30-year Tax Exemption for Companies Moving Regional HQs to Saudi Arabia

December 15, 2023by Ajay Denny0

Wooing corporates: KSA’s tax strategy to lure companies into shifting regional HQ to Saudi

 

The Background

Competition is intensifying between Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE), two of the biggest economies of the GCC, to become economic superpowers. KSA, the world’s largest oil exporter, has been actively pursuing bold initiatives to steer the kingdom away from its oil dependence. In recent years, the UAE too has been heavily promoting non-oil sector businesses.

Under the strategic leadership of the crown prince Mohammed bin Salman Al Saud, dearly called as MbS, KSA is witnessing transformational changes to catalyze the transition of the economy towards a sustainable ecosystem.  With investments in sectors ranging from sports, like the Saudi Pro League and LIV Golf, to Futuristic-Mega city in Neom, the kingdom is preparing for an economy beyond oil.

Tussle for Economic Hegemony

Taking a leaf out of UAE’s strategy, Saudi Arabia has now shifted its focus to corporate establishments, an area that is being dominated by the former. Although the UAE currently outweighs Saudi Arabia in the sheer number of establishments, the Saudi administration has stepped up its game to lure large corporations.

RHQ Program and Tax Exemption

With a 2021 announcement mandating the relocation of the Regional Headquarters (RHQ) to the kingdom as a pre-requisite for international companies to secure government contracts (effective from January 2024), the Saudi administration had asserted its commitment to planned economic transformation. A key component in the ambitious Vision 2030 roadmap for achieving strategic initiatives, the RHQ program plays a pivotal role in helping the kingdom achieve economic diversification.

Now, the kingdom has declared a thirty-year tax exemption to lure international companies. The incentive package, which offers a 0% rate on both corporate taxation and withholding taxation, is expected to be available for entities operating “approved activities”. Earlier, KSA had imposed a standard rate of 20% taxation on the net adjusted profits (excluding income from oil and hydrocarbons) in addition to withholding tax applicable between the range of 5% – 20%.

Early adopters

The RHQ program, which has already garnered attraction from over 200 foreign companies, as quoted by the Saudi Investment Minister, offers tax benefits right from the date of issuance of the license. Major global conglomerates including the likes of Siemens, PepsiCo, and Unilever had already received licenses to shift their RHQs to Riyadh, the capital of Saudi Arabia.

The project, launched in cooperation between the Ministry of Investment and the Royal Commission for Riyadh City, is aimed at placing the Saudi Arabia as a first-choice destination for these international companies across Middle East and North Africa (MENA) region.

Final comments

Businesses in the GCC are getting spoilt for choices. The UAE having brought in a much-anticipated Corporate Taxation regime with one of the world’s lowest taxation rates of 9% and 0%. This Corporate Tax regime has been in effect since 1st June 2023. The UAE’s highlight 0% taxation policy for Qualifying Free Zone Entities (for qualifying income) is now juxtaposed with the 30-year tax exemption made available through the Saudi backed RHQ program. Although further details are expected to be made available in the coming days, one thing is certain – the taxation policies of the MENA region are witnessing interesting times.

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Ajay is a young ACCA Affiliate who is eager to take on challenging opportunities, pushing the status quo, thus helping make a positive impact on the Accounting Profession and the global community at large.

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by Ajay Denny

Ajay is a young ACCA Affiliate who is eager to take on challenging opportunities, pushing the status quo, thus helping make a positive impact on the Accounting Profession and the global community at large.

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