Executive summary

The Saudi Arabian Zakat, Tax and Customs Authority (ZATCA) issued the second version of its Guideline for Regional Headquarters in KSA (Guidelines) in May 2026. The updated Guidelines do not introduce new tax incentives or fundamentally alter the regional headquarter (RHQ) regime, but they do provide additional clarification regarding the tax and zakat treatment applicable to RHQs operating in the Kingdom and reflect recent legislative developments, including amendments to the Value-Added Tax (VAT) Implementing Regulations, the Zakat Collection Implementing Regulations and the Real Estate Transactions Tax (RETT) Law.

The updates also align with the draft RHQ licensing and operational rules issued by the Ministry of Investment (MISA), demonstrating a coordinated approach between the MISA and the ZATCA in the administration of the RHQ program.

Detailed discussion

Background

Saudi Arabia introduced its RHQ regime to encourage multinational groups to establish regional headquarters in the Kingdom. RHQs that meet the applicable qualification and economic substance requirements may benefit from a 30-year tax incentive regime, including a 0% corporate income tax rate on qualified income and 0% withholding tax on certain qualifying payments.

The May 2026 Guidelines provide additional clarification regarding the taxation of RHQs and align the RHQ framework with recent amendments affecting VAT, RETT and zakat.

VAT grouping requirements and treatment

The Guidelines clarify that RHQs may join a VAT group with related entities in Saudi Arabia if the statutory conditions for VAT grouping are satisfied. These conditions include:

• All members of the VAT group must be resident in Saudi Arabia and be eligible to register for VAT purposes.
• All group members must have at least 50% ownership, control, voting rights or market value linkage.
• No member may belong to another VAT group or operate in a customs-suspension special zone.
• Neither the applicant nor any member may be a person eligible for VAT refunds under Article 70 of the VAT Implementing Regulations.

If VAT group registration is approved, the VAT group will be treated as a single taxable person. The ZATCA will issue a separate VAT registration number for the group, and transactions between VAT group members will be treated as outside the scope of VAT. The VAT group will also submit a unified VAT return covering all group transactions.

Applicability of RETT to RHQs

The updated Guidelines incorporate changes introduced under the RETT Law issued pursuant to Royal Decree No. (M/84) dated 19/03/1446 AH.

The Guidelines confirm that RHQs remain subject to RETT at a rate of 5% on qualifying real estate transactions involving transfers of ownership or long-term transfers of property benefits exceeding 50 years. The tax is generally calculated based on the agreed transaction value, provided the value reflects fair market value. Certain exemptions may apply under the RETT Law.

Zakat treatment

The Guidelines reconfirm that RHQs may be subject to zakat based on the ownership profile of their shareholders. In accordance with the Zakat Collection Implementing Regulations, zakat applies to the shares of Saudi and Gulf Cooperation Council (GCC) shareholders, as well as other persons falling within the scope of the zakat regime based on a license issued in the Kingdom.

The Guidelines further clarify that the zakat base is calculated in accordance with the Implementing Regulations for Zakat Collection. Zakat is generally imposed at a rate of 2.5% of the zakat base; however, if a taxpayer's fiscal year differs from the Hijri year, zakat is calculated based on the actual number of days in the taxpayer's financial period in accordance with the prescribed methodology. Zakat returns must generally be filed, and any zakat due paid, within 120 days from the end of the zakat year.

Alignment with MISA draft RHQ rules

The updated Guidelines also reflect the broader RHQ policy framework currently being finalized by the MISA. The updated Guidelines address a number of areas that are also reflected in the MISA's draft RHQ Rules issued for public consultation in 2025, including eligible activities, substance requirements and compliance obligations. Together, the two frameworks reinforce a coordinated approach under which the MISA oversees licensing and operational compliance, while the ZATCA administers the tax aspects of the regime, including eligibility for RHQ tax incentives, economic substance requirements and related tax compliance obligations.

Implications

Companies that have established, or are planning to operate their RHQ in Saudi Arabia, should review the updated ZATCA Guidelines alongside the draft MISA RHQ rules to evaluate their continued eligibility for RHQ benefits and compliance with applicable substance requirements. Companies should consider the VAT registration and VAT grouping opportunities, the application of RETT to real estate transactions, and the determination and reporting of zakat obligations under the amended Zakat Collection Implementing Regulations. Businesses should also ensure that their governance, ownership structures, operational arrangements and compliance processes remain aligned with both MISA licensing requirements and the ZATCA's tax and zakat expectations to address compliance issues and preserve access to available RHQ incentives.