Regional Headquarters Tax Exemption

On 5 December 2023, the Ministry of Investment of Saudi Arabia (MISA), in coordination with the Ministry of Finance in the Kingdom of Saudi Arabia (KSA) and the Zakat, Tax and Customs Authority (ZATCA), announced a 30-year tax incentive package for the Regional Headquarters (RHQ) program. 

The RHQ program aims to attract multinational corporations (MNC) to set up their RHQs in KSA and position the country as the leading commercial, industrial and investment hub for the Middle East and North Africa region.

The 30-Year Tax Incentive Package for RHQ

The general corporate income tax (CIT) rate in KSA is 20% and Withholding Tax (WHT) ranges on specified KSA sourced payments to non-resident from 5% to 20%.    

The RHQ 30-year tax incentive package will provide:

• CIT on profits made by the RHQ: 0% 
• WHT on dividend payments from the RHQ: 0% 
• WHT for payments to related parties: 0% 
• WHT for services payments to non-resident unrelated parties necessary to carry out RHQ activities: 0%   

Whilst it has not been announced, we expect that fees charged by an RHQ for support to members of the MNC will need to be in accordance with the arm’s length principle. MNCs may also need to consider the Pillar 2 implications of the tax incentives.   

The guidance released by MISA in February 2022 confirmed that a RHQ is limited to performing RHQ activities and that a RHQ must provide the Mandatory RHQ activities within six months after the grant of the RHQ license and at least three of the Optional RHQ activities within twelve months after the grant of the RHQ license.

The Mandatory RHQ activities are the provision of strategic direction and management functions include: 

• Formulate and monitor the regional strategy, 
• Coordinate strategic alignment, 
• Embed products and/or services in the region, 
• Support acquisitions, mergers and divestments, and
• Review financial performance. 

RHQ management functions include: 
 

• Business planning, 
• Budgeting, 
• Business coordination,
• Identification of new market opportunities,
• Monitoring of the regional market, competitors, and operations,
• Marketing plan for the region, and 
• Operational and financial reporting.

The Optional RHQ activities are: 
 

• Sales and Marketing Support,
• Human Resources, and Personnel Management,
• Training Services, 
• Financial Management, Foreign Exchange, and Treasury Centre Services,
• Compliance and Internal Control,
• Accounting,
• Legal,
• Auditing,
• Research and Analysis,
• Advisory Services,
• Operations Control,
• Logistics and Supply chain management,
• International Trading,
• Technical Support or Engineering Assistance,
• Network Operations for IT System,
• Research and Development, 
• Intellectual Property Rights Management,
• Production Management, and 
• Sourcing of Raw Materials and Parts.