A New Business Horizon: 30 Years Without Tax in Saudi Arabia

Saudi Arabia has taken a significant step towards bolstering its position as a prime destination for multinational corporations by unveiling a generous tax incentive program. This initiative, detailed in the official Umm Al-Qura Gazette, outlines the eligibility criteria for multinational companies to benefit from a 30-year income tax exemption upon relocating their regional headquarters to the Kingdom. This move is part of Saudi Arabia’s broader strategy to diversify its economy and attract foreign investment.

Key Eligibility Criteria

To qualify for this tax exemption, companies must strictly adhere to the truthfulness of their submitted information, steering clear of any tax evasion or malpractice. The incentives, which include a zero percent income tax and withholding taxes for 30 years, are contingent upon obtaining a regional headquarters license. Furthermore, these companies will enjoy eased Saudization requirements and more flexible work permit provisions for the spouses of their executives.

Effective Date and Compliance

The tax incentives became effective upon their publication in the Umm Al-Qura Gazette, and they are designed in line with the existing tax and zakat regulations of Saudi Arabia. The application of these rules is based on the national classification of economic activities.

Incentives and Conditions

The incentives outlined include:

• A zero percent income tax rate on qualified income.
• A zero percent withholding tax on dividends and payments to related and unrelated persons for necessary services.
• Exemptions are not applicable for payments related to non-approved activities or in tax avoidance cases.

The Ministry of Investment grants these incentives for a 30-year period, subject to renewal, based on the company’s engagement in qualified activities. The incentives commence from the date the company receives its license.

Economic Requirements

To maintain their eligibility, regional headquarters must:

• Hold a valid license for approved activities.
• Possess suitable assets and infrastructure in Saudi Arabia.
• Generate revenue from approved activities within the Kingdom.
• Employ a director and sufficient full-time employees residing in Saudi Arabia with the necessary knowledge and experience.

Accountability and Reporting

Companies must register with the Zakat, Tax, and Customs Authority, submit annual tax and zakat returns, and prepare an annual report to verify compliance with the economic requirements. They must also maintain accurate accounts for each tax year, including for any non-qualifying activities.

Penalties and Compliance

Non-compliance with these regulations may result in fines or suspension of tax incentives. Specifically, a fine of SAR100,000 may be imposed for violations, which can escalate to SAR400,000 for repeated or uncorrected violations. Moreover, deliberate submission of false information or misuse of tax incentives can lead to the cancellation of these incentives.

International Considerations

For international treaty purposes, regional headquarters that comply with these regulations are considered residents of Saudi Arabia, aligning with the residency requirements of the Income Tax Law.

Conclusion

Saudi Arabia’s tax incentive program for multinational companies is a bold move to attract foreign investment and diversify its economy. By offering substantial tax exemptions and simplifying regulatory requirements, the Kingdom is positioning itself as a competitive hub for regional headquarters. However, companies looking to avail themselves of these benefits must adhere to strict compliance and reporting standards, ensuring their operations align with the Kingdom’s economic and regulatory frameworks.