Saudi Arabia is undergoing a significant transformation, driven by its Vision 2030 initiative. This ambitious plan aims to diversify the nation’s economy and reduce its dependence on oil. As part of this vision, the Kingdom is positioning itself as a prime destination for regional headquarters of multinational companies. Establishing regional headquarters in Saudi Arabia offers businesses strategic advantages, including access to a growing market, modern infrastructure, and robust government support.

ZATCA’S Guidelines For Regional Headquarters

Saudi Arabia is transforming its economy with Vision 2030, attracting multinational companies to set up regional headquarters saudi arabia.

The Zakat, Tax, and Customs Authority (ZATCA) has released detailed guidelines in English and Arabic, explaining regulatory requirements and tax incentives with practical examples, also The Regional Headquarters (RHQ) Program helps companies establish their regional base in Saudi Arabia to support and manage their branches and subsidiaries, offering strategic advantages in a growing market with modern infrastructure and strong government support.

Long-term Tax Incentives for Eligible Regional Headquarters in Saudi Arabia

Tax Incentives for Regional Headquarters Qualification Standards in Saudi Arabia

1. 0% Income Tax: No income tax on earnings from eligible activities.
2. 0% Withholding Tax: No withholding tax on payments made by the regional headquarters to non-residents, covering:
   • Dividends
   • Payments to related persons
   • Payments to unrelated persons for services necessary for RHQ activities

The guidelines also state that if the RHQ engages in unapproved commercial activities, the income from these activities will be taxed according to Saudi Arabia’s relevant tax laws.

Simplified Overview of Regional Headquarters (RHQ) Guidelines in Saudi Arabia

Here are the regional headquarters guidelines in the Kingdom of Saudi Arabia in a simple and clear manner

Qualification Requirements for Regional Headquarters (RHQ) in Saudi Arabia

To qualify as an RHQ, the multinational group must meet the standards set by the Ministry of Investment (MISA). A key requirement is that the group must own at least two subsidiaries or branches outside the headquarters’ country and Saudi Arabia.

Mandatory and Optional Activities To qualify as an RHQ

The guidelines specify mandatory activities for RHQs that focus on supporting regional strategic and management functions and These include:

• Developing and monitoring regional strategies
• Mergers and acquisitions
• Financial planning and analysis

Optional activities in Regional Headquarters include

RHQs have the flexibility to engage in a range of optional activities that support their strategic functions and enhance their regional operations, These activities are not mandatory but can add significant value to the organization and its regional presence.

• Research and development
• Intellectual property management
• Human resources
• Treasury
• Internal audit
• Legal services
• Procurement

Taxes and Tax Incentives in Regional Headquarters

The guidelines offer examples of what counts as eligible activities for tax incentives:

• Eligible Activity 1: Providing central management services to an affiliate.
• Eligible Activity 2: Transferring information like offers, bids, prices, and terms to the global headquarters.
• Eligible Activity 3: Conducting technical market research and service studies for the global headquarters and affiliates.
• Ineligible Activity: Distributing products.

Registration Process in Regional Headquarters

Multinational companies wishing to apply for the RHQ Program must register through MISA’s electronic services portal. MISA also provides user guides for new investor registration and using the e-services portal, available on their website.

Economic Substance Requirements (ESR)

To qualify for tax incentives, an RHQ must meet Economic Substance Requirements (ESR). This means the RHQ needs to:

• Have Suitable Assets: Maintain appropriate office space in Saudi Arabia, either owned or leased, that fits its business needs, and  The office size should match the RHQ’s activities.
• Operate from Saudi Arabia: Direct and manage activities in Saudi Arabia, including holding board meetings there where key decisions are made.
• Employ Full-Time Staff: Have a sufficient number of full-time employees based on its level of activity.
• Generate Revenue Locally: Earn income from eligible activities conducted in Saudi Arabia.

The RHQ must submit an annual report to ZATCA to prove it meets these requirements.

Tax Residency as Saudi Arabia tax authority rules

An affiliate of an RHQ and will not be considered a Saudi resident if the RHQ’s management is responsible for its central activities according to Saudi tax regulations,  However, if the affiliate operates through employees in Saudi Arabia, it might be deemed a Saudi resident.

• Example: A non-Saudi affiliate managed by the RHQ is not a Saudi resident unless it runs its business with employees based in Saudi Arabia.

Is the Permanent Establishment subject to tax?

as Administers tax laws and incentives definition, A non-resident affiliate will not be considered a Saudi resident just because the RHQ performs mandatory activities in Saudi Arabia,  However, if the non-resident company conducts actual business or generates income in the Kingdom, it may be subject to Saudi taxes.

• Example: If an RHQ branch in Saudi Arabia sells goods or engages in commercial activities similar to its headquarters, the income from these activities will be taxable in Saudi Arabia.

VAT Implications in saudi arabia

An RHQ must follow standard VAT rules that  It must register for VAT, comply with VAT regulations, and issue tax invoices as required.

• Local Services: Services provided to local entities are subject to 15% VAT. The recipient can deduct this VAT as input VAT.
• Exported Services: Services provided to foreign affiliates may be zero-rated under Article 33 of the VAT Implementing Regulations.

Zakat: An RHQ is liable for zakat based on the shares owned by individuals subject to zakat.

Transfer Pricing: The RHQ must follow the arm’s length principle and maintain transfer pricing documentation as per the Transfer Pricing Bylaws.

Real Estate Transaction Tax (RETT): Real estate transactions involving the RHQ are subject to RETT regulations.

Tax Procedures for Regional Headquarters (RHQ)

RHQs must follow specific tax procedures to ensure compliance with Saudi Arabian tax laws. These procedures include registration, regular submission of returns, and maintaining accurate records. Additionally, RHQs must adhere to regulations regarding withholding tax, VAT, and tax avoidance to benefit from the incentives provided.

• Registration: Register with ZATCA for tax purposes.
• Tax and Zakat Returns: Submit tax and Zakat returns and make payments by the specified deadlines.
• Withholding Tax: File an annual withholding tax form, even if no tax is due, for payments made to non-residents.
• Value Added Tax (VAT): File VAT returns on a quarterly or monthly basis.
• Record Keeping: Maintain accounts and audited financial statements for each tax year, including from the date the RHQ license is obtained to the end of the tax year.
• Tax Examination and Assessment: Subject to tax reviews and assessments by ZATCA in accordance with current tax laws.

Tax Avoidance: Adhere to tax avoidance laws Tax incentives may be revoked if:

• False or misleading information is submitted.
• Tax rules or incentives are misused for non-eligible activities.
• Payments are made to non-residents on behalf of ineligible individuals or entities.
• Penalties: If an RHQ does not meet the economic substance requirements (ESR) or fails to follow Saudi Arabian tax laws and regulations, it could face penalties. This may include fines or suspension of its license.

The guidelines for Saudi Arabia Regional Headquarters provide essential information for multinational companies aiming to establish their regional base in the Kingdom, and By following these guidelines, businesses can take full advantage of the strategic benefits and tax incentives offered for Regional Headquarters in Saudi Arabia, also Compliance with economic substance requirements and local tax regulations is critical to avoid penalties and ensure smooth operations, and Understanding these guidelines will help companies effectively manage their Saudi Arabia Regional Headquarters and leverage the opportunities available in this dynamic and growing market.