Saudi Arabia – key tax updates

Saudi Arabia has seen several notable publications in the tax sphere in the early months of 2025 with the Zakat, Tax and Customs Authority (ZATCA) issuing two guidelines, the first, in relation to Withholding Tax (WHT) for purposes of applying Double Tax Treaties (DTTs) and the second, on Advance Pricing Agreements (APAs). A draft of the implementing regulations to the Real Estate Transaction Tax (RETT) Law has also been published on Istitla platform, for public consultation.

This article discusses important aspects to take note of in these publications.

 

WHT guidelines for purposes of Double Tax Treaties

The guidelines generally discuss the scope of payments subject to WHT in KSA and define the obligations of KSA residents and KSA Permanent Establishments of a non-resident in collecting and remitting WHT to the ZATCA. Generally, WHT applies to payments arising from a Saudi-source which broadly includes payments for services rendered to a beneficiary in KSA as well as royalties and fees for rental of moveable and immovable property in KSA, among other payments.

The WHT rate under domestic law is 5, 15 or 20%, depending on the nature of the payment, while KSA DTTs typically limit the taxing rights and reduce the tax rates over certain classes of payments for the source state. The guidelines discuss the treaty treatment for different classes of income based very broadly on the limits provided in the different DTTs concluded by KSA.

Additionally, the guidelines highlight the importance of parties assessing their entitlement to the DTT before applying to the ZATCA. The guidelines also set the procedures to be followed in claiming treaty benefits.

As part of the application process, certain documents will need to be provided to the ZATCA, including a tax residency certificate from the non-resident beneficiary and other forms which need to be completed by both the KSA withholding agent and the non-resident beneficiary.

An application for treaty benefits can be made on an upfront basis, i.e., at source or under a pay-and-refund approach. Taxpayers that cannot meet the requirements at the time of applying for benefits at source should apply under the pay-and-refund approach and remain mindful of applicable time limits under KSA tax rules in applying for these benefits.

 

New guidelines on APAs

As a background, APAs were introduced in the latest revision to the Saudi Transfer Pricing Bylaws and are available for both Tax and Zakat-Payers (referred to here as "Taxpayers") for financial years starting on or after 1 January 2024. APAs offer a framework for Taxpayers to achieve greater certainty in relation to the pricing of their related party transactions as they involve a Taxpayer and one or more tax authority coming to an agreement on a set of criteria for pricing their related party transactions (covered transactions) for a defined period of time. Currently, Taxpayers can only apply for a unilateral APA in KSA (i.e., the Taxpayer and ZATCA are the only parties to the agreement).

The guidelines provide insights on the conditions which covered transactions need to meet to be eligible to apply for an APA. Very broadly, transactions need to meet a materiality threshold of SAR 100,000,000 or be considered sufficiently complex. The guidelines outline certain factors which may be indicative of complexity.

The guidelines also detail the procedures to be followed in securing an APA, from the application stage throughout negotiations between the Taxpayers and the ZATCA until the signing of the APA. The guidelines set out the expectations from Taxpayers which are looking to engage in this process. They also describe circumstances which may require the revision of an APA or its cancellation as well as the process for renewing an APA.

DLA Piper will be hosting a webinar to discuss APAs in Saudi Arabia on 29 April 2025 at 14:00 to 15:00 KSA time. The webinar will provide insights into the KSA APA program and offer strategic considerations to use APAs as a dispute prevention mechanism. It will also cover other mechanisms that could assist Taxpayers in achieving greater tax certainty in KSA. Interested parties can view the content and register here.

 

New draft implementing regulations to the RETT Law

Following the release of the RETT Law on October 2024, which is planned to come into effect in March 2025¹, the regulations to the RETT Law were issued in draft form for public consultation. The regulations clarify the application of key provisions in the RETT Law and set important conditions for obtaining exemptions from RETT such as in the case of real estate transfers associated with the merger and acquisition of legal entities and the forced disposal of real estate properties, among others. The public consultation will remain open until 15 March 2025.

Individuals and entities engaged in, or contemplating, transactions involving real estate property in KSA should carefully evaluate the new RETT Law and the draft implementing regulations, which are intended to complement the RETT Law once finalized, when planning their arrangements.

 

Conclusion

The new guidelines provide helpful clarification on the ZATCA's views and approach to taxing Saudi-source payments to non-residents in view of existing Double Tax Treaties. The APA guidelines offer practical guidance on this dispute resolution prevent mechanism, and what Taxpayers can expect from engaging in this process.

The Saudi Tax landscape remains dynamic. Entities seeking assistance with KSA tax matters in light of these updates or more generally, are encouraged to reach out to their DLA Piper contact.

 

Reference

• Withholding Tax and Double Tax Treaty Guidelines
• Advance Pricing Agreements Guidelines
• Draft RETT implementing regulations

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¹ Click here to read our article on the RETT Law.