The Zakat, Tax, and Customs Authority (ZATCA) has issued the Tax & Customs Procedural Guide for Special Economic Zones (SEZs), which provides the most recent and detailed guidance on the tax and customs treatment of licensed activities within SEZs (the Guide). The Guide covers the geographically defined SEZs in King Abdullah Economic City (KAEC), Ras Al Khair, and Jazan, as well as the distinct framework applicable to the Cloud Computing & IT SEZ. It is explanatory in nature and does not amend the underlying laws or regulations.

The Guide is currently available in Arabic: View the ZATCA SEZ Tax and Customs Procedural Guide.

Separately, the Economic Substance Requirements Regulations for SEZs (the Regulations) became effective on August 7, 2026, following their publication in the Official Gazette. The Regulations introduced binding substance requirements for licensed entities undertaking qualifying activities, including requirements relating to premises, employees, expenditure, and the direction and management of activities.

Why This Matters

The Guide and the Regulations address two complementary aspects of the SEZ framework. The Guide provides greater certainty on how the tax, VAT, and customs rules operate in practice, while the Regulations set out the minimum economic presence expected from businesses undertaking qualifying activities. Together, they provide a clearer framework for both accessing SEZ incentives and demonstrating continued compliance with the conditions attached to them.

The developments are particularly relevant for businesses designing or revising their operating models, as the practical availability of SEZ incentives will depend not only on the nature of the licensed activities but also on the people, premises, expenditure, governance, and supporting records maintained in connection with those activities.

Key Points

The following tax and customs incentives apply to the geographically defined SEZs in KAEC, Ras Al Khair, and Jazan. The Cloud Computing & IT SEZ follows a separate framework, as outlined below.

Income Tax

• Income from qualifying activities is subject to a 5% income tax rate for 20 years.
• Income from non-qualifying activities is subject to the standard 20% rate and must be calculated separately.
• Licensed SEZ establishments are subject to the Income Tax Law, including establishments owned by Saudi or Gulf Cooperation Council (GCC) investors.
• Carried-forward losses may be deducted against annual taxable profits, subject to the ordinary 25% limitation.
• The incentives may be reviewed when the Pillar Two global minimum tax rules are implemented in Saudi Arabia.

Withholding Tax

• Licensed SEZ establishments are exempt from withholding tax on payments to non-residents.
• An annual WHT statement (return) covering payments to non-residents remains mandatory.
• The exemption may be denied where it is used for tax evasion or avoidance purposes.

Customs

• Customs duty and import VAT are suspended on goods relating to qualifying activities while they remain within the SEZ customs suspension regime. The suspension is not subject to a fixed time limit.
• Goods moving from an SEZ to the mainland are treated as imports. The SEZ establishment declares their removal from the zone, while the mainland recipient is responsible for the import declaration and the resulting customs duty and import VAT.
• Licensed establishments must maintain an auditable electronic inventory system linked to ZATCA or otherwise make the relevant data available to it. A six-month transitional period applies for completing the electronic linkage, although records, reports, and system access must be provided to ZATCA during that period.
• Monthly inventory reconciliations are required and supported, where relevant, by production and manufacturing records.
• Goods manufactured in an SEZ and released to the mainland are assessed by reference to the finished product and the tariff applicable when the import declaration is filed, including where local components have been incorporated.

VAT

• Supplies of goods within or between qualifying SEZs, and supplies from the mainland to an SEZ, are zero-rated where the goods are under customs suspension and relate to qualifying activities. Goods imported directly from outside Saudi Arabia into an SEZ are treated as outside the scope of VAT, rather than zero-rated, subject to the same conditions.
• Goods moving from an SEZ to the mainland are treated as imports, with the mainland recipient responsible for VAT on import.
• Services follow the ordinary Saudi VAT rules. Imported services may therefore be subject to the reverse-charge mechanism, while exports of services may be zero-rated where the usual conditions are met.
• Businesses making only zero-rated supplies may benefit from the existing exception to mandatory VAT registration. No notification to ZATCA is required, although evidence that all supplies qualify for zero-rating must be retained.
• Voluntary registration remains available, subject to the ordinary requirements, allowing the recovery of input VAT incurred on taxable activities.
• VAT-registered businesses must retain evidence supporting the location, movement, and customs suspension status of goods to which zero-rating is applied.
• Licensed SEZ establishments remain subject to the Kingdom’s e-invoicing requirements.

Cloud Computing & IT SEZ

• The Cloud Computing & IT SEZ is not a geographically defined customs zone and does not benefit from the customs suspension and goods-related VAT treatments available in KAEC, Ras Al Khair, and Jazan.
• Ordinary Saudi income tax, withholding tax, and VAT rules apply as a starting point.
• The Guide also addresses the treatment of certain software payments and permanent establishment issues by reference to applicable tax treaties and Organisation for Economic Co-operation and Development (OECD) principles.
• Licensed businesses may establish and operate data centers throughout Saudi Arabia rather than being restricted to a single geographically defined area.

Economic Substance Requirements

• Licensed entities undertaking qualifying activities must maintain an adequate economic presence, considering their premises, assets, employees, and operating expenditure.
• Relevant activities must be directed and managed from within Saudi Arabia, with appropriate governance and decision-making arrangements.
• Enhanced requirements apply to certain intellectual property (IP)-related activities, including additional expectations around management, business planning, and strategic decision-making.
• Licensed entities must submit an annual Economic Substance Return in the form prescribed by ZATCA.
• Failure to meet the applicable requirements may result in penalties under the relevant SEZ framework.

Other Relevant Points

• A mainland branch of a licensed SEZ establishment does not inherit the SEZ establishment’s incentives.
• No SEZ-specific excise tax relief applies. Licensed establishments remain subject to the ordinary Saudi excise tax rules, including the general suspension arrangements available under those rules where applicable.
• The ordinary Saudi transfer pricing requirements continue to apply to controlled transactions.
• Real estate transactions involving SEZ establishments remain subject to the ordinary Real Estate Transaction Tax rules, including the applicable statutory exemptions.

Additional Considerations for Investors

In addition to the matters covered by the Guide, investors may wish to consider the wider implications for the group’s Zakat position, investment structure, and potential restructuring, exit, or listing.

Zakat

For holding companies outside the SEZ, the Zakat treatment of an investment in an SEZ subsidiary should also be considered. Under Article 47(1)(b) of the Zakat Regulations, specific rules apply to investments in entities that are not subject to Zakat collection. This may be relevant when assessing the overall tax impact and ownership structure of an SEZ investment.

Capital Gains

The tax treatment of capital gains should also be considered when structuring an investment in an SEZ. It remains uncertain whether the 5% rate applicable to qualifying SEZ income could also extend to capital gains on disposal. This may be relevant for investors evaluating restructuring or exit options.

IPO and Listing

Investors considering a future IPO or listing involving an SEZ entity should also consider the interaction between the SEZ framework and the applicable tax, Zakat, and capital markets requirements. This may be relevant when determining the ownership structure and planning for a future capital markets transaction.

Point of View

The Guide is a positive development that improves clarity and predictability for SEZ investors. It confirms how existing incentives are intended to operate in practice and provides the much-needed detail on VAT and customs treatment.

Several features will require careful attention. These include the absence of a fixed customs suspension period, the outside-the-scope treatment of direct imports into an SEZ and the treatment of goods released to the mainland as imports by the mainland recipient. Businesses familiar with other regional free-zone regimes should therefore avoid assuming that the Saudi rules operate in the same way.

The Guide also underlines the importance of accurate documentation, correct customs handling, and a clear distinction between qualifying and non-qualifying activities. In particular, the VAT and customs treatment of goods depends on both their customs status and their connection with qualifying activities.

The Cloud Computing & IT SEZ, mainland branches, and excise-tax activities must also be considered under their respective rules rather than treated as part of a single, uniform SEZ framework.

The Economic Substance Requirements add a separate but related layer of compliance. Licensed entities will need to demonstrate that qualifying activities are supported by the required people, premises, expenditure, and decision-making arrangements. The tax and customs treatment of an SEZ investment should therefore be assessed alongside the substance requirements applicable to the relevant activities.

The assessment should also extend beyond the licensed SEZ entity. The benefit of the SEZ incentives should be considered in the context of the group’s wider Zakat position, ownership structure, and potential restructuring, exit, or capital markets plans. These factors may affect both the overall tax outcome and how an SEZ investment is structured from the outset.

Recommended Actions

Companies operating in or considering establishing operations within a Saudi SEZ should:

1. Consider the applicable SEZ framework and economic substance requirements, distinguishing the geographically defined SEZs from the Cloud Computing & IT SEZ.
2. Review qualifying and non-qualifying activities and ensure that the related income and costs are correctly identified, allocated and recorded.
3. Assess compliance with the applicable economic substance requirements, including those relating to premises, employees, operating expenditure, and management.
4. Strengthen the evidence supporting VAT zero-rate and customs suspension, including the connection between the relevant goods and qualifying activities.
5. Assess whether enterprise resource planning (ERP) and inventory systems can meet ZATCA’s access, reporting, and monthly reconciliation requirements within the six-month transitional period.
6. Review the VAT and customs treatment of goods moving into, within, between, and out of SEZs, including the distinction between zero-rated and outside-the-scope transactions and the allocation of import obligations when goods are transferred to the mainland.
7. Identify any IP-related activities subject to enhanced substance requirements and review the supporting business plans, governance, and decision-making records.
8. Prepare for the annual Economic Substance Return and retain the records needed to support both the return and continued access to the relevant SEZ incentives.
9. Assess the wider Zakat, ownership, and exit implications of the proposed SEZ structure, including any planned restructuring, initial public offering (IPO), or other capital markets transactions.