Saudi Arabia officially published new tax rules for the Regional Headquarters (RHQs) on 16 February 2024. These rules enable foreign companies to qualify for tax incentives that were announced on 5 December 2023 a 30-year tax incentive with 0% corporate income tax and 0% withholding tax.
Definition of the RHQs
According to the tax rules in the article (1): “The regional headquarters or a unit of a Multinational Group properly established under the laws of Saudi Arabia and the concept of regional headquarters activities of international companies applies according to the National Classification of Economic Activities”.
Tax Incentives
The tax rules clarify that “Regional headquarters that meet the qualification criteria issued by the Ministry of Investment [“MISA”] shall be granted the following tax incentives:
– Zero percent (0%) income tax (CIT) on the eligible income.
– Zero percent (0%) withholding tax (WHT) on payments made by RHQs to non-residents, including dividends, payment to related persons and payment to unrelated persons for services that are necessary for the RHQ’s activities.
Duration of Tax Incentives:
The tax incentives shall be applied to the RHQs qualifying activities for renewable 30-years, starting from the date obtaining the RHQ license. This duration will be carried out until the date of any of the following:
- The elapse of the 30-year period.
- The entity ceases to be regional for any reason.
Economic Substance Requirements for Regional headquarters (“RHQ”)
First and foremost the RHQs must satisfy all of the following requirements:
● Hold a valid license from the Ministry of Investment [“MISA”].
● Maintain adequate assets including a building to carry out their activities.
● Direct and manage activities in the kingdom, which include holding board meetings for strategic decisions.
● Incur operational expenditure in the kingdom, which should be commensurate with the activities of RHQs.
● Generate revenues from the eligible activities.
● Employ at least one director resident in the kingdom
● Employ an adequate number of full-time employees carried out with the requisite qualifications and skills.
Tax and Zakat producers of RHQs:
Under Tax rules, the RHQs shall register for tax and zakat, with Zakat, Tax and Customs Authority [“ZATCA”], submitting an annual report, according to the form provided and the specified procedures by ZATCA, to ensure and validate compliance with the Economic Substance Requirements.
Fines and Penalties of RHQs:
– The RHQs may face fines and penalties for non-compliance with Tax and Zakat laws. ZATCA shall notify RHQs of violations and grant a (90) day corrective period.
– Failure to remedy may result in a SAR 100,000 fine. If not rectified within (90) days or if the violation recurs within 3 years, a SAR 400,000 fine may apply.
– Persistent violations may lead to Tax Incentives suspension.