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Saudi Arabia's Integrated Logistics Bonded Zone (ILBZ) or the Special Integrated Logistics Zone (SILZ) stands as a testament to the country's commitment to diversifying its economy and attracting foreign investment. The SILZ offers a range of tax and customs incentives to businesses operating within its borders.
In Rules Set for Bonded Zones in KSA, we have enumerated the recently issued Bonded Zones Rules. Here, we explore the key benefits accorded to investors looking to establish their units in such bonded zones.
1. Tax Relief Period:
The SILZ provides a generous 50-year tax relief period to entities engaged in Prescribed Activities within the zone. During this period, qualifying income is exempt from corporate income tax (CIT). However, investors must be aware of the conditions under which this relief period expires, such as the cessation of SILZ entity status (due to suspension or termination of entity status) or the lapse of 50 years.
2. Corporate Income Tax (CIT) Incentives:
Entities operating within the SILZ enjoy a 0% CIT rate on income derived from Prescribed Activities. This incentive encourages investment and business growth within the zone. It's crucial for investors to understand the distinction between qualifying and non-qualifying income, as the standard CIT rate of 20% applies to the latter.
3. Withholding Tax (WHT) Exemptions:
During the tax holiday period, SILZ entities are exempt from withholding tax on certain payments from Prescribed Activities to non-residents, including dividends, loan charges, royalties, and technical services. Entities must file their periodic WHT returns.
4. Customs Duty and VAT Incentives:
The SILZ offers suspension arrangements for customs duty and value-added tax (VAT) on goods entering or leaving the zone. This means that goods temporarily imported into the SILZ are exempt from customs duties and VAT until they are cleared for entry into the local market. Similarly, goods temporarily exported from the mainland to the SILZ for activities like maintenance or repair enjoy the same benefits.
5. Compliance and Recordkeeping Requirements:
To fully leverage the benefits of investing in the SILZ, businesses must adhere to tax and customs regulations and maintain accurate records. Compliance with tax return submissions, payments, and anti-tax avoidance provisions is essential to avoid penalties or license withdrawal. SILZ entities must file their tax returns and pay tax, if any, within 120 days from the end of the tax year.
Separate recordkeeping for zone activities ensures transparency and helps in transfer pricing or litigation matters.
Conclusion:
Investing in KSA’s SILZ offers lucrative opportunities for businesses seeking to expand their operations in the region. Apart from the above tax and customs incentives, there is no exemption from Zakat, real estate transaction tax (RETT) or excise duties. Besides, an entity established in the SILZ is considered independent from the mainland entity of the same person. Hence, compliance with regulatory requirements and diligent recordkeeping are paramount to maximizing the benefits of investment in the SILZ as well as mitigating the possibility of litigation.
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Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.
