Saudi Arabia has recently launched a new tax incentive program to attract multinational companies to establish their regional headquarters (to read more about the RHQ in KSA, kindly see our previous article.) This initiative is part of the government’s efforts to boost its economy and encourage foreign investments. The program offers a comprehensive package of benefits to qualifying companies, including a 30-year income tax exemption.

Eligibility for Tax Incentives

To be eligible for these incentives, companies must meet specific criteria set by the Ministry of Investment. These criteria include compliance with tax and zakat regulations, engagement in licensed activities, maintenance of appropriate assets and infrastructure within Saudi Arabia, and a commitment to generating revenues from approved activities.

30-Year Income Tax Exemption

This initiative’s key element is providing a zero percent income tax rate on corporate entities for a 30-year period. This tax regime is applicable as soon as companies receive their regional headquarters license, providing an immediate incentive for relocation. Eased Saudization requirements and streamlined work permit provisions for executives’ spouses are also included to facilitate the transition.

Economic Substance

The economic substance requirement is central to the qualification criteria. It mandates that regional headquarters must operate in a way that substantiates genuine economic activity within Saudi Arabia. This involves having a valid license, adequate assets, operational expenses within the country, a resident director, and a requisite number of full-time employees possessing the required expertise.

Compliance Requirements

While the incentives are attractive, compliance is essential. Regional headquarters must comply with tax and zakat regulations, file annual reports, and maintain meticulous records. Failure to comply with these requirements may result in penalties, fines, or even suspension or revocation of tax incentives. The Zakat, Tax, and Customs Authority retains the right to conduct audits and assessments to ensure compliance.

In case of disputes or differences in interpretation, the authority and regional headquarters have specific rights to seek clarification, appeal assessments or penalties, and engage in dispute resolution processes outlined in tax and zakat regulations.