In one sentenceA tax that a resident business deducts from amounts it pays to non-resident parties for services, royalties, and the like, at rates between 5% and 20% depending on the type of payment.
Simply put
The paying business deducts the tax from the amount before transferring it, then remits it to ZATCA by the tenth day of the month following the payment.
The rate depends on the type of payment: for example, 5% for technical and consulting services, 15% for royalties, and 20% for management fees. If it is agreed that the business bears the tax on behalf of the beneficiary, the gross amount = net ÷ (1 − rate).
Worked example
An online store pays a software company outside the Kingdom a royalty of 100,000 SAR for using a program, and the beneficiary bears the tax.
Amount due100,000 SAR
Withholding on royalties 15%100,000 × 15% = 15,000 SAR
Transferred to the beneficiary100,000 − 15,000 = 85,000 SAR
Tax to be remitted to ZATCA15,000 SAR
Formula: Withholding = amount paid × rate for the payment type
Don't confuse it with
Income taxYou deduct withholding tax on behalf of the non-resident when paying; for income tax, the taxpayer files a return on its profits.