The Kingdom of Saudi Arabia (the "KSA") possesses one
of the largest economies in the Middle East and North Africa (MENA)
region. The KSA's economy is heavily dependent on Oil revenues.
This dependence on Oil led to pressures to diversify, liberalize
and reform the economy.
To achieve the desired liberalization and reform, policies
focused on privatization and investment promotion. Private
investment was encouraged and the KSA turned to Foreign Direct
Investment ("FDI") as an appropriate
vehicle that could revitalize its economy and diversify its
In order to increase FDI and raise the skills of the Saudi
national work force, in 24 November 2008 Council of Ministers had
issued its decision No. 359 (the "Council of Ministers
Decision") to grant conditional 10-year tax
incentives commencing from the date on which the project enjoys the
tax credit (the "Tax Incentives") on
investment in designated underdeveloped provinces of KSA, namely:
Hai'l, Northern Borders, Jazan, Najran, Al Baha and Al
Foreign investors will be granted tax credit (tax deduction)
against the annual tax payable in respect of the following costs
incurred on Saudi employees for 10 years (the
"Employment Incentive"), to be
calculated as follows:
50% of the annual cost incurred on training of Saudi employees;
50% of the annual salaries paid to Saudi employees, if there is
any balance of tax payable after applying (1) above.
In addition, investors will be granted a tax credit for 10 years
equal to 15% of the paid up capital of industrial projects whether
in cash or in kind as well as in case of capital increase (the
The Council of Ministers Decision empowers the Minister of
Finance to issue the instructions, procedures and forms (the
"Conditions") required for the
implementation of the Council of Ministers Decision.
The Minister of Finance issued his resolution No. (2106) dated
18 July 2009 with the following Conditions in relation to the Tax
The project should be established in any of the regions of
(Hai'l, Northern Borders, Jazan, Najran, Al Baha and Al Jouf)
including the economic cities and industrial areas established in
The project should be licensed from the Saudi Arabian General
The project paid up capital - whether in cash or in kind
– shall not be less than SR 1 million.
The project shall maintain regular accounts audited by a
certified Saudi auditor.
If the project established in any of the above mentioned
regions is a branch of a company or a corporation established in
another region, it shall be an independent project with an
independent capital, shall maintain independent accounts to be
audited by the project auditor and submitted with an independent
tax return in addition to the consolidated return of the
The Tax Incentives shall not be extended to other dependent
projects established in regions other than those stated in the
Council of Ministers Decision.
All the projects established in the regions stated in the
Council of Ministers Decision shall benefit from the Tax Incentives
whether such projects are established before or after the issuance
of the Council of Ministers Decision.
The Tax Incentives set out in the Council of Ministers Decision
shall apply as of the year in which the project starts to benefit
from the Tax Incentives up to ten years in respect of the taxable
years commencing and ending on or after the date of issuance of the
Council of Ministers Decision.
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