March 29, 2021
Saudi Arabia publishes special tax rules for Integrated Logistics Bonded Zone
The Saudi Arabian General Authority for Civil Aviation (GACA) recently published tax and other rules related to the Integrated Logistics Bonded Zone (ILBZ) located at King Khalid International Airport in Riyadh. Entities and branches of foreign companies performing prescribed activities in the ILBZ will benefit from:
On 10 October 2018, Saudi Arabia issued a Royal Order (RO A/17) to approve the establishment of the ILBZ.1 The establishment of the ILBZ is part of a broad plan to establish special economic zones in competitive locations for promising sectors, including information and communications technology, logistics, tourism, industrial and financial services.
The GACA recently published the special tax rules, companies’ regulations and employment regulations that will apply to entities operating in the ILBZ that perform the following prescribed activities:
Entities operating in the ILBZ will be subject to 0% income tax rate on profits from prescribed activities. However, anti-avoidance rules are in place to prevent entities moving activities from the mainland into the ILBZ either by way of cessation or reduction in mainland activities.
Entities operating in the ILBZ that satisfy the residence requirements in the Income Tax Law should able to access benefits under a relevant tax treaty.
Permanent establishment (PE) exemption
Nonresidents conducting activities directly related to specified goods inside the ILBZ will not be treated as having a PE in Saudi Arabia, subject to the nonresidents having no physical presence in mainland Saudi Arabia.
Withholding tax (WHT)
Entities operating in the ILBZ will be exempt from withholding and remitting WHT on any of the following payments they make to a nonresident of Saudi Arabia in connection with their prescribed activities:
Value Added Tax (VAT) and Customs
The zone shall be regarded as an integral part of the territory of Saudi Arabia for VAT purposes. The transportation of goods into or within the zone under a customs duty suspension arrangement, and supplies or transactions occurring with respect to goods in the zone while under a duty suspension in the zone shall be outside the scope of VAT.
Upon the removal of the goods from the zone, Customs and VAT rules are likely to apply in accordance with the normal rules applicable in Saudi Arabia.
The General Authority of Zakat and Tax (GAZT) will establish conditions and procedures to implement a special VAT refund scheme for entities to recover input VAT incurred in Saudi Arabia.
The GAZT will also issue detailed guidance and explanatory material with respect to the provisions of these tax bylaws including any application process, time limitations and all other pertinent information.
Companies planning to undertake prescribed activities can register in the ILBZ to enjoy the tax holiday and other benefits.
Click here to read the detailed regulations on the GACA website.
For additional information with respect to this Alert, please contact the following:
Ernst & Young & Co (Certified Public Accountants), Riyadh
Ernst & Young & Co (Certified Public Accountants), Jeddah
Ernst & Young & Co (Certified Public Accountants), Al-Khobar
Ernst & Young LLP (United States), Middle East Tax Desk, New York