Saudi Arabia – Tax rules for RHQ regime
Multinational Corporations (MNCs) with Regional Headquarters (RHQ) in Saudi Arabia must be relieved and reassured with the much-awaited Tax Rules published by ZATCA for RHQ regime. The “key points” from the Tax Rules for RHQ regime have been summarised for your considerations
| Key points | Details |
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| Background & Development | ZATCA has issued tax rules related to RHQ regime as on 4 February 2024. To understand the concepts related to RHQ, kindly access our newsletter for RHQ regime in KSA
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| Key points for considerations |
- Eligible activities : The activities of RHQ shall be strengthening the group’s profile in the region, providing strategic supervision, administrative guidance and support for the internal business of the company, subsidiaries, and other related companies
- Eligible income : Income from eligible activities derived by the RHQ
- Incentives : [a] Zero percent income tax [b] Zero percent withholding tax on dividends, payment to related persons, and unrelated persons for services that are necessary for RHQ regime
- Duration of incentives : 30-year period or cease of RHQ, whichever is earlier
- Economic substance regulations
- Shall carry out activities within the scope of such license;
- Must have adequate premises to accommodate the business activities;
- Activities shall be “directed and managed” within Kingdom, including holding board meetings, where strategic decisions are made;
- Must incur operational expenditure in Kingdom;
- Must generate revenues from eligible activities;
- Must have at least one resident Director in the Kingdom;
- Must employ adequate number of full-time employees in a tax year; and
- Employees must have requisite qualifications and skills necessary to execute their duties and fulfill their responsibilities
- Tax Ruling : MNC’s may consider submitting for a Tax ruling to obtain detailed interpretation or clarifications on taxation matters
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| Compliance requirements |
- Must prepare and maintain accounts for the tax year, including partial tax year;
- Maintain separate books of accounts for non-eligible activities;
- Shall file Tax and Zakat returns, as applicable ; and
- Must file annual report using the format prescribed to comply with Economic Substance requirements
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| Penalties |
ZATCA shall notify of the violation and grant 90 days to comply with the rules
- SAR 100,000 fine, provided the violation is complied within the time granted (“initial fine”);
- SAR 400,00 fine, failure to comply with violation within 90 days from imposing the initial fine, or if the same violation is repeated within 3-years from imposing the initial fine;
- Suspension of tax incentives, if the violation continues after the fine prescribed
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| AAnti- Avoidance |
- Mandatory transfer pricing documentation compliance
- May revoke tax incentives – cases were [a] submission of intentional false or misleading information; [b] misusing tax incentives; and [c] payments to non-residents on behalf of persons that do not qualify for Tax Incentives
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| Wayforward for MNCs |
- Be aware of eligible versus non-eligible activities and classify income accordingly
- Maintain adequate books of accounts independently for eligible and non-eligible activities
- Evaluate economic substance regulations applicable for RHQ
- Comply with the transfer pricing regulations
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How we can support:
- Evaluate and support in classifying eligible and non-eligible activites;
- Extend support on compliance with annual returns, annual reports and related submission with ZATCA;
- Advise on overall process and documentation involved for claiming incentives; and
- Extend support on coordination with tax and regulatory authorities
Contact:
The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. No warranty or representation, express or implied, is made by Andersen Saudi Arabia LLC (“Andersen in KSA”), nor does Andersen in KSA accept any liability with respect to the information and data set forth herein. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein @2024 Andersen in KSA. All rights reserved.
Ranjith PathiyilManaging Director – ITS and M&A