Saudi Arabia

Tax Rules for Regional Headquarters (RHQs)

The Tax Rules for RHQs have been published by the Zakat, Tax and Customs Authority (ZATCA) with an immediate effect from the date of publishing (i.e. 16 February 2024).

The rules clarify several key matters to the tax and investment society, which includes the following, among others:

• Key definitions regarding the RHQs.
• Tax incentives.
• Exemption duration and criteria.
• Economic substance rules for the RHQs.
• Tax compliance requirements.
• Fines and penalties in case of violating the rules.
• Rights of both ZATCA and the RHQ in case of tax audits and disputes.

Tax incentives

RHQs meeting the qualification criteria shall be eligible to enjoy the following tax incentives:

• 0% income tax on the qualifying income.
• 0% withholding tax (WHT) on the payment made by the RHQ to non-residents, meeting any of the following criteria:

• Payments of dividends.
• Payments to related parties.
• Payments to third parties for services necessary for the RHQ’s activities.

The WHT exemption shall not apply in any of the following cases:

• If the payment made by the RHQ is related to non-qualifying activities.
• In any of the tax evasion cases prescribed as per the RHQs Tax Rules.

Income derived by the RHQ from non-qualifying activities shall be treated according to the provisions of the relevant tax regulations in the Kingdom.

The provisions of the in-force treaties in Saudi and international obligations shall apply to the RHQs.

For purposes of all international treaties, conventions, or other agreements to which the Kingdom is party, RHQs are considered tax residents to the extent they meet the tax residency criteria according to Saudi Income Tax Law.

Duration of the tax incentives

• The tax incentives are applicable to the qualifying activities for renewable 30 years, starting from the date of obtaining the RHQ licence to carry out the qualifying activities.
• The tax incentives shall expire on the earlier of:
• The elapsing of the 30-years period.
• The entity ceasing to be qualified as an RHQ for whatsoever reason.

Amendments to Zakat and Income Tax By-Laws

His Excellency the Minister of Finance has approved the amendments to Zakat and Income Tax By-Laws, which have been published in the Official Gazette (Umm AlQura) on 12 September 2023 and entered into effect from that date.

The amendments cover the deductibility of expenses for taxpayers, the procedures of the tax and Zakat litigation process, and the WHT rates on inter-company transactions, among other amendments.

The importance of these amendments arises from their extended impact on non-resident taxpayers in Saudi with respect to their income derived from a source in Saudi, particularly through related parties and branches of foreign companies. 

E-invoicing

On 28 May 2021, the ZATCA has published the e-invoicing resolution setting out the controls, requirements, technical specifications, and procedural rules covering the generation and integration phases, which includes value-added tax (VAT) invoices, debit notes, and credit notes. A detailed set of requirements and guidelines were also published.

The generation phase will be mandated from 4 December 2021, and the integration will be implemented in phases starting from 1 January 2023.

Special tax rules for the Special Integrated Logistics Zone (ILBZ or 'the Zone')

The ILBZ is a special economic zone (SEZ) located adjacent to the King Khalid International Airport in Riyadh, Kingdom of Saudi Arabia (KSA) following the issuance of Royal Order (A/17) dated 10 October 2018.

The General Authority of Civil Aviation (GACA) has issued the Special Tax Rules (the 'Tax Bylaws') setting out the tax and customs incentives (and the associated conditions) that apply to entities established in the ILBZ to carry out specific activities.

The Tax Bylaws specify that, provided certain conditions can be met, ILBZ entities would be subject to corporate income tax (CIT) at 0% on the income earned from carrying on their specific activities for up to 50 years. Further, provided certain conditions can be met, ILBZ entities would also be exempt from deducting WHT on certain payments relating to the specific activities to non-residents.

From a customs perspective, goods imported into the ILBZ would be under a customs duty suspension arrangement. While these goods are under the customs duty suspension arrangement, transactions relating to these goods would be outside the scope of VAT in the Kingdom of Saudi Arabia.

Further guidance will be issued by the ZATCA to specify the conditions and the procedures that ILBZ entities will need to follow to access these tax and customs incentives.