Rules Set for Bonded Zones in KSA

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Zakat, Tax and Customs Authority (ZATCA) has recently issued the Bonded Zones Rules. These Rules, inter alia, outline the statutory provisions for licensing of bonded zones, for practicing the activities within these zones as well as the obligations of operators and ZATCA control and supervisory functions.

Let’s delve into the significant provisions of the Rules. 

Bonded Zones 

In simple words, bonded zones are a special customs area that allow importers, exporters and logistics companies to store goods and carry out logistic activities and operations under suspension of customs duties and taxes, until they are entered into the local market or re-exported. The Rules provide detailed definitions of various terms like bonded zone, bonded warehouse, their developers and operating companies etc. 

Eligibility Conditions for Establishment of Bonded Zones / Warehouses 

The Rules enlist the conditions as follows: 

• submission of an application to the competent authority for establishing a bonded warehouse or zone; 

• providing a copy of the contract with the landlord or a copy of the land title deed; 

• procuring consent, licenses, approvals from the relevant government entities as applicable (sector specific approvals); 

• providing an insurance policy covering all possible risks for stored goods and the bonded area; 

• providing a cash deposit or bank guarantee (minimum of SAR 1 million); and 

• levy of customs duties on all tools and materials imported from outside KSA for the construction of bonded warehouses. 

The operating company managing the bonded zone/warehouse must comply with various obligations, including restrictions on subleasing them. Further, bonded warehouses or zones must be fenced, contain service facilities, and comply with engineering designs. Special considerations include treasuries for precious goods and controlled-temperature environments. Implementing an approved inventory management system and providing digital surveillance are essential. Operating companies must ensure the safe transport and responsible storage of goods. 

Operations – permitted and prohibited 

The Rules provide that bonded zones / warehouses may engage in the following operations: 

• export and import 

• sampling for marketing purposes 

• preservation of goods in bonded warehouses 

• processes to enhance packaging quality 

• inbound consolidation operations 

• clarification of HS codes for manufacturing 

• light manufacturing and assembly services 

• combining or mixing materials for final products 

• activities related to liquid manufacturing clarified by HS codes 

• partial or full relocation of goods within the zone allowed 

• ownership transfer with customs approval 

• export through another port under transit controls 

Besides, the entry of prohibited goods into bonded zones is restricted. These include flammable items, radioactive substances, arms, explosives, and copyright-infringing goods. Narcotic drugs and derivatives, as well as goods from economically boycotted countries, are strictly prohibited. 

Movement of Goods 

Goods, whether foreign or national, are allowed to be deposited in bonded zones without payment of taxes and customs duties. Goods purchased and sold between customers within bonded zones in the GCC are exempt from tariffs at the point of departure, encouraging seamless trade operations within bonded zones. The transfer of goods between different bonded warehouses or zones within the KSA is also allowed without tariffs. 

Goods can be stored in bonded zones for 3 years, though it can be extended with necessary approval. After this period, customs duties will apply. Unclaimed goods must be auctioned and damaged goods must be disposed of in coordination with the Customs. 

Conclusion 

The Rules set out the roles and responsibilities of different stakeholders operating in bonded zones / warehouses in great detail. Considering the tax and regulatory benefits extended, it might be worthwhile for corporates to consider establishing operations in such zones / warehouses.