Saudi Arabia's introduction of tax exemption for multinational corporations should be in line with economic substance requirements

On February 15, 2024, Saudi Arabia introduced the tax exemption for multinational companies in accordance with the economic substance regulations: the regional headquarters of multinational companies established in the country can be exempted from corporate income tax for 30 years, the policy aims to attract multinational companies to set up regional headquarters in Saudi Arabia, and the conditions to be met include: (1) the regional headquarters shall hold a valid license issued by the Ministry of Investment and shall not engage in business activities outside the scope of the license. (2) The regional headquarters should have appropriate assets, such as buildings, to carry out business activities in Saudi Arabia (e.g., holding board meetings). (3) The regional headquarters shall meet the specific conditions for the expenses required to carry out business activities in Saudi Arabia. (4) The regional headquarters shall derive profits from approved business activities in Saudi Arabia and have at least one director residing in Saudi Arabia. (5) The regional headquarters shall have a sufficient number of full-time employees during the tax year commensurate with the activities of the regional headquarters. Employees should have the necessary knowledge and experience to perform their job duties.

In addition, the regional headquarters should submit an annual report to the Saudi Arabian Zakat Tax and Customs Authority (Zakat) annually for subsequent verification by the tax authorities.