A Saudi-resident company makes two separate payments to unrelated non-resident companies in the same month: interest on a commercial loan, and a fee for a business advisory service that does not fall within any of the specifically named categories in the withholding tax schedule (rent, royalties, management fees, dividends, interest, insurance premiums, international telecommunications, or air/sea freight). Under Article 68 of the Saudi Income Tax Law, what withholding tax rates generally apply to these two payments respectively?
- 15% on the interest payment and 5% on the advisory fee, the reverse of the usual pattern for named versus catch-all categories
- 20% on both payments, because any payment to a non-resident not expressly listed defaults to the highest available rate, and interest is treated the same way
- 5% on the interest payment, since loan charges fall within one of the schedule's lower named rates, and 15% on the advisory fee, which falls into the general catch-all rate for payments not otherwise specified
- 0% on both payments, because Article 68 only taxes the eight expressly named categories and has no residual catch-all for anything else
Why C? And why not the others?
Correct answer: C. 5% on the interest payment, since loan charges fall within one of the schedule's lower named rates, and 15% on the advisory fee, which falls into the general catch-all rate for payments not otherwise specified
Article 68's withholding tax schedule assigns interest (loan charges) to the lower 5% rate alongside dividends and rent, while a payment that does not fit any of the schedule's specifically named categories, such as a generic business advisory fee, falls into the general 15% catch-all for other qualifying payments not otherwise specified. So the interest payment here is taxed at 5% and the advisory fee at 15%. The option reversing these two rates is wrong because it assigns the lower named rate to the wrong payment. The option applying a uniform 20% to both is wrong because 20% is reserved for a different named category, management fees, and does not apply by default to either interest or an unclassified advisory fee. The option claiming a 0% result on the theory that Article 68 has no residual category is wrong because the schedule does include a general catch-all rate precisely to cover cross-border payments that do not match any of the specifically named types, rather than leaving them untaxed.
Source: Saudi Income Tax Law (Royal Decree No. M/1 of 1425H), Article 68 and its Implementing Regulations, withholding tax rate schedule