documents missing to apply it. A free diagnostic with no commitment, through our contact page.

Sources: ZATCA tax circular: Implementation of Withholding Tax under the Double Taxation Agreement, version 1, January 2025 · ZATCA decisions and circulars on withholding tax, including Ministerial Decision 25 of 8/1/1445H · Saudi Arabia–Tunisia double taxation agreement, ZATCA · ZATCA notice on the withholding deadline and late-payment penalty, 5 January 2025

This article is a general reading of the texts published as of 16 October 2026, not tax advice on any specific case. How a given payment is classified depends on its contract and its facts.