How to Book Withholding Tax in Wafeq



When dealing with a non-resident vendor (outside Saudi Arabia), you may be required to withhold a portion of the payment as Withholding Tax (WHT) and remit it to the Zakat, Tax and Customs Authority (ZATCA).

This guide will help you:

• Understand the practical scenarios where WHT must be recorded.
• Follow the exact steps to record WHT inside Wafeq.
• Learn the accounting differences between when the vendor or your company bears the tax.

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 payment categories, different rates would apply. It is, therefor, 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 cost.

When should you record WHT in Wafeq?

You should record Withholding Tax (WHT) in the system only if all the following conditions are met:

1. The vendor is non-resident and has a registered business address outside Saudi Arabia.
2. The service was rendered inside Saudi Arabia, either fully or partially.
3. There is no exemption under a Double Taxation Treaty (DTT) — or an agreement exists, but the applicable rate is greater than zero.

Scenario 1: The non-resident supplier bears the WHT

This is the most common case when dealing with a foreign supplier, and no agreement was made about who will bear the withholding tax cost.

Step 1:

Create a new account called "Withholding Tax Payable" under the Liabilities section in your chart of accounts.

Be sure to enable the Enable payment option so that you can later settle the tax through your bank account in Wafeq.



Step 2:

Create a bill in the supplier’s name, and enter the full amount as stated in their invoice.



Step 3:

After creating the bill, record a manual journal entry to recognize the withholding tax amount as a payable to ZATCA.

This entry helps in:

• Reducing the net amount payable to the supplier.
• Reflecting the WHT as a liability owed to the tax authority.



Step 4:

Pay the withholding tax to ZATCA.

Go to Bank Accounts from the main menu, then click Ledger Transactions for the bank account you’ll use to make the payment.



Add a new payment transaction in the table with the exact WHT amount, and make sure to select Withholding Tax Payable as the account category.

The Withholding Tax Payable balance will be automatically cleared, indicating that your obligation to ZATCA has been fully settled.

The payment will also appear in the bank account ledger, ensuring the transaction is properly documented and linked.



Scenario 2: The Saudi entity bears the WHT cost

In some cases, the agreement with the non-resident vendor may state that your company will bear the withholding tax (WHT) instead of the vendor.

In this scenario, WHT should be recorded as an expense on your books, then paid later to ZATCA.

Step 1:

Create two accounts in the Chart of Accounts:

• "Withholding Tax Payable" under Liabilities, and
• "Withholding Tax Expense" under Expenses.

Make sure to enable the Enable payment option for the Withholding Tax Payable account so you can settle it through your bank ledger.



And create the Withholding Tax Expense account under the Expenses section.

This account will be used to record the cost your company is bearing on behalf of the supplier.



Step 2:

Create a journal entry to record the withholding tax as an expense your company is bearing.

• Debit: Withholding Tax Expense
• Credit: Withholding Tax Payable

This reflects that your company is covering the tax obligation directly, and the amount is therefore recorded as an expense that impacts your net profit.



Step 3:

Pay the withholding tax to ZATCA.

Go to “Bank Accounts” from the main menu, then click Ledger Transactions for the bank account you’ll use to make the payment.



Add a new payment transaction in the table for the tax amount, and make sure to select "Withholding Tax Payable" as the account category.

The Withholding Tax Payable balance will be automatically cleared, confirming that your company’s obligation to ZATCA has been fully settled.

The payment will also be reflected in the bank account, ensuring the transaction is properly documented and linked to the correct account.