ZATCA has issued a set of tax rules for regional headquarters (RHQs) in Saudi Arabia

According to the issued a set of tax rules by ZATCA, Article 5, Chapter 3, RHQs must comply with eight points of economic presence requirements (clearly dictated, along with other provisions, by OECD requirements), which largely resemble the requirements for regimes in low-tax jurisdictions.

It is separately stipulated that there must be at least one resident director (point 6), and also that the activities of the RHQ must be managed in the Kingdom (the “directed and managed” test), in particular, holding board meetings where strategic decisions must be made (point 3). Compliance with economic presence requirements will be monitored by tax authorities through mandatory annual reports (Article 7.B, Chapter 4).

A 90-day grace period is established for initial non-compliance with these requirements (Article 11, Chapter 5). However, further non-compliance will result in penalty sanctions: SAR 100,000 (USD 26,665) for the first violation (provided that the violation is rectified within 90 days from the date the penalty is imposed) and SAR 400,000 (USD 106,660) if the violation is not rectified within 90 days or for subsequent violations (in addition to other fines, including for tax law evasion, as RHQs are required to comply with all provisions of the general tax law, including the Tax Code). Repeat violations will result in the loss of tax incentives.

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