Saudi Arabia publishes regulatory framework for 4 SEZs

Logo of Economic Cities and Special Zones Authority (ECZA)

Saudi Arabia’s official gazette published the regulatory frameworks for the special economic zones (SEZ) of Jazan, Cloud Computing Zone, King Abdullah Economic City (KAEC), and Ras Al Khair, as approved by Saudi Cabinet.

Companies licensed to carry out activities within SEZs are exempt from the provisions of the Companies Law, the Commercial Register Law and the Trade Names Law.

The Saudi Cabinet’s decision also stipulates that the Economic Cities and Special Zones Authority (ECZA), in coordination with the Ministry of Commerce, shall issue the necessary regulations governing companies licensed to operate in the SEZ, including their governance, and the related rights, duties, obligations, and responsibilities.

The regulatory framework for KAEC SEZ consists of 35 articles and will come into effect 90 days after its publication in the official gazette. Article 1, which covers definitions, states that the authority concerned refers to Emaar The Economic City (Emaar EC).

Ras Al Khair SEZ regulatory framework includes 34 articles and will come into effect 90 days after its publication in the official gazette. Article 1, related to definitions, specifies that the authority concerned refers to the Royal Commission for Jubail and Yanbu (RCJY).

The regulatory framework for Cloud Computing SEZ contains 31 articles and will come into effect 90 days after its publication in the official gazette. Article 1, regarding definitions, states that the authority concerned refers to the Communications, Space, and Technology Commission (CST), in coordination with the Royal Commission for Riyadh City (RCRC).

Jazan SEZ regulatory framework comprises 34 articles and will come into effect 90 days after its publication in the official gazette. Article 1, covering definitions, specifies that the authority concerned refers to the RCJY.

All four regulatory frameworks require that any company established in a SEZ be structured as a limited liability company (LLC), whether it is owned by a single person or multiple persons.

ECZA will issue the regulations governing this in coordination with the Ministry of Commerce.

A company established under these regulations is considered Saudi-owned, and its headquarters must be located within the zone.

With respect to supervision of labor-related regulations, ECZA, in coordination with the Ministry of Human Resources and Social Development (HRSD), will oversee the implementation of labor laws and take the necessary measures to fulfill its duties in accordance with the regulations and the framework.

Licensed entities are subject to income tax in accordance with the regulations of the tax law, while the regulations of the Zakat Collection Law do not apply to them.

Regarding Value Added Tax (VAT), three of the frameworks — KAEC, Ras Al Khair, and Jazan (excluding the Cloud Computing SEZ) — provide for a 0% VAT rate on goods supplied from other regions of the Kingdom to a licensed entity in the zone. This also applies to goods supplied between licensed entities within the same zone or between entities in different SEZs, provided that the following two conditions are met:

a. The goods must be under a customs suspension status, in accordance with the unified customs law.

b. The goods must be linked to the activities licensed for the entity within the zone, with the authority coordinating with the Zakat, Tax and Customs Authority (ZATCA) to establish the necessary standards.

Goods imported into the zone from outside the Kingdom are considered outside the VAT scope, provided the same two conditions above are met.

Regarding customs duties, the three frameworks (excluding the Cloud Computing SEZ) stipulate that customs duties are suspended on goods imported into the licensed entity within the zone if the goods are linked to the licensed activities and placed under a customs suspension regime according to the unified customs law.