WHT on Dividends in Saudi Arabia: Rules, Exceptions, and Treaty Relief

Under Article 63(6) of the Implementing Regulations, dividends are defined as any distribution by a resident Saudi company to a non-resident shareholder, and any profits transferred by a Saudi PE to related parties abroad. The rate is 5% on the gross distribution.

The 5% dividend WHT is the cost of repatriating profits from a Saudi subsidiary to a foreign parent. For a foreign group earning SAR 10 million of after-CIT profit through its Saudi subsidiary and distributing all of it, the dividend WHT is SAR 500,000 — reducing the net repatriation to SAR 9.5 million. For foreign investors modelling their Saudi investment return, this 5% represents a final layer of Saudi tax on top of the 20% CIT already paid at the subsidiary level.

The obligation to withhold falls on the distributing Saudi company — it withholds 5% from the dividend payment before remitting the balance to the non-resident shareholder. The monthly WHT statement for the month of distribution must be filed and the WHT remitted within the first 10 days of the following month.

1. The Oil, Gas, and Hydrocarbon Exemption

Dividends paid by companies engaged in natural gas investment, oil production, and hydrocarbon production are explicitly exempt from WHT under Article 63(6)(a). This exemption reflects the different tax regime applicable to hydrocarbons — these companies are already taxed at significantly higher rates on their profits, and the absence of dividend WHT is a partial offset for the heavier CIT burden they carry.

2. Liquidation Distributions Treated as Dividends

Under Article 63(6)(b), partial or full liquidation of a Saudi company is treated as a dividend distribution to the extent that proceeds paid to non-resident shareholders exceed the paid-in capital. This prevents the avoidance of dividend WHT by returning profits through a liquidation rather than a declared dividend. If a Saudi company with SAR 1 million of paid-in capital and SAR 5 million of accumulated retained earnings is wound up, the SAR 5 million in excess of capital returned to a non-resident shareholder is subject to 5% WHT.

3. CIT Status Does Not Preclude Dividend WHT

Article 63(6)(c) confirms that the fact that a distributing company is subject to CIT does not prevent WHT being applied to its dividends. The CIT (on profits) and the dividend WHT (on distributions) are separate, parallel obligations. A Saudi subsidiary pays 20% CIT on its profits and then 5% WHT when it distributes those profits — both apply.

The dividend definition extends to profits transferred by a PE to related parties abroad. When a foreign company operating in Saudi Arabia through a registered branch remits its Saudi profits to its head office, that transfer is treated as a dividend for WHT purposes — subject to 5% WHT on the amount transferred.

This is a branch-specific WHT cost that has no equivalent for subsidiaries (which pay dividend WHT only when they formally declare dividends). For branch structures, every transfer of profit from the Saudi branch to the foreign head office triggers 5% WHT, regardless of how the transfer is characterised in the accounts. Finance teams managing Saudi branches should model this cost into their cash repatriation planning.

Saudi Arabia’s DTTs frequently reduce or eliminate the 5% domestic dividend WHT rate for qualifying shareholders. Many treaties provide for 0% or a reduced rate where the non-resident parent holds a minimum qualifying interest (typically 10–25%) in the Saudi company. The participation threshold must be satisfied at the time of the distribution.

Treaty relief conditions typically require: a tax residency certificate from the competent authority of the parent’s home country; evidence that the parent is the beneficial owner of the dividend income; satisfaction of the minimum shareholding threshold specified in the treaty; and, in some treaties, a minimum holding period. All documentation must be in hand before the dividend is paid at the reduced rate.

Does dividend WHT apply to distributions to Saudi shareholders?

No. WHT applies to distributions to non-resident shareholders only. Dividends paid to Saudi-resident shareholders are not subject to dividend WHT — those shareholders are subject to Zakat on their Saudi-owned equity, which is a separate and different obligation.

In a mixed-ownership company, does WHT apply to the full dividend or only the foreign share?

WHT applies only to the portion of dividends paid to non-resident (foreign) shareholders. The distribution to Saudi shareholders is not subject to WHT. The Saudi company withholds 5% on the foreign shareholder’s portion of the dividend and pays the Saudi shareholder their full pro-rata share without withholding.

What if retained earnings are not distributed — is there still a WHT obligation?

No. Dividend WHT arises only upon actual distribution. Retained earnings that remain in the Saudi company are not subject to WHT until a distribution is made. This creates a timing option for foreign investors — profits can be accumulated in the Saudi entity without triggering dividend WHT until a distribution decision is made.