Companies looking to incorporate need to look into what Saudi Arabia has to offer with its special economic zones, like the Integrated Logistics Bonded Zone (ILBZ). These zones offer a range of benefits for companies looking to establish their businesses in the region, including tax exemptions, customs duty suspensions, and special employment regulations.
The Integrated Logistics Bonded Zone (ILBZ) in Saudi Arabia offers a range of benefits for foreign investors looking to establish their companies in the region.
Established entities that are licensed to carry out activities in the ILBZ can take advantage of tax benefits and exemptions, including zero percent income tax for income derived from prescribed activities such as maintenance, repair, processing, modification, development, assembly, storage, and logistics services.
Other benefits also include exemptions for withholding tax on dividends, loan charges, royalties, and payments for services, as well as customs duty suspension for goods imported into or transported within the ILBZ.
One of the key benefits of establishing a company in the ILBZ is the tax exemptions available. Companies can take advantage of zero percent income tax for income derived from prescribed activities such as maintenance, repair, processing, modification, development, assembly, and storage, as well as logistics services. Additionally, there are exemptions for withholding tax on dividends, loan charges, royalties, and payments for services, which can greatly reduce the tax burden for companies operating in the zone.
Integrated Logistic Bonded Zone (ILBZ) is first special economic free zone in Saudi Arabia. The ILBZ free zone promises a wide variety of incentives to attract foreign investors and companies to relocate their business.
Key rules and regulations of the Integrated Logistics Bonded Zone:
A company or branch of a company that is licensed to carry out activities in the ILBZ (“established entities”) will be eligible for tax benefits and exemptions in relation to the following prescribed activities:
- Maintenance, repair, processing, modification, development, assembly and storage of goods;
- Sorting, packing, repacking, trading in, distributing, dealing with and using goods in any form (including simple manufacturing operations);
- Import, export and re-export;
- Value-added services, logistics services, and after sales services; and
- Recycle waste and e-waste.
Tax benefits and exemptions:
The duration of Tax benefits and exemptions is from the date the established entity obtains its trading license to carry out activities in the ILBZ until the earliest of 50 years from the day the license is obtained or established entity ceases its activity in ILBZ.
- Income tax at a zero percent (0%) rate for income derived from the prescribed activities;
- Disregard of permanent establishments of non-resident entities conducting activities related to goods in Saudi Arabia, provided the non-resident has no physical presence in Saudi Arabia;
- Withholding tax exemption for the following payments related the prescribed activities
- Loan charges;
- Royalties paid to related persons; and
- Payments for services (including technical services) to related persons;
- Customs duty suspension for goods imported into or transported within the ILBZ. No customs duty would be applicable until goods enter the KSA mainland for home consumption; and
- No VAT on supplies or transactions occurring with respect to goods in the ILBZ. Such supplies would be outside the scope of VAT as the supplies occur under customs duty suspension.
The tax bylaws refer to a special VAT refund scheme that will be introduced to allow ILBZ entities to recover input VAT incurred on services acquired from VAT-registered suppliers in the Kingdom. The ZATCA will issue additional detailed guidance on the application of these tax benefits and exemptions.
Employment relationships between individuals and established entities, are governed by special employment regulations. These regulations include the following measures:
- Sponsorship for Saudi work and residency through ILBZ for non-GCC country national employees;
- Employees of established entities may not work outside the zone without obtaining the express approval of the Department for the ILBZ;
- Equal opportunities to both Saudi and non-Saudi nationals (i.e. no Saudi quota); and
- The employee’s salary may be paid:
- in any currency; and
- into a local or foreign bank account.
- An established entity remains subject to the Saudi Arabian Income Tax Law and By-Laws as well as the following compliance obligations:
- Submission of an annual confirmation to ZATCA that it complies with the ILBZ requirements.
- Preparation and maintenance of books and records for each year, which separately disclose information relating to prescribed activities and non-prescribed activities (if applicable).
Why is it attractive to foreign investors?
Many would consider the timing of the saudi economic growth to be compared to the UAE. Thus meaning that companies who take advantage of the growth, by participating in regional business activities will benefit significantly in term of recognition, business volume and tax/regulatory benefits to easy operations upon foreign companies and give them the full control.
With Saudi Arabia’s vision 2030 looking promising and demonstrating ambition, the future’s looking bright and even brighter for the early settling foreign entities, taking part in the future of Saudi Arabia is the new emerging hub of the world and the economic powerhouse.
Saudi Arabia’s Vision 2030
Saudi Arabia’s Vision 2030 is a comprehensive plan for the country’s economic and social development, introduced in 2016 by Crown Prince Mohammed bin Salman.
The goal of the plan is to reduce the country’s dependence on oil, diversify the economy and create new job opportunities for the growing population. It includes a number of initiatives, such as the development of new industries, the creation of a sovereign wealth fund, and the expansion of tourism. Additionally, Vision 2030 aims to improve the standard of living for citizens and promote social and cultural development.
One of the key reasons why it makes sense for global companies to establish a presence in Saudi Arabia is the country’s strategic location. Situated at the crossroads of Europe, Asia, and Africa, Saudi Arabia serves as a gateway to a large market of over 1.5 billion people. The country’s well-developed transportation infrastructure, including modern airports, seaports and highways, makes it easy for businesses to reach and connect with customers in the region.
Another reason why it makes sense for global companies to establish a presence in Saudi Arabia is the government’s efforts to create a more business-friendly environment. The government has implemented a number of economic and regulatory reforms, such as reducing red tape and bureaucracy, to make it easier for businesses to operate in the country. Additionally, the government has also invested in modern infrastructure and technology to create an environment that is conducive to business growth.
Furthermore, the Vision 2030 plan also includes a number of initiatives aimed at attracting foreign investment and encouraging the growth of key industries such as tourism, renewable energy, and technology. This presents a range of business opportunities for global companies to tap into.
In summary, Saudi Arabia’s Vision 2030, strategic location, government’s business-friendly environment and its efforts to attract foreign investment and encouraging the growth of key industries makes it a viable destination for global companies to establish their presence.
Another major benefit of establishing a company in the ILBZ is the suspension of customs duty on goods imported into or transported within the zone. This means that companies can import goods without having to pay customs duty, which can significantly reduce the cost of doing business. This is a great advantage for companies that import or export goods and are looking to save on costs.
The ILBZ also offers special employment regulations that make it an attractive destination for foreign investors. These regulations include sponsorship for Saudi work and residency through the ILBZ for non-GCC country national employees, equal opportunities for both Saudi and non-Saudi nationals, and the ability for employees to be paid in any currency and into a local or foreign bank account. These regulations provide a more flexible and attractive environment for companies looking to establish their businesses in the zone.
In addition, the ILBZ is located in the country with the vision 2030 which is one of the most ambitious and promising plans in the region. This plan aims to diversify the economy, increase private sector participation and create jobs, and it aims to make the country a global business and investment hub.
This ambitious plan makes the ILBZ a great destination for companies looking to take advantage of the growth and recognition in the Saudi market.
All these factors make the ILBZ and other special economic zones in Saudi Arabia an attractive destination for companies looking to establish their businesses in the region.
With a range of tax exemptions, customs duty suspensions, special employment regulations, and the ambitious vision 2030, companies should consider opening a company in these zones to take advantage of the benefits and opportunities available.