Saudi Arabia International Tax Overview: Key Highlights for 2024

Tax compliance and reporting has become even more important since Saudi Arabia has initiated bringing tax reforms. The best tax and accounting services are there to rescue so you don’t have to worry about tax savings and tax planning’s.

Saudi Arabia is the new talk of the town since it has announced its Vision 2030. As a part of that plan Saudi Arabia is aiming at diversification and bringing tax reforms. The purpose of bringing tax reforms is evident that Saudi Government wants to reduce the dependence on revenue generated from oil. Up till now, these reforms have contributed to stabilizing government finances leading to economic recovery after oil crises.

The world is looking at KSA as the new destination for expanding business, therefore it is imperative to have understanding about the latest key highlights of tax reforms in 2024. The tax system changes frequently and ensuring tax compliance and reporting is crucial.

Let’s have Saudi Arabia international tax overview and discuss the key highlights of 2024.

Tax Landscape in KSA

KSA has a unique tax landscape. With no income, inheritance and local taxes imposed, it is the new attraction for people across the globe. Well, that doesn’t mean Saudi Arabia is a tax-free region. There are certain taxes imposed by the tax regulatory authority in KSA. Zakat, Tax and Customs Authority (ZATCA) in KSA is responsible for the regulation and collection of taxes.

Key Developments 2024

There have been certain developments in Saudi Arabia Tax rules in 2024 that are briefly described below;

Tax Rules for Regional Headquarters (RHQ Tax Rules)

Saudi Arabia has introduced new tax rules for multinational businesses’ regional headquarters activities in KSA. These new tax rules specify the activities that qualify for tax incentive. This tax rule was enforced in February 2024 in the official Gazette. The aim of these rules is to further clarify the conditions regarding tax relief for RHQ entities.

Key Highlights

• According to this tax rule, RHQ entities in KSA that fulfill the related criteria qualify for 30-year renewable tax incentive i.e. 0% corporate income tax (CIT) and 0% withholding tax (WHT).
• Withholding tax exemption applies to the following payments made by RHQ to non-residents;
• Dividends
• Payments to unrelated persons for services that are important for RHQ activities.
• Payments to related persons

Key Considerations

• The tax incentives are applicable to Income derived from eligible activities of RHQ
• Under this tax rule, RHQ must maintain a separate book of accounts for ineligible activities.
• RHQ must ensure compliance with the Transfer Pricing Bylaws and should conduct all transactions with the related person at arm’s length.

RHQ compliance requirements

Economic Substance Regulations (ESR) requirements:

RHQ must;

• Hold a valid license from Ministry of Investment of Saudi Arabia.
• Own or lease premises in Saudi Arabia suitable for RHQ operations.
• Direct and administer RHQ activities in Saudi Arabia
• Generate income from eligible activities in KSA
• Incur operational expenses in Saudi Arabia that align with the activities of the Regional Headquarters (RHQ).
• At least one director must be resident in Saudi Arabia
• Employ appropriate number of full-time employees in accordance with RHQ activities
• Ensure that RHQ employees fulfill the criteria of the required qualification and skill to perform their duties.

Penalties for Non-Compliance with ESR

Non-compliance may subsequently result in following penalties:

• If the violation is corrected within 90 days from the date of imposition of fine, then a penalty of SAR 100k is imposed.
• If the violation is not corrected within 90 days from the date of imposition, or RHQ repeats same violation within 3 years from the date of imposition of first fine and corrects the violation within 90 days of imposition of second fine, then a penalty of SAR 400K is imposed.
• If RHQ fails to remedy the violations after the imposition of the second fine, then it could potentially result in potential revocation of tax incentives.

Implications

Businesses already set up or looking forward to setting up RHQ in KSA are required to evaluate the impact of tax posed by new RHQ tax regulations and analyze their eligibility criteria to avail tax incentives considering the level of their transfer pricing and compliance with ESR.

Transfer Pricing for Zakat payers

ZATCA announced the approval of amendments to the transfer pricing bylaws last year, in order to introduce advance pricing agreements in the KSA and to extend the applicability of transfer pricing principles to Zakat payers. These amendments took effect from 1 January 2024. Guidelines on related-party transactions have also been issued recently. It is therefore important for businesses subject to Zakat to ensure tax compliance with new rules.

Executive Regulations for Zakat

The Ministry of Finance approved the new Executive Regulations for ZAKAT in March 2024. It aimed at improving the legislative framework of Zakat to clarify the obligations of Zakat payers to enhance tax compliance. This regulation came in effect from 1 January 2024.

Special Integrated Logistics Zone (“SILZ”)

In December 2023, ZATCA introduced guidelines for ZATCA provisions of Special Integrated Logistic Zone. According to this, the businesses which are established in such zones may benefit from tax incentives of 0% Corporate Income Tax for 50 years on eligible income. Exemptions provided, from withholding tax on specific payments to non-residents, along with the suspension of VAT and customs duties on goods associated with certain activities. This was a good initiative to encourage investments in the logistics sector and opening the door to various opportunities.

These were the key takeaways from Tax Highlights in KSA 2024.

About SS&Co. KSA

If you want to outrank your competitors in Saudi Arabia, it is crucial to opt for the best tax compliance and advisory services. At SS&CO KSA, we help companies navigate the complex taxation landscape in Saudi Arabia. With the help of top accountants, we provide the best tax compliance and advisory services in Saudi Arabia.

To streamline the financial operations of your company, you should choose the top tax compliance and advisory services. As KSA continues to make its market competitive and inviting for companies, it is essential to be aware of tax compliance and advisory services. Note that there are no regional or local government taxes in KSA. On the other hand, if you are a foreign-owned entity in KSA, you must pay competitive tax. That’s why you must consult a tax compliance firm in Riyadh to simplify the taxation issues.