Saudi Arabia’s ZATCA issues procedural guide clarifying tax and customs treatment in special economic zones

On 10 August 2026, the Zakat, Tax, and Customs Authority (ZATCA) issued the Procedural Guide on Tax and Customs Operations in Special Economic Zones to clarify the application of various direct and indirect taxes in Saudi Arabia for entities operating in these zones. 

Historically, direct and indirect tax laws in Saudi Arabia provided limited clarity on the tax treatment of entities operating in special economic zones (SEZs). More recently, the Saudi authorities began introducing regulations and guidance that clarify applicable tax treatments and available incentives.

This new regulatory framework applies to the four SEZs that fall under the jurisdiction of the Economic Cities and Special Zones Authority (ECZA): King Abdullah Economic City (KAEC), Ras Al-Khair, Jazan, and the SEZ for Cloud Computing and Information Technology. It does not cover the Special Integrated Logistics Zone, as it is regulated by the General Authority of Civil Aviation (GACA).  

A timeline of key developments:

• 16 January 2026: Publication of the Regulations of the SEZs in the Official Gazette, with an effective date of 16 April 2026. The regulations introduced various exemptions, incentives, and preferential treatments for entities operating in designated SEZs.
• 7 August 2026: Issuance of the Economic Substance Requirements Regulations of SEZs in the Official Gazette with immediate effect. The regulations delineated economic substance requirements related to premises, employees, management, and operations, with additional requirements for intellectual property.
• 10 August 2026: Issuance of the Procedural Guide on Tax and Customs Operations in SEZs by ZATCA, providing greater clarity on the practical application of laws, including the treatment of goods entering into and exiting from the zones.

The three zones of KAEC, Ras Al-Khair, and Jazan are located within defined geographic areas, and these SEZs are characterized by special tax and customs treatments. Whereas the SEZ for Cloud Computing and Information Technology differs in that it is not tied to a specific geographic location. While the zone is located in the city of Riyadh, licensed establishments may establish and operate data centers throughout all regions of Saudi Arabia.

Tabulated below are the qualifying activities applicable to the respective zones. Accordingly, establishments incorporated within the SEZs that engage in any of the qualifying activities listed below may stand to benefit from the available tax concessions and incentives.

A. Value Added Tax (VAT)

A summary of the key VAT treatments is detailed below:

*Subject to customs suspension and qualifying-activity conditions.

Other key VAT considerations:

• Input VAT recovery: VAT registered establishments in SEZs may recover VAT attributable to taxable activities, including zero-rated supplies. This may result in VAT credit balances eligible for refund in accordance with the VAT Implementing Regulations.
• Services: The special SEZ treatment primarily applies to qualifying goods. Services supplied to, from or within the geographically defined SEZs remain subject to the ordinary VAT rules. Services supplied to non-resident customers may qualify for zero-rating where Article 33 conditions are satisfied.
• Compliance and documentation: Businesses should maintain appropriate customs, inventory, commercial invoice and VAT records to support the treatment applied. SEZ establishments remain subject to applicable VAT compliance and e-invoicing requirements

B. Customs

The procedural guide provides detailed customs procedures and clarifies the application of customs duty suspension for qualifying activities undertaken in the geographically defined SEZs. The customs treatment is conditional on the goods being associated with qualifying activities and compliance with the applicable customs controls and procedures. The Cloud Computing and Information Technology SEZ is not covered under customs suspension and remains subject to the customs regime applicable in Saud Arabia.

A summary of the key customs treatments is set out below:

*Subject to customs suspension and qualifying-activity conditions.

Other key customs considerations:

• Customs declarations: All movement of goods to and from SEZs will be subject to filing of customs declarations under the appropriate category
• Inventory traceability and manufacturing controls: Licensed establishments must maintain electronic inventory records enabling ZATCA to track and reconcile goods with customs records. Additionally, manufacturing activities are subject to prescribed inventory controls and monthly reporting
• Movement and disposal of goods: Temporary movements between SEZs and mainland Saudi Arabia, ownership transfers, waste/scrap removal and destruction of goods are subject to prescribed customs procedures, approvals and documentation
• Customs compliance: SEZ establishments remain subject to ZATCA inspections, audits and record-keeping requirements, with non-compliance potentially resulting in applicable customs penalties and other liabilities.

C. Excise tax

Entities operating and registered in an SEZ remain equally subject to the Saudi excise tax regulations and compliance requirements as applicable to entities operating in the Saudi mainland. Accordingly, where an SEZ entity manufactures, imports, stores or otherwise deals with goods subject to excise tax, the relevant excise tax obligations and compliance requirements would be applicable.

D. Transfer pricing

Entities operating within Saudi Arabia’s SEZs remain subject to Saudi Arabia transfer pricing regulations. Accordingly, transactions with related parties must continue to comply with the arm’s length principle and the applicable TP disclosure and documentation requirements. The newly issued guidance confirms that the existing Saudi TP framework continues to apply to licensed SEZ entities, including the requirements relating to the disclosure form, local file, master file, and country-by-country reporting, where applicable. Controlled transactions should be disclosed as part of the annual tax return. Accordingly, the SEZ framework does not provide a separate exemption or incentive from a TP perspective and emphasizes the need for SEZ entities to maintain appropriate TP policies and supporting documentation for their related-party transactions. This is particularly relevant for entities operating in the Cloud Computing and Information Technology SEZ, where the deductibility of related-party expenses remains subject to compliance with Saudi transfer pricing regulations.

E. Corporate income tax (CIT)

A summary of the CIT incentives applicable to licensed establishments in SEZs is detailed below:

*The above tax incentives are subject to compliance with the SEZ regulatory framework and other obligations (i.e., compliance with Pillar Two whenever applied in Saudi Arabia).   

Other key CIT considerations:

• Segregation of qualifying and non-qualifying income: Licensed establishments are required to separately determine income attributable to qualifying and non-qualifying activities. Where segregation is not possible, the taxable base subject to the standard 20% rate shall be determined based on the allocation methodology prescribed in the guideline.
• Loss utilization: Carry-forward operating losses may be utilized in accordance with the relevant provisions of the Income Tax Law and implementing regulations. The deductible amount in a tax year may not exceed 25% of the annual taxable profit as per taxpayer’s return.
• Compliance obligations remain applicable: Licensed establishments benefiting from SEZ incentives remain subject to all applicable tax compliance requirements, including annual tax return filing, maintenance of books and records, and payment of taxes within the prescribed deadlines. Non-compliance will result in penalties as per the tax law and implementing regulations.
• Branches in mainland economy: Where a licensed establishment operates through a branch in mainland economy, the branch is required to have a separate registration with ZATCA and will not benefit from the tax incentives.

F. Withholding tax (WHT)

A summary of the WHT incentives applicable to licensed establishments in SEZs is detailed below:

*The guidelines do not clearly distinguish between the WHT treatment applicable to payments related to qualified activities and those related to non-qualified activities, unlike the approach adopted for income tax purposes. However, in the example provided regarding dividend distributions, the guidelines indicate that the WHT exemption is limited to dividends attributable to qualified activities. Further clarification from ZATCA may be required, and additional guidance may be issued.

Other key WHT considerations:

• Anti-avoidance provisions: Where the exemption is used for tax evasion or avoidance purposes, ZATCA may disregard the exemption and impose withholding tax in accordance with the Income Tax Law and its implementing regulations, together with any applicable penalties.
• Annual reporting requirement: Despite the exemption, licensed establishments are required to submit a detailed annual withholding tax statement reporting payments made to non-residents.
• Cloud Computing and IT SEZ: The Cloud Computing and Information Technology SEZ generally remains subject to the ordinary withholding tax regime applicable in mainland economy. The guideline reiterates the applicable domestic withholding tax rates for payments made to non-residents.

G. Real estate transaction tax (RETT)

Licensed establishments operating in SEZs remain subject to Saudi Arabia’s RETT Law. Any transaction involving the permanent transfer of real estate ownership, transfer of usufruct rights, or grant of usufruct for more than 50 years is generally subject to 5% RETT, calculated on the agreed upon transaction value, provided it reflects fair market value at the time of transaction. Certain transactions may qualify for exemptions under the law; however, SEZ status does not in itself provide a special RETT exemption, and normal RETT rules continue to apply.

H. Special tax treatment for Cloud Computing and IT SEZ:

With regards to the special tax treatment related to the Cloud Computing and Information Technology SEZ, the procedural guide clarifies the following:

• Tax rules in the zone are based on the provisions of international agreements, Saudi Income Tax Law, ZATCA guidance, and OECD principles and commentary.
• OECD classification of payments to non-residents applies, which may differ from the ZATCA principles ordinarily applied in the mainland economy, potentially reducing or eliminating Saudi withholding tax.
• OECD permanent establishment (PE) principles apply to persons resident in countries that have DTAAs with the Kingdom, including guidance on digital services, e-commerce activities, and servers.
• Using or storing data in Saudi data centers does not trigger a virtual PE.
• Tax treaty disputes can be resolved through mutual agreement procedures.
• Related-party expenses are deductible if they comply with Saudi transfer pricing rules.

The new ZATCA procedural guide provides clarity on the tax and customs treatment of businesses operating in Saudi Arabia’s special economic zones of KAEC, Ras Al-Khair, and Jazan. It confirms that entities in these zones can benefit from significant incentives, including a 5% corporate income tax rate on qualifying activities for 20 years, VAT relief on qualifying goods, customs duty suspension, and potential withholding tax exemptions. However, these benefits are not automatic and are subject to qualifying activity, economic substance, and compliance requirements.

The guide also highlights that the Cloud Computing and Information Technology SEZ follows a different framework. While the standard Saudi VAT, customs, and corporate income tax rules generally continue to apply, certain OECD principles are adopted for the classification of payments to non-residents and the trigger for a permanent establishment (PE).

In addition, SEZ entities remain subject to transfer pricing, excise tax, and reporting obligations, making strong documentation, inventory controls, and tax compliance critical for businesses seeking to benefit from the SEZ regime.

For detailed discussion on impacts that your organization could bear after the promulgation of this guideline, please do not hesitate to contact our Tax team.