Executive summary

The Zakat, Tax and Customs Authority (ZATCA) has approved the Economic Substance Requirements Regulations for Special Economic Zones (Regulations) pursuant to Board Resolution No. (03-02-26), dated 10/10/1447H. The Regulations were published in the Official Gazette on 7 August 2026 and became effective from the date of publication.

The Regulations establish the economic substance requirements that licensed entities operating within Saudi Arabia's Special Economic Zones (SEZs) must satisfy to demonstrate that they undertake genuine economic activities within the SEZs. The Regulations also introduce an annual reporting obligation requiring licensed entities to submit an economic substance return to the ZATCA for verification purposes.

The new framework applies to entities conducting Qualified Activities (activities eligible for the exemptions, incentives and exceptions) in the SEZs and provides specific requirements relating to employees, operating expenditure, management and governance. Additional economic substance requirements apply to entities engaged in intellectual property activities.

Background

Saudi Arabia established multiple SEZs as part of its broader strategy to attract foreign investment, promote economic diversification, enhance competitiveness and support strategic sectors. Certain tax and customs incentives are available to eligible businesses operating in the SEZs, subject to compliance with applicable regulatory requirements.

Council of Ministers Resolution No. (233), concerning the establishment of SEZs, tasked the ZATCA with developing and monitoring economic substance requirements for entities operating within these zones. The newly approved Regulations provide the framework for assessing whether licensed entities maintain adequate economic presence and carry out actual economic activities in the zones benefiting from the available incentives and exemptions.

Highlights of the approved Regulations

Scope of application

The Regulations apply to all entities licensed to undertake Qualified Activities within the following SEZs:

• King Abdullah Economic City (KAEC) SEZ
• Ras Al-Khair SEZ
• Jazan SEZ
• Cloud Computing and Information Technology SEZ

Licensed entities carrying out Qualified Activities within these zones must comply with the economic substance requirements prescribed under the Regulations.

Economic substance requirements

Licensed entities must satisfy the following requirements annually, beginning from the first financial year in which they undertake Qualified Activities in the zones:

• Maintain suitable premises and appropriate assets necessary for conducting Qualified Activities within the zones.
• Employ an adequate number of full-time employees physically present in the zones, commensurate with the Qualified Activities; this includes employees working under employment contracts with companies contracted by the licensed entities.
• Incur operating expenditure within the zones that is commensurate with the nature of the Qualified Activities.
• Ensure that Qualified Activities are directed and managed from within the zones.

The management and governance requirements include:

• Having at least one director responsible for managing the Qualified Activities who is resident in Saudi Arabia
• Ensuring that the responsible management personnel have the appropriate qualifications and expertise
• Holding board meetings or equivalent governing body meetings during which substantive and strategic decisions are made and documented, with the statutory quorum present in Saudi Arabia

Additional requirements for intellectual property activities

Licensed entities undertaking intellectual property activities are subject to the following additional economic substance requirements:

• Ensuring that at least 50% of the directors responsible for managing the Qualified Activities are residents of Saudi Arabia
• Providing a detailed business plan demonstrating the commercial rationale for retaining intellectual property assets in the zones
• Providing detailed employee information, including experience, qualifications, employment terms and duration
• Ensuring that strategic decisions and related risks concerning intellectual property assets are managed and controlled within the zones
• Confirming that activities are not limited to the marketing of intellectual property assets

In addition, incentives and exemptions do not apply to income derived from intellectual property activities relating to the marketing of intellectual property assets.

Annual economic substance return

The Regulations require licensed entities to submit an annual economic substance return using a ZATCA-prescribed form in accordance with ZATCA-specified procedures. The purpose of the return is to verify compliance with the economic substance requirements.

Violations and penalties

If a licensed entity fails to comply with the economic substance requirements, penalties imposed by the competent authority will apply. The ZATCA may also issue detailed guidance and explanatory materials regarding the application of the Regulations.

Implications

While the approved Regulations broadly retain the economic substance framework previously released for public consultation, they now provide the compliance framework applicable to licensed entities undertaking Qualified Activities in Saudi Arabia's SEZs. The Regulations formalize the economic substance requirements that businesses must satisfy to support continued access to available SEZ tax and customs incentives and introduce an annual economic substance return to be submitted to the ZATCA.

Businesses operating in SEZs should review their operating models, governance arrangements, staffing, expenditure profiles and decision-making processes to assess compliance with the new requirements, and preserve access to available tax and customs incentives. Businesses should also establish appropriate governance, documentation and record-retention processes to support the preparation of the annual economic substance return and demonstrate ongoing compliance with the Regulations.