Jurisdiction Update: Saudi Arabia
Saudi Arabia
Dania Ghazzawi Associate, Litigation
Khalid Al Mubarak Trainee Lawyer, Litigation
The General Authority of the Civil Aviation (“GACA”) in the Kingdom of Saudi Arabia, has launched Saudi Arabia’s first integrated logistics zone in Riyadh.
The newly established 3 million-square-meters Zone is adjacent to the international airport in Riyadh and is to be called “The Integrated Logistics Bonded Zone (“ILBZ”). The Zone will serve more than 650 million customers across Africa, Asia and Europe linking them through King Khalid International Airport, the Saudi Land-Bridge Railway crossing Riyadh and dry ports surrounding King Khalid International Airport. The inaugural project consists of a series of planned special logistics zones.
The ILBZ will offer aviation facilities, cargo handling, government-sponsored training programs and advanced cargo-tracking technology. A Government Services Office in the ILBZ will serve as a one-stop-shop to obtain any government services for the investors.
Incentives are to be offered to companies to establish operations within the Zone, including:
A 50-year Tax Holiday to include VAT suspension while under customs suspension;
Zero-rated corporate, income and withholding tax on certain payments;
100% business ownership;
100% suspension of customs and import restrictions; and
No restrictions on capital repatriation.
The ILBZ has its own separate legal framework with its own ILBZ Companies Regulations, ILBZ Employment Regulations, ILBZ Implementing Regulations and ILBZ Tax Rules taking inspiration from logistics and economic zones which have been established in other parts of the world. Incorporating a legal entity in the ILBZ requires the approval of the ILBZ Governing Body and the entity be either:
ILBZ Limited Liability Company; or
A Branch of a principal company.
GACA has issued special tax rules that will apply to entities established in the ILBZ.
ILBZ Tax bylaws will apply Corporate Income Tax at 0% to ILBZ companies on income earned from carrying on their activities in the Zone for up to 50 years. Provided certain conditions can be met, ILBZ entities will also be exempt from deducting withholding tax (“WHT”) on certain payments relating to the specific activities to non-residents.
Goods imported to the zone will be exempt from customs duty and transactions relating to the supply of goods, and services by entities operating within the Zone will also be exempt from Saudi Arabian value added tax.
The General Authority of Zakat and Tax (“GAZT”) will publish further information describing the conditions to be met to benefit from these incentives.
ILBZ is an important first step in the development of logistics sector and special economic zones in Saudi Arabia as the country seeks to position itself as a global transportation and logistics hub in line with His Royal Highness Crown Prince Mohammed bin Salman’s ambitious vision for Riyadh to become one of the 10 largest city economies in the world.
For further information, please contact Dania Ghazzawi.
Published in June 2022
