General Guideline for Withholding Tax

Who is the Person? For the purposes of Tax Withholding, the person obligated to withhold must be a resident in the Kingdom. In accordance with the provisions governing Income Tax(20), a resident may be any of the following: a. A natural person (engaged in commercial activity in the Kingdom). b. A natural or legal person who meets the residency conditions set forth in Article 3 of the Income Tax Law. c. Any governmental department, ministry, or public authority. d. Any other legal person or established entity in the Kingdom. In addition, a payment made by a permanent establishment of a nonresident in the kingdom shall be considered as if paid by a resident company for the purposes of Tax Withholding (see Paragraph 2-1-2)(21). (18). Article 3 of the Law. (19). Article 3 of the Law. (20). Article 1 of the Law. (21). Paragraph (c) of Article 5 of the Law provides: “The amount paid by a Permanent Establishment in the Kingdom to a non- resident shall be treated as if it were paid by a resident company.” A natural person shall be obligated to withhold tax under the provisions of the Law only in cases where such payments are related to the activity carried out by that person - i.e., the person obligated to withhold - in the Kingdom. The natural person must withhold tax only in cases where payments are made to non-residents in the context of a commercial activity carried out by that person in the Kingdom(22). Accordingly, amounts paid to non-residents by natural persons for personal use are not subject to Tax Withholding provisions. Residency of a Natural Person In accordance with the provisions governing Income Tax(23), a natural person shall be considered a resident in the Kingdom for a Zakat year if any of the following two conditions are met: a. The person has a permanent dwelling in the Kingdom and resides in the Kingdom for a total of no less than 30 days in the Zakat year. b. The person resides in the Kingdom for no less than 183 days in the Zakat year. For the person obligated to withhold tax, it is sufficient that they are a resident, regardless of whether they are subject to tax or not. For example, a natural person subject to Zakat collection shall withhold tax on amounts paid in the context of their commercial activity carried out in the Kingdom to a non-resident(24). Residency of a legal Person A legal person shall be considered a resident in the Kingdom during the Zakat year if any of the following two conditions are met: a. The person is incorporated in accordance with the Companies Law. b. The person’s principal management is located in the Kingdom. With respect to the first condition, a company shall automatically be considered resident in the Kingdom for tax purposes if it is incorporated in accordance with the provisions of the Saudi Companies Law, regardless of any other facts or information. (22). Article 68 of the Law: “In the case of amounts paid by a natural person, the withholding conditions stipulated in this Article shall apply only to payments related to that person’s activity.” (23). Article 3 of the Law. (24). Article 68 of the Law provides: “Every resident, whether a taxpayer or not under this Law, and every Permanent Establishment of a non-resident in the Kingdom that makes a payment to a non-resident from a source in the Kingdom, must withhold tax from the amount paid...” As for the second case, where the Head Office of the company is located in the Kingdom, the Authority shall take into consideration all relevant facts and circumstances when determining the place of the company’s Head Office. Pursuant to Ministerial Decision No. 2194 dated 12th Rajab 1432H, the term “Head Office” means the place where high-level policies are drawn up and where the principal administrative and commercial decisions necessary for the overall conduct of the company’s business are taken. The place of the company’s Head Office shall be deemed to be in the Kingdom when at least two of the following facts are met: y The regular meetings of the Board of Directors, at which the principal policies and decisions relating to the management and conduct of the company’s business are taken, are customarily held in the Kingdom. y The senior executive decisions relating to the management of the company’s functions, such as the decisions of the Chief Executive Officer and his deputies, are taken in the Kingdom. y Most of the company’s business activities, from which most of its revenues are derived, are carried out in the Kingdom. As stated in the case of a natural person, it is only required that the person obligated to withhold be a resident, regardless of whether such person is subject to tax. For example, a company subject to Zakat collection in the Kingdom shall also be subject to the provisions of Tax Withholding with respect to amounts paid to non-residents, notwithstanding that it does not acquire the status of a “taxpayer” under the Income Tax Law. In addition, government departments, ministries, and other authorities shall be subject to the provisions of Tax Withholding on payments to non- residents(25)by virtue of being residents, notwithstanding that they do not acquire the status of a “taxpayer”. (25). Article 68 of the Law: “Every resident, whether or not a taxpayer under this Law, and a permanent establishment of a non-resident in the Kingdom that pays an amount to a non-resident from a source in the Kingdom, must withhold tax from the payments...”