Saudi Arabia announces plan to establish four new Special Economic Zones

Saudi Arabia (‘KSA’ or ‘the Kingdom’) has announced the establishment of four new Special Economic Zones (SEZs). The initiative is part of Saudi Arabia’s ‘Vision 2030’ Strategy and aims to facilitate international trade and promote direct investment in the Kingdom.

The new SEZs will be established in Riyadh, Jazan, Ras al-Khair and King Abdullah Economic City. Each SEZ will focus on a particular sector or industry.

The SEZs will offer various tax and customs incentives to businesses that are registered therein, such as:

• Reduced Corporate Income Tax rate of 5% for up to 20 years;
• 0% customs duties deferral for goods inside the SEZ;
• 0% Custom duties on capital equipment and inputs inside SEZ (only in Jazan SEZ);
• 0% VAT for all intra-SEZ goods exchanged within the zone and between zones;
• 0% withholding tax permanently for repatriation of profits from SEZ into foreign countries;

Businesses will also be able to benefit from non-tax benefits, such as:

• Flexible and supportive regulations around foreign talent during first 5 years;
• Expat levy fees exemption for employees and their families in the zone.
• 100% foreign ownership
• Relaxation of Saudization requirements.

It should be noted that the first SEZ, the Special Integrated Logistics Zone (SILZ), has been operational since 31 October 2022. The SILZ is located adjacent to the King Khalid International Airport in Riyadh. Interestingly, there are some slight differences between the incentives applicable in SILZ and the new SEZs:

• Suspension of customs duties on goods imported or transported within the SILZ
• No VAT on goods entering the zone for servicing or manufacturing activities.
• 0% income tax rate on prescribed activities.

key takeaway

Businesses considering an international expansion into the Saudi market should explore the potential benefits and opportunities offered by Saudi Arabia's SEZs as part of their investment strategy. The attractive tax and non-tax benefits of operating out of a SEZ may give businesses a competitive edge over businesses that are not established in the SEZ. It will be interesting to see whether the SEZs will have similar rates of success in Saudi Arabia as Free Zones in the United Arab Emirates, which have become a cornerstone of the UAE economy and which also offer an attractive 0% tax regime on qualifying income to investors.