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Saudi tax policy jumped into the headlines recently when the kingdom announced its Regional Headquarters Initiative, an ambitious plan to lure multinationals by offering a 30-year exemption on corporate income tax if they set up their regional head office in Saudi Arabia. Over 200 companies did just that in 2023.
But it's not just big firms that Saudi Arabia is offering incentives to. The kingdom wants to ramp up its SME sector as well. As part of Vision 2030, Saudi Arabia is looking to increase SMEs to 35 percent of GDP from 30 percent. It wants to create an additional 2 million SME-centered jobs.
To get there, the kingdom has been rolling out tax breaks, regulatory reforms and a whole host of incentives to boost its SME ecosystem. Increased support for financing, training and development are all part of the mix. In this post we’ve highlighted the latest regulatory changes that any SME investing in the kingdom should have on its radar.
First, as a business in KSA you should be aware of the following taxes:
- 20% Corporate Income Tax (CIT)
- 15% Value-Added Tax (VAT)
- 5% Real Estate Transfer TAX (Reet)
- 2.5% Zakat (applies to Saudi/GCC owned companies)
These taxes can obviously add up. Below we have listed six avenues your SME can explore in order to reduce the tax burden, cut costs, and generally help grow your business. Much of the relief is especially tailored for smaller businesses that need to scale up.
Know more about: Strategies for Tax-Efficient Investing
The central force supporting SMEs in the Kingdom is the Small and Medium Enterprises General Authority, otherwise known as Monsha’at. They offer all sorts of services to ease the burden on SMEs, from incubators and co-working spaces to government fee refunds and credit programs. Before going any further, you may want to explore their website to see if your business can benefit from their initiatives.
Learn more about: Saudi Arabia's SMEs Financing Programs
In 2022, Saudi Arabia rolled out its New Companies Law, introducing a new type of company known as a Simplified Joint Stock Company (SJSC). In short, it's meant to make it easy for SMEs to gain access to capital markets and to reduce the administrative burden of setting up and running a company.
Saudi Arabia hiked its VAT from 5 percent to 15 percent in 2020 during the global pandemic to make up for revenue shortfalls. But SMEs with turnover of less than 1.5 million SAR ($399,937), can pay a reduced rate of 5 percent VAT on specific goods and services. That’s a big break!
Goods and services that qualify include:
- Medicines
- Medical equipment
- International transportation
- Metals for investment
- Exported items.
You can check the kingdom’s tax authority website for full details.
Last year Saudi Arabia announced four new special economic zones that offer a reduced corporate tax rate of 5% for up to 20 years, along with 0% withholding tax on repatriated profits, exemptions from customs duties and VAT for goods and services in the zone, as well as reduced requirements for hiring Saudi nationals during the first five years of operations.
The four new zones, billed as “new global hubs” are as follows:
- King Abdullah Economic City (KAEC) SEZ in Makkah
-Ras Al-Khair SEZ
-Jazan SEZ
-Cloud Computing SEZ
The zones cater to different sectors. You can check the SEZ zone website to see if your business is a good match.
Another option that offers major tax and regulatory relief is to establish your business in the Special Integrated Logistics Zone (SILZ), an additional zone located near the Riyadh international airport. The zone caters to businesses that focus on logistics activities like maintenance, storage, import/export, value-added services and recycling.
It offers very attractive incentives such as:
- A 50-year tax holiday that includes VAT and customs suspension
- No requirement to withhold tax from payments to non-residents
-100 percent foreign ownership is permitted
In certain underdeveloped parts of the kingdom, the government is granting 10-year tax concessions to attract investment. Investors will get a tax credit against costs on things like training expenditure and salaries paid to Saudi nationals.
Additional deductions are granted if the project’s investment capital exceeds SAR 1 million and if more than five Saudi employees have technical or administrative jobs.
The regions include:
- Ha’il
- Jazan
- Najran
- Al-Baha
- Al-Jouf
- Northern territory
References:
Deloitte - Doing Business Guide KSA
Deloitte - Gateway to Growth: Exploring tax benefits in Saudi Arabia
EY - Saudi Arabia issues guideline for Special Integrated Logistics Zone
Grant Thornton - How Saudi Arabia’s VAT Landscape Has Evolved
PWC - Saudi Arabia Corporate - Tax credits and incentives
PWC - Saudi Arabia: Establishment of four new Special Economic Zones
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
