General Guideline on the SILZ

10 January 2024 - On 10 December 2023, the Kingdom of Saudi Arabia’s (KSA)  Zakat, Tax, and Customs Authority (ZATCA) released the General Guideline, which clarifies the provisions of Zakat, tax, and customs regulations pertaining to the Integrated Logistics Bonded Zone (ILBZ), also referred to as the Special Integrated Logistics Zone (SILZ). This Guideline aligns with the Royal Order (A/17) dated 10 October 2018 that sanctioned the establishment of the SILZ.

Situated adjacent to the King Khalid International Airport in Riyadh, KSA, the Zone operates as a Special Economic Zone (SEZ). SEZs are subject to advantageous tax rules designed to support and incentivise business. The oversight of the Special Tax Rules of the SILZ, known as the 'Tax Bylaws', falls under the jurisdiction of the General Authority of Civil Aviation (GACA). These rules outline the tax and customs benefits, as well as their associated terms and conditions, applicable to entities engaged in 'Prescribed Activities' permissible within the SILZ. 

The Zone aims to attract business investments that contribute to the national economy. Businesses looking to benefit from the scheme are required to engage in authorized activities within the established regulatory frameworks. As an investment hub, it targets international and local companies and operates as a logistics zone to support import and export activities. 

The below table lists the zone's focus sectors and the companies it aims to target:

GACA licensed entities engaged in Prescribed Activities within the SILZ, and meeting eligibility criteria, can access tax and customs incentives. These Prescribed Activities include the following: 

• Maintenance, repair, processing, modification, development, assembly, and storage of Goods.
• Sorting, filling, re-filling, packaging, trading, distribution, handling, and utilization of Goods or other Goods, including various simple manufacturing processes.
• Import, export, and re-export operations.
• Value-added services, logistics, and after-sales services.
• Recycling of waste and electronic waste.

Key considerations for investors in KSA's SILZ

Investors should take into account the following key factors when considering investment opportunities in KSA’s SILZ:

1. 50 Year Tax Relief Period: A Tax Relief Period is granted to SILZ entities that are licensed to practice the Prescribed Activities within the SILZ. The relief expires at the earliest occurrence of one of the following:
   • The lapse of the 50-year period.
   • The entity ceasing to be an SILZ entity, which can occur if its SILZ license is terminated or suspended.
     
     
2. Corporate Income Tax (CIT): SILZ entities are eligible to benefit from a 0% CIT levied on qualifying income generated from Prescribed Activities.
   
   Non-qualifying income or income derived after the Tax Relief Period is subject to CIT at 20%. In cases where a non-resident person, without a physical presence in the KSA, conducts activities related to goods located within the SILZ, these activities do not constitute the presence of a permanent establishment for CIT purposes.
   
   SILZ entities are required to submit an annual tax return, regardless of the tax exemption. The taxpayer must submit the return within 120 days of the end of the tax year, including all income from Prescribed and Non-Prescribed activities and the associated expenses. If any tax is due on the Non-Prescribed activities, it must be paid within the same 120-day period. Additionally, provisions for accelerated payments may apply in accordance with the Income Tax Law and its Implementing Regulations.
   
   
3. Withholding Tax (WHT): SILZ entities are exempt from deducting WHT on certain payments related to Prescribed Activities specific to non-residents, including the following:  
   
   -  Dividends. 
   -  Loan charges. 
   -  Royalties to non-resident related party recipients; and/or 
   -  Technical services and other services made to non-resident related party
      recipients. 
   
   Note: “Recipient” in these instances is defined as the ultimate beneficiary or beneficial owner of the payments. 
   
   The WHT exemption excludes the following circumstances: 
   
   a- Failure to meet the licensing requirements permitted within the SILZ. 
   
   b- If payments by the SILZ entity relate to activities that are not qualified as
       Prescribed Activities licensed within the SILZ. 
   
   c- If payments by the SILZ entity are or shall be sourced from Prescribed
       Activities carried out in Mainland KSA by related parties and relate to
       the same categories of payments that are exempt from WHT. 
   
   d- Cases of tax evasion or tax avoidance.
   
   Sources of income derived from activities that are not qualified for the WHT exemption are treated in accordance with tax regulations in force in the Mainland KSA.
   
   SILZ entities are required to comply with the submission of monthly and annual withholding tax returns. All payments that fall within the scope of exemption from withholding tax are required to be reported on the withholding tax returns.
   
   
4. Customs duty and VAT: 
   

• Suspension Arrangements: Goods entering or leaving the SILZ from or to locations outside KSA will undergo customs duty suspension and specialized customs oversight. This suspension extends to Value Added Tax (VAT), as per KSA VAT Law. VAT payment for goods within the SILZ is deferred until the goods are customs cleared from the SILZ to enter the local market.
  
  VAT suspension applies to goods meeting specific criteria related to licensed Zone activities, considering them ‘outside the scope’ of VAT when supplied from the Mainland to the Zone, or when traded within the Zone. However, goods unrelated to these licensed activities, whether supplied from the Mainland or within the Zone to a Zone establishment, follow standard VAT rules.
  
  In addition, restricted goods that require import permit/license from Other Government Agencies (OGAs) in the mainland will be granted a suspension from obtaining the same as long as they are placed within the SILZ.  
  
  
• Supply of Goods: Goods temporarily transferred between the Zone and the Mainland for repair, maintenance, or after-sales services remain under suspended customs duties, taxes, and restrictions, subject to specified conditions. Similarly, goods temporarily exported from the Mainland to the Zone for maintenance do not incur customs duties upon return if compliant with regulations. VAT is applicable upon re-importation based on the increased value due to maintenance.
  
  
• Supply of Services: The zero-rate of VAT applies to services rendered by Taxable Persons in the Mainland to existing Zone establishments or from a taxable Zone establishment to recipients in either the Mainland or within the Zone.
  
  
• VAT Refund: VAT registered establishments within the Zone that have supplies subject to VAT, whether at standard or zero rates, can request VAT recovery on expenses incurred while conducting taxable supplies. They can submit refund requests through periodic returns or independently to ZATCA for these recovery amounts.
  
  For mainland VAT registered entities importing goods from Zone establishments, VAT applies when goods leave the Zone, concluding customs duties, restrictions, and VAT suspension(s).  The importing entity can deduct the input tax on the import in the relevant tax return subject to the usual rules. 
  
  
• Customs Duty Refund: Duties paid on goods imported into the Mainland from the SILZ and further re-exported back to the SILZ or outside the KSA are qualified for customs duty refund, subject to meeting the duty refund conditions.
  
  
• Tax Procedures – Registration: Established entities are required to register with ZATCA for tax purposes in accordance with the registration provisions in the tax laws. If a company branch is registered as an established entity within the Zone, this branch must have a unique Tax Identification Number (TIN) that is different to the TIN for the company registered on the mainland.
  
  Should the established entity establish a mainland branch, then the branch is required to register with ZATCA using a unique TIN and it will not benefit from the tax incentives granted to it within the Zone.