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Saudi Arabia's 5 Top Policy Reforms in 2024

As part of our service, we like to keep clients up to speed with emerging policy and regulatory changes in the Kingdom of Saudi Arabia. The national transformation agenda (Vision2030) is accelerating. The regulatory environment is dynamic, and it affects both the foreign businesses already working in the Kingdom and those strategising for an entry.

Here, we look at some of the most important updates to policy as we head into 2024.

1. Saudization.

The Nitaqat program dictates the Saudization percentage that a business is obligated to maintain as part of its Licence and Commercial Registration. This is done on behalf of the Ministry for Human Resources and Social Development (HRSD). HRSD has overseen a gradual percentage increase year on year, but the programme should stabilise after the final increase this month (January). We've invited clients to confirm requests for Iqama issuance, renewals, or transfers in January to avoid any disruption to their plans.


2. Regional Headquarters (RHQ).

The key deadline (1 January) has just passed. It's no longer possible for an organisation to simply win Saudi Government business if it doesn't have a Regional Headquarters in the Kingdom, although there are lots of caveats. The award of such business is conditional upon several factors, most importantly the number of registered entities outside of Saudi Arabia and the prices in a bid. There are plenty of incentives too, including the Premium Residency for RHQ members. However, entering the market isn't entirely dependent upon setting up the RHQ as a separate registered entity and treated as a cost centre. Talk to us for more details on this.


3. Special incentives under Draft Income Tax Law (ITL)

Under the new proposed ITL, and in accordance with what's been published by the Ministry of Investment, we're expecting to see different tax regulations related to RHQs, Special Economic Zones (SEZs) and the Integrated Logistic Bonded Zone this year. Likewise, there are potential deductions for R&D and incentives for Green Investments. Some SEZs will be exempt from Saudization, and investors will also get incentives from the Human Resources Development Fund (HADAF) if they hire Saudis. There will be a permanent VAT exemption on transactions between entities within SEZ or between various SEZs. Competitive Corporate Income Tax rates and some tax discounts for a period of 20 years are also proposed, as are exemptions for social insurance tax for the employer and exemption from customs duties on imports.

4. Withholding Tax (WHT)

In the emerging ITL, there may be an application of WHT that sees Dividends, rental payments, and interest payments more clearly grouped at 5%. Payments for services will be at 10%, and royalties at 15%. The dynamic nature of tax regulation is manifested by reform. For example, since September 2023, WHT for technical and consultancy services was reduced to 5% from 15%. Under ITL, it now brings all services to 10%. Advice should always be sought from a tax advisor, especially when investigating Dual Taxation Treaties (DTT).


5. Permanent Establishment (PE) Risk

Under the proposed new ITL, Service PE has been added with a low threshold period of 30 days in any 12 months. Given this threshold, there could be challenges for many businesses already providing services in the Kingdom and taking revenue offshore. The good news is, where the Kingdom of Saudi Arabia has a DTT with a jurisdiction, the provisions of the DTT will prevail. The not so good news is that third parties are incentivised to present evidence to the authorities that a business is in breach of PE regulations. So, if your business has been operating a historically successful onshore/offshore model unhindered, it is worth checking your compliance now with emerging regulations in 2024 to avoid penalties or worse.



We're very happy to talk through any of the topics touched on in this Insight, and all aspects of market entry and compliance in the Kingdom – contact us.


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