Financial Crime World

Saudi Arabia Introduces Comprehensive Guidelines for Regional Headquarters

The Zakat, Tax, and Customs Authority (ZATCA) has released detailed guidelines for regional headquarters in Saudi Arabia, providing clarity on regulatory provisions and tax incentives. This significant development aims to support multinational companies seeking to establish their regional headquarters in the kingdom.

Key Features of the Guidelines

Tax Incentives

  • Regional headquarters meeting eligibility requirements can benefit from zero percent (0%) income tax on eligible income from eligible activities, as well as zero percent (0%) withholding tax on payments made to non-residents.

Qualification Requirements

  • Multinational groups must own at least two subsidiaries or branches globally other than the headquarters’ country and Saudi Arabia.

Economic Substance Requirements (ESR)

  • Regional headquarters must demonstrate a genuine economic presence in Saudi Arabia, with specific requirements for income-generating activities, employment, and expenditure.

Transfer Pricing

  • Regional headquarters must adhere to the arm’s length standard and transfer pricing documentation requirements.

VAT Implications

Regional headquarters must comply with Value Added Tax (VAT) registration requirements outlined in the VAT rules. This includes:

  • Submitting VAT returns on a quarterly or monthly basis
  • Issuing tax invoices for each taxable supply of goods or services

Zakat and Transfer Pricing

Regional headquarters are subject to Zakat based on shares owned by individuals subject to Zakat. They must also adhere to transfer pricing documentation requirements in accordance with the Transfer Pricing Bylaws.

Real Estate Transaction Tax (RETT)

Real estate transactions are subject to RETT regulations, which apply to regional headquarters that engage in such activities.

Registration and Filing Returns

Regional headquarters must:

  • Register with ZATCA for tax purposes
  • Submit returns and pay any amounts due on statutory deadlines
  • Submit an annual withholding form, even if there is no tax to be declared throughout the fiscal year

Record Keeping and Maintenance

Regional headquarters must prepare and maintain accounts, including audited financial statements, for each tax year throughout the term of the regional headquarters license.

Examination, Assessment, and Objection Procedures

Regional headquarters are subject to tax examination and assessment by ZATCA, in accordance with tax legislation and regulations in force in Saudi Arabia.