A multinational group establishes a Regional Headquarters (RHQ) in Saudi Arabia, obtains an RHQ licence from the Ministry of Investment (MISA), and meets ZATCA's economic substance and eligible-activity requirements for the RHQ tax rules. Under the RHQ tax incentive rules ZATCA published in 2024, what tax treatment does the RHQ generally receive on income from its eligible activities and on qualifying payments to non-residents?
- A permanent, unconditional exemption from corporate income tax only, with withholding tax on payments to non-residents continuing to apply at the ordinary domestic rates
- A temporary two-year tax holiday at a reduced 5% corporate income tax rate, after which the RHQ reverts to the standard 20% rate
- A reduced corporate income tax rate of 10%, matched with a 50% reduction in withholding tax rates on qualifying payments to non-residents, both for an indefinite period
- A 0% corporate income tax rate on income from eligible activities and 0% withholding tax on qualifying payments made to non-residents, both available for 30 years from the date the RHQ licence is granted, subject to renewal and continued compliance
Why D? And why not the others?
Correct answer: D. A 0% corporate income tax rate on income from eligible activities and 0% withholding tax on qualifying payments made to non-residents, both available for 30 years from the date the RHQ licence is granted, subject to renewal and continued compliance
ZATCA's RHQ tax rules, published in February 2024, grant an RHQ that holds a valid MISA licence and satisfies the economic substance and eligible-activity conditions a 0% corporate income tax rate on income from its eligible activities and a 0% withholding tax rate on qualifying payments made to non-residents, both running for 30 years from the date the licence is granted and subject to renewal and continued compliance with the conditions. The option describing a permanent income tax exemption paired with ordinary withholding tax rates is wrong because the incentive package covers both taxes together at 0%, not just corporate income tax while leaving withholding tax untouched. The option describing a short two-year holiday at 5% is wrong on both the rate and the duration; the actual relief is 0%, not a discounted rate, and runs for decades, not two years. The option describing a 10% rate with a 50% withholding tax reduction is wrong because the relief eliminates both taxes entirely for eligible activities and qualifying payments, rather than merely halving them.
Source: ZATCA Regional Headquarters (RHQ) Tax Rules, published 4 February 2024, under the Saudi Income Tax Law