Saudi Arabia: Regulations to implement customs benefits in special economic zone
Saudi Arabia: Regulations to implement customs benefits
Regulations have been issued to implement an initial special economic zone in Saudi Arabia—the integrated logistic bonded zone (ILBZ).
The ILBZ was announced in October 2018, as part of a goal to make Riyadh one of the 10 largest city economies in the world and is in line with efforts to make Saudi Arabia a globally competitive transportation and logistics hub for the movement of goods and services. The ILBZ is located adjacent to the King Khalid International Airport in Riyadh and will, among other things, provide direct and indirect tax benefits and exemptions to Saudi companies and foreign investors.
Benefits available under the ILBZ regime include suspended customs duty for goods imported into or transported within the ILBZ (no customs duty is applicable until goods enter the Saudi mainland for domestic consumption) and no value added tax (VAT) on supplies or transactions occurring with respect to goods in the ILBZ (such supplies would be outside the scope of VAT because the supplies occur under customs duty suspension). Other benefits include income tax imposed at a zero percent (0%) rate for income derived from prescribed activities.
A company (or branch of a company) that is licensed to conduct activities in the ILBZ—an established entity—will be eligible for tax benefits and exemptions in relation to the following activities:
- Maintenance, repair, processing, modification, development, assembly, and storage of goods
- Sorting, packing, repacking, trading in, distributing, dealing with, and using goods in any form (including simple manufacturing operations)
- Import, export, and re-export
- Value-added services, logistics services, and after sales services
- Recycle waste and e-waste
The General Authority of Zakat and Tax (GAZT) will issue additional guidance to clarify the conditions and the procedures to be followed by established entities to benefit from the ILBZ tax benefits and exemptions.
Based on an initial reading of the regulations, it appears the ILBZ (Riyadh) seeks to attract manufacturers and operators of a certain size that produce high-value products (such as electrical and electronic equipment and certain e-commerce items) and logistics service providers processing such products.
Note that the ILBZ is a "bonded zone" (not a "free zone") and as such, offers a customs duty suspension rather than a duty exemption. Trade and customs professionals note that the ILBZ may offer free-zone level attractive investment environment and also allow eligible entities to benefit from regional free trade agreements (GAFTA and GCC) and other benefits under international treaties (however, whether the customs authorities of the countries of destination of ILBZ exports will allow this second benefit remains to be seen).
For more information, contact KPMG’s Trade & Customs global practice leader:
Doug Zuvich | +1 312-665-1022 | firstname.lastname@example.org
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