A Saudi-resident company pays a technical service fee to a non-resident company located in a jurisdiction that has a double taxation avoidance agreement (DTAA) with Saudi Arabia providing for a 0% withholding tax rate on such fees. Under Article 68 of the Saudi Income Tax Law and the applicable treaty relief procedure, what must generally happen for the reduced treaty rate to apply instead of the ordinary domestic withholding rate?
- Nothing further is required; DTAAs automatically override the domestic withholding rate for every non-resident recipient without any documentation, regardless of where they are based
- The non-resident recipient must provide a valid Tax Residency Certificate (TRC) confirming its residence in the treaty country, allowing the payer to apply the reduced treaty rate at the time of payment and report it accordingly in the monthly withholding tax return
- The reduced rate can only be obtained after the fact, through a refund claim filed no earlier than three years after the withholding tax was paid at the full domestic rate
- The reduced rate applies automatically only if the payment is below SAR 375,000 for the year, mirroring the VAT mandatory registration threshold
Why B? And why not the others?
Correct answer: B. The non-resident recipient must provide a valid Tax Residency Certificate (TRC) confirming its residence in the treaty country, allowing the payer to apply the reduced treaty rate at the time of payment and report it accordingly in the monthly withholding tax return
Treaty relief is not automatic on its own; it depends on the non-resident recipient producing a valid Tax Residency Certificate confirming residence in the treaty partner country, which lets the Saudi payer apply the reduced or zero treaty rate directly at the time of payment rather than the ordinary domestic withholding rate, with the payment and the treaty-rate application then reported in the payer's monthly withholding tax return. The option claiming DTAAs override domestic rates automatically with no documentation is wrong because the payer needs the TRC as evidence before it can lawfully apply anything other than the domestic rate; without it, the domestic rate remains the default. The option requiring a refund claim filed only after three years is wrong because current practice allows the reduced rate to be applied upfront, at the time of payment, once the TRC is in hand, rather than forcing the recipient to overpay and wait years for a refund. The option tying treaty relief to the SAR 375,000 VAT registration threshold is wrong because that figure belongs to an unrelated regime, VAT registration, and has no role in determining whether a treaty-reduced withholding tax rate applies to a cross-border service fee.
Source: Saudi Income Tax Law (Royal Decree No. M/1 of 1425H), Article 68; ZATCA Tax Residency & Withholding Tax Certificate e-service guidance