Tax Alert: New Special Economic Zones in Saudi Arabia

4 min read

On 13 April 2023, Saudi Crown Prince and Prime Minister Mohammad bin Salman bin Abdulaziz announced the launch of four new Special Economic Zones (SEZ) in Saudi Arabia.

Following the announcement, the KSA Economic Cities and Special Zones Authority (ECZA) published the following:

"Investing in Saudi Arabia’s Special Economic Zones” brochure (special_economics_zone_brochure_english.pdf (ecza.gov.sa)), providing an overview of the incentives offered, including tax incentives, to all current Economic Zones in KSA – four newly announced and the existing Special Integrated Logistics Zone (SILZ) in King Salman International Airport in Riyadh (please refer to KPMG’s alert on SILZ: ‘Main Regulations for Integrated Logistics Bonded Zone - KPMG Saudi Arabia); and
Draft By-law for “Taxes and Customs in Special Economic Zones ” (Draft By-law) for public consultation: (for link, click here).

In detail

In its brochure, ECZA outlined the following tax incentives for the new SEZs:

Special Economic Zone	Focus Sectors	Tax Incentives*
King Abdullah Economic City (KAEC) Makkah province	Automobile supply chain and assembly Consumer goods ICT (Electronic light manufacturing) Pharmaceuticals MedTech Logistics	5% Corporate Income Tax for up to 20 years 0% unlimited withholding tax for repatriation of profits from SEZ to foreign countries 0% customs duties deferral for goods inside the SEZ (for Jazan - only on capital equipment and inputs) 0% VAT for all intra-SEZ goods exchanged within and between zones
Ras Al-Khair Eastern province	Shipbuilding and MRO Rig platforms and MRO
Jazan Jazan province	Food Processing Metal conversion Logistics
Cloud Computing Headquarters in Riyadh	Cloud computing services by headquarters in Riyadh with the ability for businesses to build and operate data centers from all over the Kingdom	Special tax treatment in line with OECD principles to avoid double taxation

(*) Ministerial Resolutions yet to be issued to formalize such Tax incentives announced by ECZA.

ECZA brochure as well, provides a range of other non-tax incentives for operating within SEZ.

According to the draft By-law, we would like to summarize the following major tax considerations:

Value Added Tax (VAT)

Zero VAT rate to be applicable if goods are supplied:

from the primary economy within KSA to an investor in SEZ;
between investors within the same zone; or
between investors in the different zones

Goods import into SEZ from outside KSA are treated as outside the VAT scope

The above VAT reliefs are subject to the following conditions:

The goods are under customs suspension; and
The goods are related to the investor’s qualified and licensed activities.

Customs

Foreign goods entering SEZ from the primary economy within KSA shall be treated as re-exports.

Customs duties exemptions and incentives as approved by the Council of Ministers, shall apply to the investor’s goods entering SEZ, in addition, the investor is eligible to refund the previously collected customs duties in accordance with the provisions of the Customs Law.

Restricted goods are allowed to be entered, exited, and stored, provided that the necessary permits are obtained from the relevant authorities, under the supervision of Zakat, Tax and Customs Authority.

Other tax considerations

A detailed procedural guide will be issued subsequently regulating tax and customs benefits and conditions for SEZs.

Specific provisions under the special tax regime for SEZs would include record-keeping requirements, usage of Arabic and English language, submission of tax returns, tax payment, tax assessments, application for tax refunds, entry and exit of goods, transfer of ownership, manufacturing operations within the zone, anti-tax avoidance preventing shifting tax base from the primary economy within KSA to SEZ, violations and penalties, etc.

Way forward

The launching of new SEZs and further development of their tax regime may be seen as substantial incentives for foreign investment and an expansion of local businesses.

KPMG Saudi Arabia would be happy to support businesses interested in exploring more about the characteristics of these zones and the benefits of rperforming business activities in such new SEZs.