General Guideline for Withholding Tax

Permanent Establishment(26) The provisions of Tax Withholding shall also apply to a Permanent Establishment (located in the Kingdom) of a non-resident. As previously stated, the obligation to withhold applies to all residents in the Kingdom, including a Permanent Establishment in the Kingdom of a non-resident. Tax must be withheld at the rate specified under the provisions governing Income Tax on amounts paid by a Permanent Establishment in the Kingdom to a non-resident(27). Unless otherwise provided in Article 4 of the Law, a Permanent Establishment of a non-resident in the Kingdom consists of a fixed place through which the activity of the non-resident is carried on, wholly or partly, including activities carried on by the non-resident through an agent. In accordance with the provisions governing Income Tax(28), the following cases shall constitute a Permanent Establishment: a. Construction sites, assembly facilities, and supervisory activities connected therewith. b. Installations and sites used for surveying natural resources, drilling equipment, vessels used for surveying natural resources, and supervisory activities connected therewith. c. A fixed base from which a non-resident natural person carries on his activity. d. A branch of a non-resident company licensed to carry on business in the Kingdom. In addition, a place shall not constitute a Permanent Establishment of a non-resident in the Kingdom if it is used in the Kingdom solely for the following purposes: a. Storage, display, or delivery of goods or merchandise belonging to the non-resident. b. Maintaining a stock of goods or merchandise belonging to the non-resident for the purpose of processing by another person. c. Purchasing goods or merchandise, or collecting information, solely for the benefit of the non-resident. d. Carrying out other activities of a preparatory or auxiliary nature for the benefit of the non-resident. e. Preparing contracts for signature in connection with loans, the supply of goods, or the provision of technical services. f. Carrying on any combination of the activities referred to in items (1) to (5). (26). Article 4 of the Law. (27). Paragraph (c), Article 5 of the Law. (28). Article 4 of the Law. Example (1): If the Head Office of a Permanent Establishment of a non-resident provides technical services to its Permanent Establishment in the Kingdom, which in turn provides such services to its clients in the Kingdom, shall the value of those services be subject to Tax Withholding? If the Head Office abroad provides technical services to its branch in the Kingdom, which in turn provides them to its clients, the value of such services shall be subject to Tax Withholding, and shall be treated as deductible expenses for statutory purposes, provided that the conditions for deductible expenses are satisfied. Example (2): Are payments made to a non-resident who has a Permanent Establishment in the Kingdom subject to the provisions of Tax Withholding? If the amounts paid to the non-resident are connected with the activities carried out by the Permanent Establishment in the Kingdom, such payments shall not be subject to Tax Withholding. The Permanent Establishment is treated as a registered taxpayer with the Authority; The Permanent Establishment must report such payments in its tax return in accordance with Paragraph (f) of Article 68 of the Income Tax Law. 2.2 Which Payments Are Subject to Tax Withholding? Payments from the withholding agent to a non-resident from a source in the Kingdom fall within the scope of Tax Withholding. Accordingly, the following 2 elements must be taken into consideration: y The relevant payments must be made by a resident person or a permanent establishment of a non-resident. y The relevant payments must be from a source in the Kingdom.