The Regional Headquarters Incentive in Saudi Arabia: 0% Income Tax for Thirty Years, and What It Does Not Cover

A licensed regional headquarters in Saudi Arabia pays income tax at 0% for thirty renewable years and withholds nothing when it pays a dividend or a fee to its own group abroad. The catch is in the definition of the income. The rate applies to what the entity earns from directing, managing and supporting its group's companies in the region, and to keep it the entity must carry on no commercial activity beyond the ones its licence names: everything else sits in a related company with its own commercial licence.

The incentives came from Royal Decree M/62 of 28/04/1445H, corresponding to 12 November 2023; the mechanics are in the Regional Headquarters Tax Rules, ZATCA Board Resolution 24-1-9 of 23/07/1445H, corresponding to 4 February 2024. The licence is not ZATCA's. It comes from the Ministry of Investment, which the rules call the Governing Body, and ZATCA registers the entity for tax automatically once that licence and the commercial register exist.

Nothing else was switched off. Zakat still follows the shareholder register, VAT still runs at 15%, transfer pricing documentation is still due, a real estate transaction still costs 5%. The 0% is a rate, not a release from filing, and it can be revoked with the years behind it reassessed.

What the licence actually is

The rules define the applicant as an entity: a foreign multinational company or group with at least two affiliated legal entities or branches around the world other than the Kingdom and its own headquarters country. The regional headquarters is that group's Saudi vehicle, registered here as a foreign company (a limited liability company) or a branch, independent of the group's other Saudi entities, and carrying activity number 701011 of the National Classification of Economic Activities. The territory it serves, in the rules' own definition, is the Middle East and North Africa.

Two families of activity are mandatory. Strategic direction covers the regional strategy, strategic alignment, bringing products and services into the territory, supporting acquisitions, mergers and divestments, and reviewing financial performance. The management function covers business plans, budgeting, business coordination, market opportunities, monitoring competitors and operations, the territory's marketing plan and the operational and financial reporting. On top of those the entity must take on at least three of eighteen optional activities within a year of the licence, from sales support and human resources through treasury, compliance, accounting, legal and audit. Read that list as the outer wall of the licence, not a menu of ambitions: income from anything outside it is not eligible income.

The rule that drove the programme is not a tax rule

The Saudi Press Agency carried an official statement that the Kingdom would stop contracting with any company whose regional headquarters is outside Saudi Arabia, starting from 2024. That is a procurement policy, administered by the Ministry of Investment and the state's procurement machinery with its scope and exceptions set there; the tax rules say nothing about it. It is why a large share of the licences exist, and the two get conflated. The 0% is not conditional on a government contract, and a government contract is not conditional on the 0%.

The two incentives

An entity meeting the Ministry's qualification criteria and ZATCA's economic substance requirements is granted both of these for thirty renewable years.

Incentive	What it covers	What it does not
0% income tax	Eligible income, meaning income from the mandatory and optional activities the licence names	Income from any other activity, taxed at 20% of the tax base
0% withholding tax	Payments to non-residents that are dividends, payments to related persons, or payments to unrelated persons for services necessary for the activity	Amounts relating to non-qualified activities, and cases caught by the tax avoidance provisions

The withholding relief is the less discussed and often the more valuable, because withholding tax lands on a gross payment rather than a profit and does not go away in a bad year; the rates it displaces vary by payment type, in Withholding Tax in Saudi Arabia by Payment Type. It is also narrower than it looks. The Kingdom does not withhold on payments between residents or to a non-resident's permanent establishment here, so a regional headquarters paying its Saudi sister companies never withheld anything. The 0% bites only on the cross-border leg.

Thirty renewable years, from the date of the licence

The period runs from the date the licence was issued in the Kingdom. Not from the first profitable year, not from ZATCA registration, not from the Royal Decree. A group licensed early and still fitting out its Riyadh office spends the same clock as one charging fees from month one. The guideline calls it renewable and says nothing about what renewal will require.

What stays taxable

Income from non-eligible activities is taxed in the ordinary way, at 20% of the tax base for everything except oil and hydrocarbon production. The rate attaches to the income, not the entity: a regional headquarters does not lose its 0% on eligible income because it also earned something ineligible, although that activity may itself breach the rules. What makes that real is a bookkeeping obligation. Carry on non-qualifying activities at any point in a tax year and you must keep separate accounts for them, allocating income to the qualifying activities as though they stood alone. No blended rate, no netting.

ZATCA's examples mark the boundary. Central management of the group's marketing, passing offers, bids and terms of sale to the head office, and technical market research are inside the licence and at 0%. Distributing an affiliate's products here is outside it: taxed under the Income Tax Law, and the guideline notes that doing it at all may violate the rules.

The licence does not spread residence either: a group company established abroad is not made resident here, or given a permanent establishment, merely because a regional headquarters manages it.

The economic substance requirements

These are ZATCA's, set out in the tax rules rather than the licence, and they are the condition on which the rate is held rather than obtained. All eight must be met.

Requirement	What it means in practice
A valid licence, and nothing beyond it	A current Ministry licence, and no activity outside its scope
Appropriate assets	A physical office here, owned or leased, proportionate to the activities
Directed and managed in the Kingdom	Board meetings held physically here with a quorum, strategic decisions minuted, records kept here. A sole director must show his written decisions were issued while present
Operating expenditure here	Rent, salaries, marketing and equipment, documented and proportionate
Revenue from eligible activities here	It has to actually earn something from what it is licensed to do
A resident director	At least one, whose residence is statutory rather than the residence an income tax rule would give him
Enough full-time employees	Proportionate to the activity. Part-time and part-year staff count pro rata, a contractor working wholly or almost wholly for the entity counts as one, a non-resident never counts as present
Qualified employees	Experience and education matched to the role, and a board that collectively knows its job

One hard number survives a list otherwise built on proportionality: the licensing criteria require at least three employees at executive director or vice president level, expected to take the key decisions. Everything else is judged after the fact against the size of the business, and the guideline warns that what is adequate for a small entity will not be for a large one.

Compliance is then an annual report on ZATCA's form confirming the requirements were met, on top of the rest, not instead of it: an income tax return within 120 days of the year end, an annual withholding form that is mandatory even with nothing to declare, transfer pricing documentation and VAT returns. Returns and their annexes go to ZATCA in Arabic, and audited accounts must be kept for every tax year of the licence.

What the incentive never touched

Levy	Position of a licensed regional headquarters
Zakat	Follows the shareholder register, not the licence: 2.5% of the Zakat base on the shares held by Saudi and GCC persons, pro-rated by days for a Gregorian year
VAT	No special rules at all. Mandatory registration above SAR 375,000 of taxable supplies in twelve months, voluntary above SAR 187,500, monthly returns above SAR 40 million of annual supplies and quarterly below
Transfer pricing	The bylaws apply in full: arm's length pricing, master file, local file, country by country reporting, disclosure form with the return
Real estate transaction tax	5% of the value of a transaction transferring ownership permanently, directly or indirectly, or benefits for more than fifty years

VAT is where the shape of a regional headquarters produces an unusual answer, because most of what it supplies goes to group companies abroad and is therefore a zero-rated export of services. The guideline says an entity above the mandatory threshold whose supplies are all zero rated is not obliged to register and may register voluntarily instead, on evidence that the revenue really is zero rated. Registering is usually still right: it makes input tax on a Riyadh office and payroll recoverable. Supplies to a Saudi group company are the other case, and ZATCA's example charges 15% on a quarterly fee of SAR 125,000, an invoice of SAR 143,750 which the recipient deducts. Thresholds and returns: VAT Registration and Returns in Saudi Arabia.

Transfer pricing is the one most likely to cost money: a regional headquarters earns almost everything from related parties at 0%, while the paying company deducts it at a taxed rate: the fact pattern the arm's length principle exists to police. See Transfer Pricing in Saudi Arabia.

How the incentives are lost

Failing the economic substance requirements is graded. ZATCA notifies the violation and gives ninety days to correct it. If it is not corrected, a fine of SAR 100,000 follows, with a further ninety days. If that passes, or the same violation recurs within three years, the fine is SAR 400,000, again with ninety days. If it still persists, ZATCA and the Ministry of Investment may consider suspending the incentives.

Revocation is a different route and requires intent or misuse: intentionally submitting false or misleading information, intentionally misapplying the rules or misusing the incentives in relation to non-eligible or unlicensed activities, or paying non-residents on behalf of persons who do not qualify. It does not merely stop the clock. ZATCA issues the assessment and applies the penalties for the tax years in which the case arose, which is how thirty years at 0% becomes a bill at 20% with a late payment fine of 1% for every thirty days of delay.

Where this sits beside the 20% rate

The facts	The answer
Fees for central management services to group subsidiaries in the region	Income tax at 0%
The same entity also distributes an affiliate's products here	That income taxed under the Income Tax Law, separate accounts required, and the activity may breach the rules
Dividend to the foreign parent, or a fee to an unrelated non-resident for a service its activity needs	Withholding tax at 0%
Payment to a non-resident connected with a non-eligible activity	Ordinary withholding tax at the rate for that payment type

The distinction the regime turns on is between an activity and an income. The licence names activities, the incentive attaches to income from them, and the substance requirements ask whether they are genuinely carried on here. Hold the three apart and most questions answer themselves. The default the licence displaces is Corporate Income Tax in Saudi Arabia.

Where to practise this

An exemption only makes sense against the rule it displaces, which is how the Fellowship's Zakat and Tax material treats every incentive. Prepito's Zakat and Tax course covers income tax, Zakat, VAT, withholding tax and the procedures with practice questions and full explanations in Arabic and English, and the paper is mapped in the SOCPA Zakat and Tax study guide. See also the SOCPA Fellowship programme.

---

This is a study guide, not tax advice. Sources: ZATCA, Guideline for Regional Headquarters in KSA (second version, May 2026), the source of every rule and example above, the Income Tax Law and its implementing regulations, the VAT implementing regulations, and the official statement on government contracting from the Saudi Press Agency. Licence conditions belong to the Ministry of Investment and change independently of the tax rules; the guideline is already on its second version, its English text is for guidance only with the Arabic prevailing, and every threshold and fine should be confirmed against the current one.