The Zakat, Tax and Customs Authority (ZATCA) oversees the way Saudi Arabia's tax policy and Islamic laws touch and form an organized decision-making system. Knowing about withholding tax, zakat, and the nisab limits is necessary for business within the Kingdom or collaborating with Saudi clients to keep both their finances and religious obligations in check. The structure is clearly defined, can be enforced, and uses more digital tools, so there is little chance for errors or delays.
When Is Withholding Tax Applicable in Saudi Arabia?
The Saudi withholding tax system applies when a resident entity makes a payment to a non-resident. This covers a wide range of transactions, including but not limited to:
- Service fees (consulting, technical, or management services)
- Royalties and licensing agreements
- Dividends
- Interest on loans
- Lease payments (including aircraft and equipment)
- International freight charges
The Saudi payer deducts the tax at source and remits it to ZATCA. Rates vary according to the nature of the payment:
- 5% for dividends
- 15% for most service payments
- 15% for royalties
- 5–20% for other specified categories
Non-compliance results in financial penalties, and in some cases, ZATCA may also impose interest on delayed payments.
It should be recognized that the country has entered several Double Tax Treaties (DTTs), which may lead to reduced tax rates or no taxes being collected. Nonetheless, the foreign recipient's tax authority must provide a genuine tax certification to claim the benefits.
Zakat in Saudi Arabia and the Role of Nisab
The reason zakat is different from corporate income tax is that it is not a revenue or profit-based tax. It is a religious obligation imposed on eligible Muslims, and in Saudi Arabia, it is enforced through ZATCA for all qualifying Saudi-owned businesses and individuals. The idea of zakat is to cleanse one's money by dedicating some to those who are poor.
See also: Zakat Collection Law in Saudi Arabia
The nisab threshold plays a key role in determining zakat eligibility. In order to be required to pay zakat, you or your company must keep nisab or a value higher than it for an entire year. The thresholds are based on:
- 87.48 grams of gold, or
- 612.36 grams of silver
Due to the lower market value of silver, most zakat assessments today use the silver nisab, which increases the scope of those who must pay zakat. If a company or individual's zakatable assets exceed the nisab for a lunar year, they must pay 2.5% of that net wealth in zakat.
Zakatable Assets and Deductible Liabilities
ZATCA recognizes several types of assets as zakatable when calculating zakat. These include:
- Cash (in bank accounts or in hand)
- Trade inventory or stock held for sale
- Receivables (including loans given)
- Gold, silver, or other valuable metals held for investment
- Shares and securities
- Investment properties (but not personal residences)
Liabilities that are due and payable within the same zakat period — such as short-term debts or wages owed — are deductible. This ensures that zakat is only paid on net wealth that is actually held and available.
Intersection of Withholding Tax and Zakat in Mixed-Ownership Structures
Companies in Saudi Arabia may fall into different tax categories depending on their ownership:
- 100% foreign-owned: Subject to income tax and withholding tax
- 100% Saudi or GCC-owned: Subject to zakat only
- Mixed ownership: Subject to both zakat and income tax proportionally
This creates situations where the same corporate entity may deal with both zakat calculations (based on assets and nisab) and withholding obligations (based on payments to non-residents). In such cases, precise accounting practices and regular audits become crucial.
ZATCA periodically reviews corporate records, and any underreporting of zakat liability or late remittance of withholding tax can lead to sanctions, including retroactive assessments and fines.
The Role of ZATCA and the Digital Transition
ZATCA has transformed tax and zakat administration by enforcing e-filing, digital invoicing, and automated audits. Every payment made to a foreign party is traceable, and zakat assessments are now often cross-referenced with financial statements and bank activity. The system easily detects errors, omissions, or mismatched declarations.
This move toward automation increases the need for legal and financial advisors to align, verify accuracy, and ensure timely withholding tax and zakat filings. Errors are no longer merely administrative oversights — they may carry regulatory consequences.
Navigating a Dual Compliance Landscape
As Saudi Arabia continues to modernize its tax administration, businesses must operate with a dual lens — one that respects both statutory tax law and Islamic financial obligations. Whether dealing with withholding tax, fulfilling zakat responsibilities, or calculating nisab, compliance is no longer a matter of formality but a strategic necessity.
By understanding the scope and interplay of ZATCA regulations, businesses can proactively avoid penalties, maintain trust with local partners, and uphold their financial duties with transparency. The use of accurate tools — such as a Saudi Arabia income tax calculator or dedicated zakat software — can further support compliance in a precise and structured way.
See also: Tax and Finance Legal Support
FAQ
Do I pay withholding tax on services purchased from abroad?
Yes. As a Saudi-resident business, whenever you pay a non-resident for services, you should deduct the withholding tax and transfer it to ZATCA.
What is zakat and how does it differ from regular taxation in Saudi Arabia?
Zakat is a religious obligation in Islam that requires eligible Muslims to give a portion of their wealth to those in need. Unlike corporate or income taxes, zakat is not based on revenue or profit but on net zakatable assets held over a lunar year. It represents a spiritual act of wealth purification, distinct from the state-imposed taxation such as withholding or income tax.
Who is eligible to pay Zakat under ZATCA regulations?
Zakat is due from Muslim individuals and Saudi-owned businesses who possess zakatable assets that meet or exceed the nisab threshold for one full lunar year. ZATCA requires GCC or Saudi companies to give zakat, but foreign-owned companies have to follow the corporate income tax law.
How much zakat should I pay as a business owner in Saudi Arabia?
If your zakatable assets exceed the nisab, you are required to pay 2.5% of the net zakatable wealth. Among zakatable assets are cash, stock for trade, unpaid money owed to the business, real estate, and gold as well as shares. Immediately due liabilities should be subtracted to get the remaining money. Usually, the zakat is charged on businesses if they hold over the silver nisab of 612.36 grams.
What is the nisab threshold for zakat in Saudi Arabia and how is it calculated?
The nisab is the minimum amount of wealth a person or entity
must own for one lunar year before zakat becomes obligatory. In
Saudi Arabia, the two classical benchmarks are:
– 87.48 grams of gold, or
– 612.36 grams of silver.
Nowadays, most calculations carry out zakat with silver nisab
because its value makes it easier for more people to pay zakat.
Every lunar year, businesses and individuals consider if their
zakatable wealth goes past the set level.
What happens if my zakatable wealth is below the nisab?
If your zakatable wealth does not reach the nisab threshold, you do not owe zakat, but you can still donate voluntarily.
Can zakat and corporate tax apply to the same company?
Yes. In mixed-ownership entities, the foreign share is subject to corporate tax, while the Saudi or GCC share is subject to zakat.
What is the difference between zakat and withholding tax in Saudi Arabia?
Zakat is a religious obligation applicable to Saudi/GCC-owned businesses and eligible individuals. There is a legal requirement to withhold tax when paying non-resident people.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
