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Saudi Arabia's Regional Headquarters (RHQ) Tax Regulations:
In an ambitious effort to fortify its status as a global business center, Saudi Arabia has extended a warm welcome to multinational corporations by implementation of the Regional Headquarters (RHQ) program.
TOPICS COVERED:
- Overview;
- Qualifications and Tax Benefits
- Range of Eligibility;
- Mandatory Compliance and Substance Standards;
- Penalties for Non-Compliance;
- Conclusion
INTRODUCTION
This strategic initiative demonstrates the Kingdom's dedication to cultivating a pro-business environment and bolsters its aspiration to diversify its economy beyond hydrocarbons. Saudi Arabia has implemented a groundbreaking framework to reinforce its status as a regional center for multinational corporations. The Kingdom has established a financial environment that is both attractive and conducive to global enterprises through the Regional Headquarters (RHQ) Tax Rules.Eligible Entities and Tax Incentives
The tax regulations established by the Zakat, Tax, and Customs Authority (ZATCA) serve as the foundation of this initiative. The Kingdom's objective to attract entities that make considerable contributions to economic diversification is underscored by the specific criteria that RHQs must meet in order to qualify. The primary appeal is the substantial tax incentives that are offered:- Income generated from eligible activities is subject to a corporate income tax of zero percent.
- The RHQ imposes a zero percent withholding tax on a variety of payments to non-resident entities, including dividends and payments for services associated with its operations.
Eligibility
To guarantee clarity and focus, the ZATCA has delineated the activities that a RHQ must engage in and what constitutes a RHQ in order to obtain these incentives. An RHQ is a unit of a multinational group that is headquartered in Saudi Arabia and is responsible for the provision of strategic supervision, administrative guidance, and support within the region. The multinational group's regional presence is intended to be significantly improved through the precise classification of eligible activities.Compliance and Substance Requirements
Compliance and substance requirements are necessary to ensure that the RHQs make a tangible contribution to the Saudi economy in order to qualify for these incentives. These consist of:- Possessing a valid license for the sanctioned activities.
- Ensuring that the Kingdom has sufficient business premises.
- Supervising strategic initiatives on a local scale, such as the organization of significant meetings.
- Guaranteeing that operational expenditures within the Kingdom are consistent with the activities of the RHQ.
- Employing personnel that is proficient in the requisite skills to conduct the RHQ's operations.
- Additionally, it is mandatory to comply with the Kingdom's tax laws, which include the registration with ZATCA and the maintenance of precise financial records. The objective of these measures is to maintain the integrity of the financial incentives and to foster economic substance within the Kingdom