Saudi Arabia Imposes New Fines on Regional Headquarters for Non-Compliance with Tax Rules

A fine of 100,000 SR for tax non-compliance, and 400,000 SR if the violation is not corrected within 90 days from the date of the fine or if the same violation is repeated within 3 years.

To specify provisions related to tax incentives granted to regional headquarters, the Saudi Kingdom has revealed the tax rules for multinational companies' regional headquarters in Saudi Arabia. According to these rules, the regional headquarters may not be exempted from tax and zakat regulations except in cases specified by tax incentives under Royal Decree No. (M/62) issued on 28/4/1445 corresponding to 12/11/2023, as stipulated in these rules.

Article "3" of the decree grants eligible regional headquarters tax incentives issued by the Ministry of Investment, including a 0% income tax on qualifying income, a 0% withholding tax on payments made by the regional headquarters to non-resident individuals, in addition to other tax incentives mentioned in the decree. These incentives are granted under Article "4" to the regional headquarters for qualified activities approved by the Ministry of Investment for a period of 30 years, renewable.

Regarding the economic requirements that must be fulfilled, as stated in Article "5", the regional headquarters must possess a license issued by the Ministry of Investment, and may not engage in activities other than those within the scope of this license. Additionally, they must possess suitable assets, including a suitable building for conducting their activities in Saudi Arabia, and must direct and manage the activities of the regional headquarters through which strategic decisions are made in the Kingdom.

As for penalties and fines, Article "11" stipulates that if the regional headquarters fails to fulfill any of the actual economic requirements during the license period, the Authority shall notify the regional headquarters of the attributed violation and grant it a corrective period of 90 days from the date of notification. If the violation is not corrected within 90 days from the date of notification, or in case of the regional headquarters repeating the same violation within 3 years from the date of the fine, the following actions shall be taken:

1- A fine of 100,000 Saudi riyals shall be imposed, and the violation must be corrected within 90 days from the date of the fine.

2- If the violation is not corrected within 90 days from the date of the fine, or in case of the regional headquarters repeating the same violation within 3 years from the date of the fine, a financial penalty of 400,000 Saudi riyals shall be imposed, with an additional 90 days granted for correction.

The rules emphasize the necessity for the regional headquarters to comply with the pricing instructions issued by the Board of Directors of the General Authority for Zakat and Income. The General Authority for Zakat and Tax, in coordination with the Ministry of Investment, may cancel the tax incentives for the regional headquarters in any of the specified violation cases.

In case of cancellation of tax incentives for the regional headquarters, a tax lien shall be issued and the applicable fines shall be applied by the tax regulations by the General Authority for Zakat and Tax.

All regional headquarters in the Kingdom are subject to all tax and zakat regulations, and the General Authority for Zakat and Tax issues detailed articles regarding the application of these tax rules.

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