In one sentenceAn agreement between the Kingdom and another country that sets which of the two countries taxes certain income, and may reduce the withholding rate for residents of the other country.
Simply put
Without it the same income may be taxed twice: in the source country and in the beneficiary's country. The agreement divides the right between them.
Applying the reduced rate usually requires proof that the beneficiary is resident in the other country through a tax residency certificate, while following ZATCA's procedures.
Worked example
A resident company pays a royalty of 100,000 SAR to a company in a country that has an agreement with the Kingdom, assuming for illustration that the agreement reduces the rate to 10%.
Withholding at the statutory rate 15%100,000 × 15% = 15,000 SAR
Withholding at the assumed treaty rate 10%100,000 × 10% = 10,000 SAR
Difference15,000 − 10,000
Reduction in withholding in this example5,000 SAR
Don't confuse it with
Tax residency certificateThe agreement is the rule, and the certificate is the proof that allows it to be applied.