How to Book Withholding Tax in Wafeq



What is Withholding Tax?

Withholding tax (WHT) is an income tax assessed on nonresidents who generate income from a source in the Kingdom. However, it differs from ordinary taxation in that the resident person or the permanent establishment in KSA making a payment to nonresidents must withhold a part of that payment corresponding to tax and remit it to ZATCA.

The WHT base is determined according to the total payments made, not the profit.

WHT is only applicable if a KSA entity has a supplier outside KSA. If a KSA entity pays a nonresident supplier for services performed in Saudi Arabia, then WHT will be applicable. The percentage of WHT deducted depends on the nature of the services provided.

Withholding Tax (WHT) Rates

If a payment is in the scope of the WHT provision, WHT should be levied. For different categories of payments, different rates apply. It is, therefore important to understand and determine the qualification of the income as this determines the rate of WHT to be levied.

The following table shows the WHT rates for different types of services:



It is important to note that the WHT rate may be reduced or even eliminated if there is a double taxation treaty (DTT) between Saudi Arabia and the country of residence of the nonresident supplier.

The payment of WHT is ultimately the responsibility of the KSA entity that is making the payment to the nonresident supplier. However, the agreement between the two entities may specify who is responsible for bearing the cost of WHT. Without an agreement, the supplier normally bears WHT is cost.

How to book withholding tax (WHT)

There are two scenarios for booking withholding tax (WHT), depending on who is responsible for bearing the cost of WHT:

Scenario 1: WHT is borne by the non-KSA supplier

This is the default scenario in the absence of an agreement. To book WHT in this scenario, follow these steps:

Create a WHT payable account in your Chart of Accounts. Make sure to tick yes in the enable payments checkbox.

In the bill created from the non-KSA supplier, record payment for the WHT amount and paid through WHT payable. The journal entry for this transaction is:

• Debit: Accounts Payable
• Credit: WHT Payable

Once the WHT is paid to the government, record payment from the bank statement or in a journal entry as follows:

• Debit: WHT Payable
• Credit: Bank/Cash

Scenario 2: WHT is borne by the KSA entity

If the agreement between the KSA entity and the non-KSA supplier explicitly states that the KSA entity is responsible for bearing the cost of WHT, then the KSA entity will need to book WHT as an expense. To do this, follow these steps:

1. Create a WHT expense account and WHT payable in your Chart of Accounts.

2. Create a journal entry to debit the WHT expense account and credit the WHT payable account.

3. Once the WHT is paid to the government, record payment from the bank statement or in a journal entry as follows:

• Debit: WHT Payable
• Credit: Bank/Cash

For example, if a KSA entity makes a payment of SAR 100,000 to a nonresident supplier for technical fees, and the WHT rate is 5%, then the KSA entity will need to book the following journal entry:

• Debit: WHT Expense SAR 5,000
• Credit: WHT Payable SAR 5,000

The KSA entity will then need to pay the WHT payable to the government. The WHT payable is due within the first ten days of the month following the month in which the payment to the nonresident supplier was made.

Online guide to WHT from ZATCA

ZATCA, the Saudi Arabian tax authority, has published an online guide to WHT. The guide provides detailed information on the requirements for booking and paying WHT.

The ZATCA online guide to WHT can be accessed at the following link

Conclusion

Booking withholding tax is a relatively straightforward process. However, it is important to understand the requirements for booking and paying WHT to avoid any penalties. The ZATCA online guide to WHT is a valuable resource for businesses that need more information on this topic.