On 16 February 2026, the Zakat, Tax and Customs Authority (ZATCA) published the draft Economic Substance Requirements Regulations of Special Economic Zones. The draft regulations set out the economic substance requirements applicable to the four special economic zones (SEZs) of King Abdullah Economic City (KAEC), Ras Al-Khair (RAK), Jazan, and Cloud Computing.
The draft is available for public consultation until 3 March 2026 via the Istitlaa platform.
Economic substance requirements
Investors must fulfill the economic substance requirements on an annual basis, starting from the first financial year in which qualified activities are carried out. These requirements include:
· Maintaining premises and assets in the zone that are suitable for carrying out qualified activities.
· Employing an adequate number of full-time employees who are physically present in the zone during the year.
· Incurring operational expenditures within the zone that are commensurate with the qualified activities performed.
· Ensuring qualified activities are directed and managed from within the zone.
Specific management requirements
· At least one director managing qualified activities must reside in the Kingdom.
· Management must possess the necessary qualifications to manage activities.
· A number of board meetings (or equivalent governing body meetings) must:
o Be held in the Kingdom
o Include strategic and actual decision-making
o Meet the required quorum
o Be duly recorded and documented
Intellectual property activities
Intellectual property (IP) activities fall under qualified activities in accordance with the classification issued by the Economic Cities and Special Zones Authority (ECZA).
It is worth noting that tax and customs exemptions and incentives are not applicable to income from IP activities related to marketing intangibles.
Additional requirements for IP activities
For activities related to intellectual property (IP), investors must meet additional requirements, including:
· Ensuring that at least 50 percent of directors managing qualified activities are residing in the Kingdom.
· Providing a detailed business plan that commercially justifies holding IP assets in the zone.
· Providing detailed employee information (incl. experience level, contracts, qualifications, employment duration).
· Ensuring that strategic decisions and risk management related to IP assets occur from within the zone.
· Not limiting investor activity to the marketing of IP assets.
Compliance and reporting
An annual return must be submitted to verify compliance with economic substance requirements, relying on the form prescribed by ZATCA and in accordance with the procedures specified by it. In the case of non-compliance with economic substance requirements, penalties shall apply.
The draft regulations provide the requirements that investors must meet to demonstrate the substance of their economic activities within the zones, including operational, management, and employee requirements, with additional obligations for IP activities.
The public consultation period for the draft offers an opportunity to submit feedback for change or clarification, prior to the deadline of 3 March 2026.
For guidance on the draft regulations or inquiries regarding the tax implications for investors in the zones, please contact our KPMG professionals.
