ZATCA publishes Guideline on Regional Headquarters Tax Rules

Background

On 15 April 2024, Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) published a guideline to clarify the tax and zakat provisions for Regional Headquarters (RHQs) in the Kingdom. These guidelines expand on the Regional Headquarters Tax Rules set in February 2024 (see our previous article on the Saudi Regional Headquarters Program). Although the guideline was initially only available in Arabic, an English translation has since been published by ZATCA.

Key points

We have provided below a brief summary of the key aspects covered in the ZATCA guideline:

• Eligibility for the tax incentives (including a 30-year tax holiday for corporate income tax and withholding tax) requires the group’s parent entity to have subsidiaries in at least two other jurisdictions[1] and the RHQ to be registered in the Kingdom of Saudi Arabia (KSA) as a limited liability company or a branch. It must also perform mandatory and optional activities outlined by the Ministry of Investment of Saudi Arabia (MISA).
• RHQs must maintain a physical office in Saudi Arabia, conduct board meetings there, and have adequate employees and assets commensurate with their activities to meet economic substance requirements.
• RHQs are required to submit an annual report to demonstrate compliance with the substance requirements.
• Commercial activities must be conducted separately by subsidiaries with the appropriate licenses, and RHQs must not engage in activities outside the scope of its RHQ license, as these would be subject to regular tax/zakat rules.
• The tax incentives can be revoked if the RHQ provides misleading information, misapplies tax rules, or assists others in inappropriately benefiting from tax incentives.
• Registration for tax/zakat purposes is automatic upon obtaining a license from MISA, but RHQs may need to register for VAT separately.
• The guidelines also outline compliance with Saudi transfer pricing rules, requiring transactions with related parties to be at arm's length.
• The 30-year tax holiday does not extend to VAT, Zakat and RETT. The RHQ will need to separately assess its obligations for VAT purposes (including whether the RHQ is required to register for VAT purposes).

Conclusion

Multinational groups that fall within the scope of the RHQ Program and have already incorporated an RHQ or are in the process of setting up their RHQ in KSA are advised to review these new guidelines to fully understand the tax implications and compliance requirements.

Reference

• ZATCA Guideline - Regional Headquarters