On 25 September 2023, Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) released proposed amendments to the Income Tax Law for public consultation. The proposed amendments to the Income Tax Law primarily focus on the withholding tax applied on payments made to non-resident entities and salary payments to nonresident employees. The consultation period will end on 25 October 2023. Key proposals for the amendments are outlined below:
i) Payments to employees and bonuses to board members are exempt from withholding tax. On the other hand, any bonuses received by board members or individuals in similar roles are treated as wages for tax purposes.
ii) Payments to non-resident entities are exempt from withholding tax, but this exemption applies only to the portion of the payment associated with a resident person’s share in the Kingdom.
iii) New withholding tax rates for various types of payments:
- interest on loans between related parties, including bonds and Sukuk, will be subject to a 5% withholding tax rate;
- royalties will be subject to a 15% withholding tax rate;
- rent payments will be subject to a 5% withholding tax rate;
- dividend distributions will have a 5% withholding tax rate, with exceptions for listed securities, foreign investments by funds, and stock grants; and
- services will be subject to a 10% withholding tax rate, with specific details regarding application timing and exceptions to be outlined in the regulation.
iv) Referring the tax treatment of Research, Development and Innovation expenses to the regulation.
