Tax Incentives to Special Economic Zone Companies in KSA

In Saudi Arabia’s Special Economic Zones, the government offers attractive tax incentives to companies as part of their strategy to boost economic development and attract FDI and domestic investments. These tax incentives aim to encourage businesses to set up operations within the designated zones and contribute to the diversification of the Kingdom’s economy.

Special Economic Zone Companies in KSA

Economic Incentives to SEZ Companies in Saudi Arabia

Business Investors in Saudi Arabia, including foreign and domestic, will be eligible for attractive economic and other commercial incentives when they invest in the Special Economic Zones of the Kingdom.

Some of the common tax and economic incentives generally provided to Special Economic Zone  (SEZ) companies in Saudi Arabia may include:

Corporate Income Tax Exemptions: Companies operating within the Special Economic Zones may be granted full or partial exemptions from corporate income tax for a specific period. This exemption allows businesses to retain more of their profits, enhancing their financial viability and competitiveness.

Customs Duty Exemptions: Businesses within the Special Economic Zones may enjoy exemptions from import and export duties on raw materials, equipment, and finished goods. This facilitates smoother international trade and reduces production costs.

Value Added Tax (VAT) Benefits: The government may offer reduced or waived VAT rates as per sector/activity criteria for companies operating within the Special Economic Zones, making their products and services more cost-competitive in the market.

Withholding Tax Exemptions: Companies may be exempt from withholding taxes on dividends, interest, royalties, and other payments made to foreign entities, further incentivizing foreign investment.

Land and Property Tax Benefits: Special Economic Zone companies might receive reduced or exempted taxes on land use and property ownership, reducing operational expenses.

Personal Income Tax Incentives: The government may provide special personal income tax rates or exemptions to employees working within the Special Economic Zones, attracting skilled professionals to join these companies. That’s the exemption from operational fees for employees and their families working within SEZ companies.

For this there are flexible and supportive regulations for foreign talent.

Simplified Tax Compliance: To ease the burden of tax administration, the government may implement streamlined tax procedures for businesses operating within the Saudi Special Economic Zones.

It’s important to note that the specific tax incentives offered can vary depending on the type of industry, the size of the investment, and the zone’s location. 

Cost Benefits to SEZ Companies’ Businesses in KSA: In Property, Energy, Utilities…

Although Saudi Arabia possesses significant wealth as a thriving global economy, it also boasts a plethora of natural resources that provide businesses with advantageous utility costs, including water, electricity, and gas. 

In addition, the country offers large areas of developable land and well-established, top-tier office and industrial sites at highly competitive rates compared to other Gulf Cooperation Council (GCC) nations and most developed economies. Some of these cost benefits available to companies for doing businesses in SEZ of Saudi Arabia are:

  • Starting land on lease price – $ 0.27 per square meter
  • Natural gas price – $ 1.27 per million BTUs (British Thermal Unit)
  • Price of diesel – $ 15.26 per barrel
  • Price of power for industrial sector – $ 0.049 per kwh
  • Price of drinking water – $ 1.1 to $ 2.2 per cubic meter (depend on region & volume)
  • Price of treated water – $ 0.5 to $ 1.4 per cubic meter (depend on region & volume)

Saudi Arabia’s Special Economic Zones (SEZ)

To promote economic diversification and attract investors to engage in business within its territory, Saudi Arabia launched its first five Special Economic Zones (SEZs) on April 13, 2023, featuring distinctive commercial regulations.

These newly launched free zones in Saudi Arabia provide a favorable environment for various industry sectors and business ventures, presenting investors with a unique opportunity to accelerate their regional and global growth within a well-connected international market. The first five Special Economic Zones (SEZs) in KSA are:

  1. King Abdullah Economic City (KAEC) Special Economic Zone
  2. Ras Al-Khair Special Economic Zone
  3. Jazan Special Economic Zone
  4. Cloud Computing Special Economic Zone
  5. Special Integrated Logistics Zone (SILZ)

Tax Incentives to Special Economic Zone Companies in KSA

Direct tax benefits to companies investing in free zones varies from zone to zone  and type of businesses. Government has announced various tax incentives to all five Special Economic Zone companies in KSA. For examples:

Tax Benefits for Investing in King Abdullah Economic City SEZ

Investing in King Abdullah Economic City (KAEC) Special Economic Zone (SEZ) , the Saudi government provides access to unparalleled economic and tax incentives to drive the success of business.

Located within a convenient 90-minute distance from King Abdulaziz International Airport (Jeddah Airport). In the vibrant city of Jeddah (in Makkah Province), KAEC SEZ provides investors with easy access to a highly skilled workforce and a diverse array of leisure and cultural activities, guaranteeing a high quality of life for all. The size of the zone is 60 km2

Focussing Business Sectors:

  • Automobile supply chain and assembly
  • Consumer goods
  • Electronic light manufacturing for information and communication technologies (ICT)
  • Pharmaceuticals
  • MedTech
  • Logistics

KAEC SEZ provides not only world-leading infrastructure and utilities but also unique commercial incentives like tax benefits, establishing strong foundations for the success of investors and companies alike.

  • 5% – Corporate Income Tax for up to 20 years.
  • 0% – customs duties deferral for goods inside the SEZ.
  • 0% – VAT for all intra-SEZ goods exchanged within the zone and between zones.
  • 0% – withholding tax permanently for repatriation of profits from SEZ into foreign countries.
  • Flexible and supportive regulations to foreign talent during the first 5 years.
  • Expat levy ensures fees exemption for employees and their families in the zone.

Tax Benefits for Investing in Ras Al-Khair Special Economic Zone

Ras Al-Khair Special Economic Zone is for establishing maritime industries in the area to grow this cluster as a key regional player, driving towards Saudi Arabia’s target of developing a US14$B maritime industry.

Focussing Sectors of Ras Al-Khair SEZ

• Shipbuilding and MRO

• Rig platforms and MRO

Apart from the assets and other benefits, Ras Al-Khair Special Economic Zone differentiates itself from the competition by offering a diverse array of SEZ tax incentives, like:

  • Corporate Income Tax for up to 20 years – 5%
  • Customs duties inside the SEZ deferral for goods – 0%
  • VAT for goods exchanged within all intra-SEZ  zone and between zones – 0%
  • Withholding tax on repatriation of profits  from SEZ into foreign countries permanently – 0%
  • During the first 5 years – Flexible and supportive regulations around foreign talent. 
  • Fees exemption for employees and their families in the zone ensured by Expat levy.

Tax Benefits for Investing in Jazan Special Economic Zone

Investing in this Jazan Special Economic Zone (JSEZ), investors can benefit from Jazan’s strategic location along the vital Red Sea shipping route, its close proximity to emerging African markets, including JSEZ’s role as a prominent platform for Saudi Arabia-China investment. 

This zone is located on an ideal Red Sea location in close proximity to key mines and industrial assets with a land area of 24.6 km2.

Focussing Business Sectors:

• Food Processing

• Metal conversion

• Logistics

Jazan province, already an immensely appealing destination for international investors, gains further strength from the enticing economic and tax incentives offered to companies establishing themselves within Jazan SEZ.

  • 5% – Corporate Income Tax for up to 20 years.
  • 0% – customs duties deferral for goods inside the Jazan SEZ.
  • 0% – VAT for all goods exchanged within the zone and between zones.
  • 0% – permanently withholding tax on repatriation of profits from SEZ into foreign countries.
  • Supportive and flexible regulations to foreign talent during the first 5 years.
  • Expat levy ensures fees exemption for employees and their families in the zone.

Tax Incentives to Cloud Computing Special Economic Zone Companies

Cloud Computing Special Economic Zone is Saudi Arabia’s Silicon Valley where international and domestic investors can establish their business in a home to emerging and disruptive digital technologies. 

Capitalizing on the National Strategy for Digital Transformation and the ICT Sector Strategy, investors can leverage the government’s dedication to promoting and nurturing the expansion of digital technologies in the Kingdom. 

This commitment involves an ambitious target of attracting $13 billion in investments (FDI & Domestic Investment) by 2030, focusing on the Data and AI sectors with substantial backing from the Cloud Computing SEZ.

It is located in Innovation Tower at King Abdulaziz City for Science and Technology (KACST). Its Headquarters is in Riyadh with the ability for businesses to build and operate data centers from all over the kingdom.

Gain access to exclusive economic and tax incentives specially designed for companies establishing themselves within the Cloud Computing SEZ, such as: 

  • Benefit from special tax treatment aligned with OECD principles, which prevents double taxation and accommodates the operating model of Cloud Service Providers (CSPs).
  • The expat levy guarantees fees exemption for employees and their families residing in the zone.
  • Enjoy cost-effective network connectivity and electricity prices, with competitive rates of just 0.05 USD/kWh for businesses. 
  • The Cloud Computing SEZ offers the flexibility to deliver cloud computing services from the zone, allowing the construction and operation of data centers from various locations across the Kingdom.

Tax Incentives to Special Integrated Logistics Zone (SILZ) Companies

The Special Integrated Logistics Zone is located adjacent to the King Khalid International Airport in Riyadh with excellent air connectivity. This free zone is specialized for various business sectors:

• Computer parts

• Consumer products

• Aerospace spare parts

• Pharmaceuticals

• Nutritional and medical supplies

• Luxury goods, jewelry and precious metals 

The SILZ free zone provides a range of various direct and indirect economic and other tax incentives to Saudi and foreign investors, such as:

• Customs duties suspension on goods imported or transported within the SILZ.

• 0% VAT on goods entering the zone for servicing or manufacturing activities.

• 0% income tax rate on prescribed activities.

Conclusion

Investors interested in establishing businesses in Saudi Arabia’s Special Economic Zones should consult our professional legal team for required business advice in any SEZs  to fully understand the available tax incentives and their eligibility criteria.