Kingdom Of Saudi Arabia: Be On The Lookout For These Expected Tax Developments In 2024

In the context of Saudi Arabia's economic and structural reforms, as well as the country's goal of increased diversification economically, socially and culturally in line...
Saudi Arabia Tax
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In the context of Saudi Arabia's economic and structural reforms, as well as the country's goal of increased diversification economically, socially and culturally in line with the Saudi Vision 2030 program, 2024 is looking to bring some important developments for businesses. These developments will naturally impact the current tax framework in Saudi Arabia. Below are some of the most relevant tax developments for 2024.

Key tax takeaways for 2024 are:

  1. New Income Tax Draft Law – On 25 October 2023, the Zakat, Tax and Customs Authority (ZATCA) released the draft of a new income tax law, which is intended to replace the current income tax system, for public consultation. This draft law aims to align the Saudi income tax framework with the best international practices to promote and attract investment as well as to enhance tax compliance and transparency. The deadline for receiving recommendations and comments on the draft law ended on 25 December 2023, so further developments may be expected soon.
  2. New Zakat and Tax Procedures Draft Law – The ZATCA has also released the draft of a new Zakat and Tax Procedures Regulations that is intended to unify procedures in the Zakat and tax systems, regulate the rights and obligations of the ZATCA and taxpayers and align with international best tax practices. Similarly to the draft income tax law, the deadline for receiving recommendations and comments on the new Zakat and Tax Procedures draft law ended on 25 December 2023. Further developments are expected to be released soon.
  3. Special Economic Zones (SEZs) – Last year, it was announced that four new SEZs, which grant multiple tax incentives for businesses who invest in them, were established across various regions of the Kingdom. As per the announcement, the tax incentives will include a reduced 5% Corporate Income Tax (CIT) rate for up to 20 years, 0% withholding tax on repatriation of profits, customs duties deferrals or 0% customs duties in certain instances and a 0% VAT rate for all intra-SEZ goods exchanged within and between the zones. Further developments are expected to be released soon, as no formal guidelines have yet been released.

Other important matters to consider in 2024 include:

  1. Executive Regulations for Zakat –On 22 March 2024, the Ministry of Finance approved the new Executive Regulations for Zakat, which aim to improve the legislative framework of Zakat and to clarify the obligations of the Zakat payers to enhance its compliance. These regulations apply to fiscal years starting from 1 January 2024.
  2. Special Integrated Logistics Zone ("SILZ") – On 10 December 2023, the ZATCA published the general guidelines for the ZATCA provisions of the SILZ, an existing KSA SEZ. Businesses who are established in the SILZ may benefit from tax incentives such as 0% CIT for 50 years on eligible income, exclusion from withholding tax on certain payments to non-residents and suspension of VAT and customs duties on goods related to certain activities. This could present a good investment opportunity for businesses operating in the logistics sector.
  3. Regional Headquarters Initiative – Starting from 1 January 2024, multinational companies that intend on doing business with the KSA's authorities or government bodies are required to establish their Regional Headquarters RHQ) in the KSA. The tax rules for the KSA RHQ have been issued on 16 February 2024, providing for a 30-year tax relief including a 0% CIT rate on eligible activities and a 0% withholding tax rate on certain payments to non-residents, applicable to businesses that establish their RHQ in the KSA. See our tax alert on the RHQ rules in our LinkedIn post.
  4. Transfer Pricing for Zakat payers – Last year, the ZATCA announced the approval of amendments to the transfer pricing bylaws, extending the applicability of transfer pricing principles to Zakat payers and introducing advance pricing agreements in the KSA. It has also recently issued guidelines on related-party transactions for Zakat purposes. The amendments to the transfer pricing bylaws took effect 1 January 2024, so it is recommended that the KSA businesses — particularly those subject to Zakat — work toward compliance with the new regulations.
  5. Tax Amnesty – Part of incentive initiatives originally introduced to mitigate the financial implications for businesses resulting from COVID-19, the ZATCA has recently announced the extension of the Cancellation of Fines and Exemption of Penalties Initiative until 30 June 2024. As clarified by the ZATCA, this exemption includes fines for late registration, late payment and late filing of returns for all taxes as well as for amendments of VAT returns and violations of VAT field detection and e-invoicing.

It is important to consider how potential tax incentives under the SEZs, SILZ and RHQ initiatives could interact with the BEPS 2.0 Pillar Two rules. Therefore, it is recommended that any businesses intending on benefiting from any of the above tax incentives evaluate their interplay with BEPS 2.0 when considering their fiscal impact.

Originally published by 28 March, 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kingdom Of Saudi Arabia: Be On The Lookout For These Expected Tax Developments In 2024

Saudi Arabia Tax

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