General Guideline for Withholding Tax

What is Tax Withholding? 1.1.1 Relationship between Income Tax and Tax Withholding Income Tax is a direct tax imposed on all persons specified in Article 2 of the Law and article 63 of the Regulation, including non-residents who earn income from sources in the Kingdom without having a permanent establishment therein.(15) Due to the specific nature of these taxpayers and the absence of the concept of residency for them, and since their tax liability depends on specific facts represented by the realization of income from sources in the Kingdom, the mechanism for tax liability is as follows: a. If the income is from the types of income specified in Article 68 of the Law, it is subject to Tax Withholding in accordance with the rules outlined in that Article. b. If the income represents capital gains arising from the disposal of fixed or current assets, or capital gains resulting from the disposal of shares in a resident company, it is subject to tax in accordance with the general rules of the Law.(16) This Guideline aims to clarify the Authority’s interpretation regarding the application of the provisions of Tax Withholding in accordance with the Income Tax Provisions. It is evident that the provisions of Tax Withholding in the Kingdom derived from the Income Tax Law and its implementing Regulations, as the rules relating to Tax Withholding are derived from the framework established by the Income Tax Law, by subjecting income earned from sources in the Kingdom by non-residents to taxation. (15). Paragraph (d), Article 2 of the Law. (16). Paragraph 2, Article 1 of the Regulations. Income earned from a source in the kingdom is subject to tax on: Non-Resident Person Tax withholding mechanism Standard tax calculation based on the tax base and the applicable tax rate Resident Taxpayer Permanent Establishment of a Non-Resident in the Kingdom