Saudi Arabia: Tax exemptions for Integrated Logistics Bonded Zone entities

As a first important step towards developing the logistics sector and special economic zones in the Kingdom of Saudi Arabia (KSA), the Saudi Arabian General Authority for Civil Aviation (GACA) has launched the Integrated Logistic Bonded Zone (ILBZ) – Saudi Arabia’s first integrated logistics zone in Riyadh – the inaugural project in a series of planned special logistics zones supporting the government’s ambitious vision to make it one of the 10 largest city economies in the world – and supporting wider efforts to make the Kingdom a globally competitive transportation and logistics hub for the movement of goods and services around the world, within a progressive business-friendly environment.

In this regard, The General Authority of Civil Aviation (GACA) has issued Special Tax Rules (the “Tax Bylaws”) setting out the tax and customs incentives (and the associated conditions) that apply to entities established in ILBZ to carry out specific activities.

The tax bylaws mention that, provided certain conditions can be met, ILBZ entities would be subject to corporate income tax at 0% on the income earned from carrying on their specific activities for up to 50 years. Moreover, provided certain conditions can be met, ILBZ entities would also have a relief from deducting withholding tax (WHT) on certain payments relating to the specific activities to non-residents.

Regarding indirect taxes (VAT & Customs), goods imported into ILBZ would be under a customs duty suspension arrangement and supplies or transactions occurring with respect to goods in the zone while under a duty suspension in the zone shall be outside the scope of VAT.

The tax bylaws confirm that the General Authority of Zakat and Tax (GAZT) will issue a detailed guidance on the application of such tax incentives. Moreover, a special VAT refund scheme will be established by GAZT, along with the associated conditions and procedures, to allow ILBZ entities to recover input VAT incurred on services acquired from VAT-registered suppliers in the Kingdom.

Read the WTS Global VAT Newsletter here.