Riyadh, Saudi Arabia – The Zakat, Tax and Customs Authority (ZATCA), in coordination with the Ministry of Investment, has published the highly anticipated comprehensive income tax guidelines and bylaws governing multinational entities operating under the Regional Headquarters (RHQ) program. This milestone release provides explicit clarity on how the highly publicized tax incentives—including the 30-year corporate income tax holiday—will be administered, structured, and monitored for compliance.
Approved Tax Incentives & Exemptions
The guidelines solidify the tax-friendly operating posture granted to eligible RHQs established in the Kingdom:
- 0% Corporate Income Tax: A zero-percent corporate tax rate applies strictly to income generated from approved RHQ activities (such as strategic direction, management, coordination, and regional support functions) for a duration of 30 years from the date of licensing.
- 0% Withholding Tax (WHT): Eligible RHQs are granted a 0% withholding tax rate on dividends, interest, royalties, and payments made to non-resident related parties, provided they stem from eligible regional activities.
- Clear Zakat Framework: ZATCA clarifies that while the corporate tax holiday is active, the RHQ remains subject to standard Zakat filing and documentation requirements, ensuring transparency without negating the core tax savings.
Strict Economic Substance Requirements
To qualify for and maintain these significant tax exemptions, ZATCA has outlined mandatory economic substance standards that every RHQ must demonstrate during audits:
- Physical & Operating Presence: The RHQ must maintain a physical office in Saudi Arabia with adequate premises and active operational assets.
- Executive Direction: The entity must employ a minimum number of full-time, high-level executives who reside in the Kingdom and manage operations across at least three countries outside of Saudi Arabia.
- Local Expenditures: The RHQ must incur sufficient operating expenses within Saudi Arabia that are commensurate with the scale of its management activities.
Transfer Pricing and Compliance
Under the new bylaws, transactions between the Saudi RHQ and its international branches, subsidiaries, or parent companies must strictly adhere to the arm's length principle. RHQs are required to maintain detailed transfer pricing documentation, including local files and master files, to prevent profit shifting and ensure clear tax reporting. Failure to comply with economic substance or transfer pricing rules may result in the suspension of tax incentives.