[World Tax News] Saudi Tax Authority Clarifies Withholding Tax Rules

Editorial Team – [2026] 182 taxmann.com 3 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. Saudi Tax Authority clarifies withholding tax treatment of technical and consulting services

On 25 December 2025, the Zakat, Tax and Customs Authority (ZATCA) issued a Tax Bulletin clarifying the tax treatment of technical and consulting (advisory) services under Saudi Arabia’s Income Tax Law and applicable double taxation avoidance agreements (DTAAs).

The Tax Bulletin explains the scope and definition of technical and consulting services. It distinguishes such services from transactions involving the transfer of knowledge or know-how, for purposes of determining the appropriate withholding tax treatment. Under Saudi domestic law, payments made to non-residents for technical or consulting services are generally subject to a 5% withholding tax, unless the income is attributable to a permanent establishment (PE) in Saudi Arabia. Where the arrangement involves a transfer of know-how, the payments are typically treated as royalties and are subject to a 15% withholding tax.

Where the non-resident service provider is a tax resident of a jurisdiction with which Saudi Arabia has an effective tax treaty, the treaty provisions will prevail. In most cases, payments for technical and consulting services fall within the Business Profits Article (generally Article 7), under which such income is taxable in Saudi Arabia only if it is attributable to a PE. In such circumstances, the Permanent Establishment Article (generally Article 5) becomes relevant.

The Tax Bulletin notes that a PE may arise where employees or other engaged personnel of the non-resident provide services in Saudi Arabia for periods exceeding 183 days in any 12-month period, although the specific time threshold may vary depending on the relevant treaty. In some tax treaties, technical and consulting services are expressly included within the definition of royalties or are governed by dedicated provisions on fees for technical services, in which case withholding tax may apply. By way of illustration, a treaty may prescribe a maximum withholding tax rate of 10% for such services; however, as Saudi Arabia’s domestic withholding tax rate is 5%, the lower domestic rate would apply.

The Tax Bulletin is currently available only in Arabic, with an English-language version expected to be released in due course.

Source : Zakat, Tax and Cutoms Authority

2. U.S. IRS releases updated FAQs on business interest expense deduction limitations

The Internal Revenue Service has released updated Frequently Asked Questions (FAQs) in Fact Sheet 2025-09 relating to the limitation on the deduction for business interest expense under Section 163(j). These updates reflect statutory amendments introduced by the One, Big Beautiful Bill (OBBB).

Key Legislative Changes under OBBB

For tax years beginning after 31 December 2024, Section 163(j) has been amended to:

• • Permit the add-back of depreciation, amortization, and depletion deductions when computing Adjusted Taxable Income (ATI); and
  • Broaden the definition of floor plan financing interest by treating trailers and campers designed for temporary living quarters for recreational, camping, or seasonal use and intended to be towed by or affixed to a motor vehicle as motor vehicles.

For tax years beginning after 31 December 2025, Section 163(j) has been further amended to:

• • Clarify that business interest expense subject to limitation includes interest incurred and capitalized during the tax year, other than interest capitalized under Sections 263(g) and 263A(f); and
  • Exclude a U.S. shareholder’s controlled foreign corporation (CFC) income inclusion amounts under Sections 951(a), 951A(a), and 78, together with related deductions, from the computation of ATI.

Source: IRS News Release

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