WHT on Interest and Loan Charges in Saudi Arabia

Interest paid to a non-resident from a Saudi source is subject to 5% WHT — applied to the gross interest payment before any deduction for withholding itself. The obligation falls on the Saudi borrower, who withholds 5% and remits the net interest to the lender.

The statutory definition of “loan charge” (the term used in the Implementing Regulations, corresponding to interest) is deliberately broad: any amount paid for the use of money, including income from loan transactions of any type — whether secured or unsecured, whether carrying a participation right in profits or not — and including income from governmental and non-governmental bonds. This captures conventional interest, Islamic finance profit payments that are economically equivalent to interest, sukuk returns, and bond coupon payments.

For treasury teams managing Saudi operations’ financing, this means: every drawdown from a foreign parent under an intercompany loan agreement, every coupon payment on a Saudi-issued bond held by a non-resident, and every interest payment under a third-party foreign bank credit facility is a WHT event requiring withholding, remittance, and monthly statement filing.

Interest is Saudi-source — and therefore subject to WHT — where any one of three conditions is met:

• The debt is secured by Saudi property: Any loan — wherever the lender is located — where the security is Saudi real estate, equipment, or other Saudi assets generates Saudi-source interest.
• The borrower is a Saudi resident: Any loan to a Saudi-resident company from a non-resident lender generates Saudi-source interest, regardless of where the loan agreement is signed or governed.
• The loan relates to a Saudi PE: Interest on a loan that funds the activities of a Saudi PE of a non-resident company is Saudi-source, even if the PE itself is the borrower.

The residency of the borrower is the most commonly applicable trigger. For a Saudi subsidiary borrowing from its foreign parent or from a foreign bank, the Saudi residency of the subsidiary makes all interest payments Saudi-source regardless of the loan’s governing law, currency, or the parent’s jurisdiction.

One specific exclusion applies to interbank deposits: loan fees (interest) from interbank deposits that remain with the borrowing Saudi bank for a maximum of 90 days are not subject to WHT — provided the borrowing bank submits an annual statement attested by SAMA listing the lending banks, loan periods, and interest amounts paid.

This exclusion is narrow and procedural. It applies to: short-term (≤90 days) deposits from foreign banks to Saudi banks in an interbank market context. It does not apply to longer-term interbank deposits, to non-bank borrowing, or to any other financing arrangement. The SAMA attestation requirement is not optional — without it, the exclusion does not apply.

Intragroup financing — parent company loans to Saudi subsidiaries, cash pooling arrangements, intercompany revolving credit facilities — is one of the highest-volume WHT categories for foreign groups with Saudi operations. Every interest payment under these arrangements triggers 5% WHT. For highly leveraged Saudi entities with significant intercompany debt, the cumulative WHT cost on interest can be substantial.

Transfer pricing applies to the interest rate on intercompany loans — the rate must be arm’s length. Both the CIT deductibility of the interest (subject to earnings stripping) and the WHT rate apply to the same payment. The WHT does not depend on whether the interest is deductible for CIT purposes — it applies to the gross payment regardless.

Does WHT apply to profit payments under Islamic finance structures?

The broad definition of “loan charge” — any amount paid for the use of money — captures Islamic finance profit payments that are economically equivalent to interest, such as Murabaha profit margins, Ijara rental payments used as financing, and similar structures. The legal form of the arrangement does not change the WHT analysis where the economic substance is a financing cost. Confirm the specific treatment of any Islamic finance arrangement with a qualified Saudi tax advisor.

Does WHT apply to bond coupon payments?

Yes. The definition of loan charges explicitly includes income from governmental and non-governmental bonds. Coupon payments on Saudi-issued bonds or sukuk held by non-resident investors are subject to 5% WHT. This applies to corporate bonds issued by Saudi companies as well as to Saudi government debt instruments where the holder is a non-resident.

Can treaty relief reduce the interest WHT rate?

Yes. Many Saudi DTTs provide a reduced rate on interest — commonly 5% or lower, with some treaties providing for 0% in specific circumstances. The same documentation requirements apply as for other treaty relief claims: residency certificate, beneficial ownership evidence, and pre-payment documentation. Financial institutions and treasury teams managing Saudi cross-border debt should review the applicable DTT for each lender’s jurisdiction.