December 22, 2023
Saudi Arabia issues guideline for Special Integrated Logistics Zone
On 10 December 2023, Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) published the General Guideline for the Zakat, Tax and Customs Provisions of the Special Integrated Logistics Zone (Guideline). The Special Integrated Logistics Zone (SILZ or Zone) was previously known as the Integrated Logistics Bonded Zone or ILBZ.
The Guideline provides the necessary clarifications and guidance for the application of the tax and customs provisions relating to the Zone. It outlines the specific tax and customs rules applicable in the Zone.
On 10 October 2018, Saudi Arabia took a key step toward diversifying its economy by setting up a dedicated framework for ILBZ (now SILZ) through Royal Order A/17. This initiative was part of a broader strategy to establish specialized economic zones in strategic locations to promote promising sectors such as ICT, logistics, tourism and financial services.
The Zone stands as the inaugural project within Saudi Arabia's national logistics platform program. To promote the logistics sector and attract businesses to establish in the SILZ, the ZATCA published the Guideline.
Highlights of the Guideline
Activities allowed in the Zone
The Zone aims to attract qualitative investments with added value to the national economy. Existing establishments within the Zone can practice the following activities:
Tax incentives for establishments
Zakat and other taxes: There are no special exemptions for zakat, excise tax and real estate transaction tax.
Transactions with the mainland and anti-tax avoidance provision: Businesses established in the zone are independent from those set up in the mainland. Transactions between any establishment operating within the designated Zone and its affiliated entities in the mainland must be reported as related-party transactions.
Tax/zakat base returns and payments: Businesses operating in the Zone must fulfill their tax obligations by filing returns and paying any owed amounts, including those not covered by incentives or exemptions, as outlined in the Zakat Collection laws and regulations.
Supply of goods from the mainland to the Zone: Goods supplied within the Zone must be in a suspended status for customs duties and VAT. Zero rate applies to supplies from the mainland to the Zone if the supplier is VAT-registered and the goods are related to Zone activities. Goods from the Zone to the mainland are considered as imported goods and are subject to VAT and customs duties upon exit. Temporary exports from the mainland to the Zone are exempted from customs duties if returned in accordance with the conditions and controls stipulated in the Common Customs Law and its Implementing Regulation. Movement of goods from the Zone to another country is considered as export with no VAT payable. Goods moved to other special economic zones under tax suspension are suspended for customs duties and VAT if both zones have such provisions.
VAT deduction: Businesses in the Zone registered for VAT can deduct input tax for taxable supplies, including zero-rated ones. As such, refundable credit balances may occur. Mainland businesses importing from the Zone will pay VAT at exit from the Zone and can deduct input tax incurred upon import. Refund requests can be submitted through the returns filed or as separate requests.
Recordkeeping requirements: Companies should maintain separate books and records for Zone activities from those of the parent company. Businesses should maintain the necessary documents for tax and customs calculations. E-invoicing is mandatory for Zone businesses registered with the ZATCA.
Tax and customs assessments and inspection: Zone businesses are subject to tax and customs assessments and inspections like any other businesses in Saudi Arabia. Businesses that wish to object to the ZATCA's decisions should follow designated procedures. Noncompliance with tax and customs rules may lead to fines, license withdrawal or other penalties.
Businesses planning to carry out licensed activities in the Zone should review the Guideline to assess their eligibility to avail of the applicable tax breaks and other benefits.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Professional Services (Professional LLC), Riyadh
Ernst & Young Professional Services (Professional LLC), Jeddah
Ernst & Young Professional Services (Professional LLC), Al Khobar
EY Consulting LLC, Dubai
Ernst & Young — Middle East, Bahrain
Ernst & Young LLP (United States), Middle East Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor