The Impact of Saudi Arabia’s 30-Year Tax Relief Plan On National and Regional Development
If a lesson was ever learned about the UAE’s demonstrable success, then Saudi Arabia’s announcement of a 30-year tax exemption package for foreign companies establishing their regional headquarters in the Kingdom would be it. Declared in a statement released through the Saudi state press agency, “The Ministry of Investment of Saudi Arabia, in coordination with the Ministry of Finance and the Zakat, Tax and Customs Authority today announced a 30-year tax incentive package for The Regional Headquarters (RHQ) Program, to further streamline the process for multinational companies (MNCs) to establish their RHQ in Saudi Arabia”.
Falling under the announcement, headquartered MNCs won’t just benefit from a zero per cent rate for corporate income tax, but a further zero per cent for withholding tax related to approved RHQ activities.
Elaborating on the program, the statement went on to confirm its long-term goals of attracting “MNCs to set up their RHQ in Saudi Arabia and position the Kingdom as the leading commercial, industrial and investment hub for the MENA region, by offering a range of benefits and premium support services that complement the Kingdom’s globally competitive value proposition.”
Emerging as one of the fastest growing regions in the past 20 years, the GCC has widely capitalized on its hydrocarbon wealth by diversifying into a broad range of sectors, while attracting many of the world’s biggest brands to cater to its burgeoning populations. As a result, its increasing competition towards foreign direct investment, acquisitions, and events, has meant a more calculated look at taxation, and striking a balance between diversification and competition.
Prior to the announcement, only one of the six GCC countries – Bahrain – remained widely tax-exempt, while Saudi Arabia, Oman, Kuwait, Qatar, and the UAE imposed general corporate tax rates of twenty, fifteen, fifteen, ten and nine per cent respectively; however, this wasn’t always the case, most notably for the UAE.
As the GCC’s second largest economy, the UAE’s leadership demonstrated a clear understanding of what it wanted to develop and how to do it at an early stage. By the turn of the millennium, the country had already carved out its place as a destination for global tourism, while investing in long-term infrastructure committed to transforming the Emirates into a trade and economic powerhouse, most notably through organizations such as DP World, ADGM, the DIFC and DMCC. As a result, expatriates gravitated to the country’s world class lifestyle and higher-than-average salaries, while major corporations such as Procter & Gamble, Siemens, General Electric, Nestlé Middle East, and Schlumberger were drawn to its business-friendly, tax-efficient climate.
Fast forward to today, and the UAE is officially ranked as the 16th largest FDI recipient in the world, according to the UN Conference on Trade and Development’s World Investment Report 2023. Attracting $23 billion in 2022; or 61 per cent of the GCC’s regional investment, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai commented,
“We express our appreciation to all regulatory, legislative and service entities who contributed to strengthening the position of the UAE as one of the best international investment hubs.
Our aim during the coming year is to achieve more historic milestones.”
As a highly diversified economy, with a large proportion of its infrastructure already developed, the decision to introduce a nine per cent corporate tax rate on 01st June 2023 was justified by aligning with international efforts to combat tax avoidance, while addressing challenges arising from the digitalization of the global economy. Quoted at the time of tax roll-out, Shabana Begum, the Ministry of Finance’s executive director for tax policy said, “The regime has been designed to ensure strategic sectors will thrive in the free zones. Some level of migration may happen, but the overall objective is ensuring the UAE remains attractive.”
For the longest period, the UAE stood out as a clear diversification front-runner, however, under the leadership of Crown Prince Mohammed bin Salman, Saudi Arabia’s strategy to move away from its hydrocarbon reliance has drastically accelerated. Through giga-projects such as Neom to the Red Sea, Qiddiya to ROSHN, the country’s investment into globally popular sports such as football, most notably through Al Nassr’s acquisition of Cristiano Ronaldo, have thoroughly put Saudi on the international map.
