Following repeated rejections of duty exemption for goods of GCC origin imported into the Kingdom of Saudi Arabia (KSA), His Excellency, the Governor of Zakat, Tax and Customs Authority (ZATCA) issued local rules governing the national determination of the origin of goods imported into KSA (the Rules).
Entry into force
The entry into force of the Rules takes place upon their publication, 2 July 2021. The Rules remain in force until the adoption and publication of the GCC common customs rules of origin.
Applicable rules of origin
The Rules reiterate the GCC-origin conditions existing under the Unified Economic Agreement, namely:
- 40% local added value; and,
- above 50% GCC shareholding.
In addition, the Rules now require a minimum 25% nationalization threshold with respect to the entity manufacturing the GCC-origin goods. Meeting or exceeding this threshold will have an impact on the requirement of a minimum 40% local added value conferring the GCC origin on goods.
Free zone businesses
The Rules treat the goods manufactured by free zone businesses as foreign goods (of non-GCC origin), even where these goods include components and raw materials of GCC origin or goods that have been admitted into free circulation in the GCC, prior to being used in manufacturing processes in the free zone.
According to the above, the Rules seem to practically exclude any duty exemption benefit to free zone businesses. This exclusion is confirmed in the definition of the “direct confinement,” which is one of the conditions for GCC-origin goods to benefit from duty exemption.
Also, the Rules provide further indication on the definition of “direct consignment,” expanding from this definition:
- Any transport taking place within a non-GCC country;
- Transit that does not take place due to geographic imperatives; and,
- Any transit through free zones (including any invoices or shipping documents accompanying the goods).
These Rules will increase transparency around the treatment of GCC-origin goods when imported into the KSA. However, new concepts introduced by these Rules will likely constitute a new compliance challenge for businesses.