The Gulf Cooperation Council (GCC) region has always been a sought-after jurisdiction for foreign investors, thanks to the tax-friendly policies implemented in most GCC countries. However, as part of the GCC's efforts to diversify their economies and reduce reliance on revenue from hydrocarbons, the individual GCC countries have introduced new indirect taxes and other tax reforms.

As a business owner or individual working in the GCC countries, it's crucial to stay informed about the tax regimes that have the potential to affect your financial transactions, whether you're starting a new business or buying, selling, or divesting a business in the GCC. 

Withholding Tax

A withholding tax is a mechanism used by governments to collect taxes from individuals or businesses that are not permanent residents of their country but earn an income within their borders. Essentially, the payer deducts a portion of the tax at the source and sends it to the tax authorities on behalf of the recipient. The tax system guarantees that non-residents are contributing their fair share of taxes on any earnings made in the GCC countries.

You can also read: Tax Group for UAE Corporate Tax

Withholding tax rates may vary based on the nature of the payments as well as the tax treaty agreements between the Gulf Cooperation Council (GCC) nations and other countries. In GCC countries, withholding tax is applicable on certain kinds of income, including -

• Dividends: Dividend payments to non-residents are taxed in all GCC countries.
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• Interest: Interest payments to non-residents are taxed in Bahrain, Kuwait, Oman, and Qatar.
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• Royalties: Royalty payments to non-residents are taxed in all GCC countries.
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• Service fees: Service fees paid to non-residents are taxed in Bahrain, Kuwait, Oman, and Qatar.

Withholding Tax Rates in GCC Countries

Bahrain, Oman, Kuwait, Qatar, Saudi Arabia, and UAE are the key GCC countries. However, within the GCC region, withholding tax is not applicable in the UAE and Bahrain. 

You can also read: Determination of the corporate tax period and its deadline for submission

Withholding Tax in Kuwait

• In Kuwait, instead of withholding tax, there is a retention system that affects both public and private entities. This system requires these entities to hold onto 5% of the payment made to a service provider until they submit a tax clearance certificate issued by the KTA (Kuwait Tax Authority). This certificate will allow for the release of the retained amount.

Withholding Tax in Oman

• Foreign businesses that earn income in Oman without a physical presence in the country are required to pay a 10% withholding tax on gross payments.

Withholding Tax in Qatar

• Non-resident and non-registered individuals or businesses obtaining revenue in Qatar are subject to a withholding tax rate of 5% on royalties, technical fees, interest, commisions, attendance fees, and other services.

• The deadline for submitting a withholding tax return to tax authorities is the 15th of the month following the month in which actual payment for services is made.

Withholding Tax in Saudi Arabia

• The withholding tax rate is:
  • 15% on royalties
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  • 5% on interest, dividends, and technical fees
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  • 15% on commisions, attendance fees, and other services

• A withholding tax return (or "WTR") must be submitted online by the taxpayer within ten days of the end of the month in which the payment was made to the non-resident.

• For every 30 days that the withholding tax payment is delayed, there will be a 1% late payment penalty.

• If transactions are settled using an account as opposed to making payments, the date of recording the transaction is taken to be the date of payment for transactions with related parties.

The supporting documentation for withholding tax, including copies of contracts and other records, shall be maintained for at least 10 years following payment. The maintenance of these records ought to continue until the review by the appropriate authorities is concluded or the Appeal Committee issues a final ruling.