Saudi Arabia unveils terms and conditions for 30-year income tax exemption for multinational companies Furnishing false information and other malpractices will lead to deprival of incentives

RIYADH — Saudi Arabia's official Umm Al-Qura Gazette on Friday published the terms and conditions that qualify multinational companies to avail of 30-year income tax exemption after moving their regional headquarters to Saudi Arabia.
These companies will not qualify to benefit from the incentives in the event of furnishing any false or misleading information or involving in tax evasion or any other malpractices, Okaz/Saudi Gazette has learned.
In December 2023, Saudi Arabia unveiled a generous tax incentive program to attract foreign companies to establish their regional headquarters within the Kingdom's borders.
This incentive offers a zero percent income tax rate on corporate companies and withholding taxes for 30 years, available to companies as soon as they receive their regional headquarters license.
Additionally, companies will benefit from eased Saudization requirements and work permit provisions for spouses of regional headquarters' executives of these companies.
The tax rules are effective from the date of their publication in the official gazette.
The tax rules for the regional headquarters of multinational companies in Saudi Arabia are formulated in accordance with the tax and zakat regulations that are in force in the Kingdom.
These rules apply according to the national classification of economic activities, according to the gazette notification.
Article 3 of the regulations stipulates that, regional headquarters that meet the qualification criteria issued by the Ministry of Investment will be granted the following tax incentives:
♦ income tax at a rate of zero percent on qualified income,
♦ withholding tax at a rate of zero percent on payments made by the regional headquarters to non-resident persons in terms of dividends,
♦ payments to related persons,
♦ payments to unrelated persons for services necessary for the activity of the regional headquarters.
The exemption from withholding tax does not apply in any of the following cases:
♦ If the amount paid by the regional headquarters relates to non-approved activities.
♦ Cases of tax avoidance stipulated in Article 12 of these tax rules, and the tax treatment applied to the regional headquarters' income from non-qualified activities is determined in accordance with the relevant tax systems in Saudi Arabia,
♦ and the provisions of the agreements in force and international obligations apply to the regional headquarters.
According to Article 4 of the regulations, the above-mentioned tax incentives are granted to the regional headquarters on qualified activities by the Ministry of Investment for a period of 30 years, subject to renewal.
Similarly, the period for granting tax incentives to the regional headquarters begins from the date of obtaining the regional headquarters' license to carry out qualified activities until the date of any of the following:
1 - Expiry of the 30-year period.
2- The entity ceases to have a regional headquarters for whatever reasons it might be.
With regard to the actual economic requirements, Article 5 of the regulations stipulates that, without prejudice to the qualification standards determined by the Ministry of Investment, the regional headquarters must fulfill all the following actual economic requirements:
♦ The regional headquarters must have a valid license issued by the Ministry of Investment, and not engage in activities other than those activities that are within the scope of this license.
♦ The regional headquarters must have appropriate assets, including a suitable building to carry out its activities in Saudi Arabia, including managing the activities of the regional headquarters such as holding Board of Directors meetings.
The regional headquarters must also meet operational expenses in Saudi Arabia needed for carrying out its activities.
The regional headquarters must generate revenues from approved activities in Saudi Arabia and it must have at least one director residing in Saudi Arabia.
The regional headquarters must have a sufficient number of full-time employees during the tax year, commensurate with the activities of the regional headquarters.
The employees must have the necessary knowledge and experience to enable them to perform their tasks and responsibilities.
The rules stressed the need for the regional headquarters to register with the Zakat, Tax and Customs Authority in accordance with the procedures stipulated in the relevant tax and zakat regulations.
It must submit tax and zakat returns in accordance with the provisions of the relevant tax and zakat regulations, and submit an annual report using the form prepared by the authority in accordance with the procedures specified by it, in order to verify that the actual economic requirements are met.
With regard to books and records, Article 8 requires that the regional headquarters must prepare and maintain accounts for each tax year throughout the duration of its license, including the partial tax year that begins from the date of obtaining a regional headquarters license and ends on the last day of the tax year for that entity.
If the regional headquarters engages in non-qualifying activities at any time during the tax year, it must maintain separate accounts for the non-qualifying activities, and income must be allocated to the qualifying activities as if they were independent of the other activities of the regional headquarters.
The Zakat, Tax and Customs Authority has the right to carry out all of its regulatory and executive tasks assigned to it by law, including obtaining information and conducting evaluations, examinations and audits of the regional headquarters in Saudi Arabia in accordance with the provisions and procedures contained in the relevant tax and zakat systems.
The authority also monitors and verifies that the regional headquarters meeting the actual economic growth requirements annually.
The regional headquarters is allowed to submit a request to obtain an interpretive decision from the authority to provide an explanation or clarification regarding tax issues related to these tax rules and regulations.
If the regional headquarters does not comply with the requirements of the tax and zakat regulations, the penalties stipulated in the regulations will be imposed on it.
The regional headquarters also has the right to object to the assessment, re-assessment and penalties by the Zakat, Tax and Customs Authority.
It has the right to appeal and submit complaints through the ways stipulated in the relevant tax and zakat regulations.
Article 11 of the regulations stipulates that in the event that the regional headquarters does not meet any of the actual economic requirements during the validity of the license period, the authority shall notify the regional headquarters of the violation attributed to it and grant it a corrective period of 90 days from the date of notification, and this will be without prejudice to the penalties contained in the tax regulations.
In the event of failure of the correction, the following measures shall be taken:
1- Imposing a fine of SR100,000 provided that the violation is corrected within 90 days from the date of imposition of the fine.
2- If the violation is not corrected within 90 days from the imposition of the fine, or if the regional headquarters repeats the same violation within three years from the date of imposition of the fine, a fine of SR400,000 will be imposed.
3- If the violation continues after imposing the fine, the Zakat, Tax and Customs Authority, in coordination with the Ministry of Investment, is entitled to suspend the tax incentives.
The authority, in coordination with the ministry, can cancel the tax incentives for the regional headquarters in any of the following cases:
1- The regional headquarters deliberately submits false or misleading information or declarations to the authority.
2- The regional headquarters intentionally applied these rules incorrectly, or misused tax incentives to benefit from or help others benefit from tax incentives on activities that are not qualified and not licensed by the Ministry of Investment.
3- The regional headquarters makes payments to non-resident persons on behalf of persons who are not eligible for tax incentives.
In the event that tax incentives are canceled, the authority will issue the tax assessment and apply the applicable fines in accordance with the tax regulations in relation to the tax years in which the aforementioned cases occur.
All provisions regarding tax avoidance and evasion stipulated in the relevant tax regulations will also apply to the regional headquarters.
For the purposes of all international treaties, agreements or other agreements to which Saudi Arabia is a party, regional headquarters are considered residents of the Kingdom to the extent that they meet the residency requirements of the Income Tax Law.