Saudi Gazette, 17 February 2024: The terms and conditions for benefiting from a raft of tax incentives announced in December 2023 have been issued.

The terms and conditions have been published in the Official Gazette and specify how multinational companies will be able to qualify for 30-year income tax exemptions after they have moved their regional headquarters to Saudi Arabia.

Companies will not be able to benefit from the exemption if the amount paid by the regional headquarters relates to non-approved activities or a company has committed tax avoidance. To be able to benefit, the company’ regional headquarters must have a valid licence issued by the Investment Ministry and it must not engage in activities other than those which are within the scope of the licence.

The regional headquarters must have appropriate assets too. This should include a suitable building to carry out its activities in Saudi Arabia and ensuring the activities of the regional headquarters are managed. This will include holding board of director meetings.

The regional headquarters must also meet operational expenses in Saudi Arabia needed to carry out its activities and the regional headquarters must generate revenues from approved activities in the Kingdom. It must also 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 too and the employees must have the knowledge and experience required to enable them to perform their tasks and responsibilities. The regional headquarters must register with the Zakat, Tax and Customs Authority in line with the procedures specified in the relevant tax and zakat regulations.

It must submit tax and zakat returns in line with the relevant tax and zakat regulations and submit an annual report using the form prepared by the Authority in line with the specified procedures. This will enable verification that the actual economic requirements have been met.

In terms of books and records, the regional headquarters must prepare and maintain accounts for each tax year throughout the duration of its licence. This includes the partial tax year that begins from the date of obtaining a regional headquarters licence 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 line with the provisions and procedures contained in the relevant tax and zakat regulations.

The Authority also monitors and verifies that the regional headquarters are meeting the actual annual economic growth requirements. The regional headquarters can 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 tax and zakat regulations, the relevant penalties will be imposed on it.

The regional headquarters can also object to the assessment, re-assessment and penalties imposed by the Authority. It can appeal and submit complaints in line with the relevant tax and zakat regulations.
Where the regional headquarters does not meet any of the actual economic requirements during the validity of the licence period, the Authority will notify the regional headquarters of the violation and give it 90 days to correct it. This period starts from the date of notification and will be without prejudice to the penalties contained in the tax regulations.

If the regional headquarters fails to comply, a fine of 100,000 Riyals will be imposed and the violation will have to be remedied within 90 days of the fine being imposed.

If the violation is not remedied within 90 days of the fine being imposed or the violation is repeated within three years from the fine being imposed, a fine of 400,000 Riyals will be imposed.

If the violation still continues, the Zakat, Tax and Customs Authority and Investment Ministry can suspend the tax incentives.

The Authority can cancel the tax incentives, together with the Investment Ministry if the regional headquarters deliberately submits false or misleading information or declarations to the Authority.
They can also do so where the regional headquarters intentionally applied the rules incorrectly, or misused tax incentives to benefit from or help others benefit from tax incentives on activities that are not qualified or licensed by the Investment Ministry.

In addition, they can do so where the regional headquarters makes payments to non-resident persons on behalf of persons who are not eligible for tax incentives.

Where the tax incentives are cancelled, the Authority will issue the tax assessment and apply the relevant fines in line with the tax regulations in relation to the tax years the offences occurred. All tax avoidance and evasion provisions in the relevant tax regulations will also apply to the regional headquarters.

Regional headquarters will be considered residents of the Kingdom to the extent that they meet the residency requirements of the Income Tax Law for the purposes of all international treaties, agreements or other agreements Saudi Arabia is a party to.

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