Saudi Arabia unveils establishment of four new Special Economic Zones

published on 16 May 2023 | reading time approx. 3 minutes

In mid-April 2023, Crown Prince Mohammad bin Salman announced that the Kingdom will establish four new Special Economic Zones (SEZs). The SEZs will provide tax and other administrative benefits to global investors and companies in the SEZs' respective core business areas. The establishment of these SEZs is in line with VISION 2030 and aims to make Saudi Arabia a global player in key industries while gradually generating government revenues independent of oil exports.

The new Zones build on previous Free Zone initiatives in the Kingdom, including the recent establishment of a special integrated logistics zone at King Salman International Airport in Riyadh. Together, they represent the first phase of a long-term program to encourage foreign direct investment, attract skilled workers from around the world and promote entrepreneurship and economic development in the Kingdom.

The Zones, managed by the Economic Cities and Special Zones Authority, are strategically located across the country and offer new solutions to the challenges many global companies face as they seek to localize and strengthen their supply chains. The Zones help the Kingdom leverage key macroeconomic changes to create a truly differentiated business environment and activate new sectors and value chains.

Special Economic Zones and their key industries

Like other Free Zones or SEZs in the GCC region, the KSA SEZs will also contain individual key industries. These are tailored to the respective geographic location of the SEZs in order to realize the intended establishment of foreign investors not only through tax benefits but also through a considerable locational advantage.

1. The King Abdullah Economic City (KAEC) SEZ is located in Makkah province and covers an area of 60 km². The zone is located in the heart of the Red Sea and close to the African markets. The key industries are:

Automobile supply chain and assembly
Consumer goods
ICT (Electronic light manufacturing)
Pharmaceutical industry
Medical technology
Logistics

2. The Jazan SEZ has an area of 24.6 km² and its location on the Red Sea offers close proximity to important mines and industrial facilities. Therefore, the key industries are:

Food processing
Metal conversion
Logistics

3. Ras Al-Khair SEZ in the Eastern Province of Saudi Arabia is 20 km² in size and located in the industrial city of Ras Al-Khair. It thus provides access to the world market and has the following key industries:

Shipbuilding and MRO
Rig platforms and MRO

4. The Cloud Computing SEZ, located in the Innovation Tower in King Abdulaziz City for Science and Technology (KACST) and headquartered in Riyadh, offers the opportunity for companies to operate data centers from all over the Kingdom. The zone focuses on providing Cloud Computing services.

Tax Treatment of Special Economic Zones

King Abdullah Economic City (KAEC); Ras Al Khair and Jazan are subject to the following tax concessions:

5 percent corporate income tax for up to 20 years.
0 percent withholding tax for repatriation of profits from SEZ into foreign countries
0 percent customs duties deferral for goods inside the SEZ (for Jazan – only for capital goods and inputs)
0 percent VAT for all goods exchanged within the SEZ and between Zones, as well as for goods and services arriving within Saudi Arabia to an investor in an SEZ. Goods imported into the SEZ from outside the KSA are treated as outside the scope of the VAT.

Cloud computing SEZs in Riyadh are subject to special tax treatment in line with OECD principles for avoiding double taxation.

In addition to the special tax benefits, the SEZ will also be subject to general tax regulatory frameworks that may differ from the rest of the country outside the zooms. These include accounting requirements, the extension of the official language to English, the filing of tax returns, tax assessment and collection, the regulation of import and export of goods as well as production of goods within the SEZ, and finally regulations on infringements and tax-avoiding activities.

Outlook

The KSA SEZs join the ranks of GCC Free Zones and SEZs. Saudi Arabia will have a huge locational advantage over other GCC countries with Jazan due to its access to the Red Sea and thus Africa and Europe. But also by distributing SEZs throughout the Kingdom, Saudi Arabia should be able to expand its prosperity level across the board through foreign investors. The SEZs have thus set the initial course for attracting foreign direct investment, which will bring Saudi Arabia ever closer to its VISION 2030.