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March 29, 2021

Saudi Arabia publishes special tax rules for Integrated Logistics Bonded Zone

Executive summary

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:

  • A 50-year holiday from income tax and the obligation to withhold tax.

  • No restrictions on borrowing from overseas, repatriating capital, or remitting dividends, profits, commissions and similar payments.

  • Special rules permitting work and residence permits to be issued within the ILBZ.

  • No restrictions on ownership of tangible and intangible assets.

Detailed discussion


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:

  • Maintenance, repair, processing, modification, development, assembly and storage of goods

  • Sorting, packing, repacking, trading and distributing merchandise or other goods, including simple manufacturing operations

  • Import, export and re-export

  • Value-added services, logistical services and after-sales services

  • Recycling of waste and e-waste

Income tax

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:

  • Dividends

  • Loan charges

  • Royalties to nonresident related parties

  • Services provided to nonresident related parties

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



  1. See EY KSA Tax Alert, Saudi Arabia announces establishment of first Special Economic Zone for integrated logisticsdated 24 October 2018.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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