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Tax Treaty Considerations for Expats in Saudi Arabia

Submitted: July 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Saudi Arabia, and intend bring money earned from them into Saudi Arabia during your stay. They also apply if you build up some investments in Saudi Arabia during your stay, and intend to leave them there after you have left. Saudi Arabia has a network of tax treaties in force with over 25 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in Saudi Arabia; only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

The withholding tax rate in the Saudi Arabia on interest sent to a country without a tax treaty is 5%, if sent to a country with a tax treaty the rate can sometimes be reduced to 0%, though it generally applies to government loans, or loans approved by one or both governments.

The withholding tax rate in the Saudi Arabia on dividends sent to a country without a tax treaty is 5%, if sent to a country with a tax treaty the rate can sometimes be reduced to 0%, though it usually requires that the payee company owns a percentage of the paying company (usually 25%).

The withholding tax rate in the Saudi Arabia on royalties sent to a country without a tax treaty is 15%, if sent to a country with a tax treaty the rate is generally reduced to 5% or 10%.

It should be noted that in the case of reductions in the withholding tax rate, the reduction can only be achieved by applying for a refund from the Saudi tax department.

Saudi Arabia imposes a withholding tax of 20% on the payment of management fees sent to non-residents.

Saudi Arabia imposes a withholding tax of 5% on the payment of rental income sent to non-residents.

Saudi Arabia’s treaties with other countries can also restrict the amount of withholding tax those countries can charge Saudi Arabian residents.

There is a table here showing tax treaties that Saudi Arabia has signed with other countries. Some of the treaties are not yet in force. For the complete rules and rates it is necessary to read the treaty itself. This will be probably only be possible to do on your own country’s tax department website.

Prior to arriving in Saudi Arabia you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Saudi country to one with a more favourable tax treaty to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Saudi Arabia, you may benefit by becoming tax-resident in Saudi Arabia as early as possible. At the end of your stay in Saudi Arabia you can also rearrange your affairs to ensure that any on-going income from Saudi employment or investments is also taxed at the lowest rate possible in the future.

 

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