Driven by Vision 2030, the economy in Saudi Arabia has rapidly transformed in recent years with a focus on diversification and attracting foreign investment.
Part of this transformation includes the establishment of Special Economic Zones (SEZs), an initiative designed to offer unique incentives, infrastructure and regulatory frameworks for investors looking to set up operations in KSA.
If you're looking at expanding your business into Saudi Arabia, here is everything you need to know about the special economic zones.
What are Special Economic Zones?
Taking inspiration from other jurisdictions who paved the way with SEZs (the first was established in Ireland in 1959), Saudi Arabia announced the launch of four new Special Economic Zones in April 2023, bringing the total number of SEZs in KSA to five. In line with the global definition, Saudi SEZs are designated geographical areas that are designed to generate positive economic growth through more favorable economic regulations as compared to other regions within the same country. These include tax exemptions, streamlined regulations and enhanced infrastructure that combine to promote trade and investment.
While they are conducive to domestic investment, SEZ regulations are primarily aimed at attracting foreign direct investment (FDI).
Saudi Arabia recognised the potential of SEZs and launched the initiative under the National Investment Strategy, which aims to expand business opportunities in KSA through high-quality investments and technology transfer, which in turn will drive economic growth across a variety of sectors as laid out in Vision 2030.
The Regulation of the Economic Cities Authority was first introduced in Saudi Arabia in February 2010. In December 2019, it was amended to include the establishment of SEZs, and the Economic Cities and Special Zones Authority (ECZA) was given authority to supervise businesses established within the zones. With the official launch of the new SEZs in April 2023, KSA made significant strides forward in its goal of diversification.
How SEZs work
In 2016, the Saudi government launched Saudi Vision 2030, a programme that aims to diversify the economy away from the country's historical dependence on oil revenue through private sector growth and increased investment. In addition, Vision 2030 lays out a roadmap for modernising Saudi society and achieving cultural and social transformation through an overhaul of the social welfare system and an updated approach to education, among other proposals.
One of the many initiatives that form part of this ambitious programme is the establishment of the SEZs. The zones are spread evenly throughout the country and each one is designed to capitalise on the distinctive strengths and resources of that specific region. Key focus industries include manufacturing, maritime activities, logistics and technology.
In addition to tax incentives and streamlined regulations, the government has allocated other resources to support SEZ development, such as the Public Investment Fund (PIF), which has pledged large amounts of money to infrastructure projects within the zones.
Through SEZs, the government aims to position KSA as a global logistics hub and key re-export market. SEZs facilitate trade and export activities by providing entities with incentives and infrastructure that is conducive to international trade. By promoting export business, they contribute to a boost in foreign exchange earnings.
A key advantage of SEZs is the creation of local employment opportunities, an objective of the Saudi Nationalisation scheme (Nitaqat) that aims to increase the employment rate of Saudi nationals in the private sector. By creating jobs and enhancing skills development, SEZs contribute to reducing unemployment and improving living standards throughout the country.
The ECZA is responsible for regulating Economic Cities (ECs) and SEZs in the country. It provides an investor-friendly regulatory environment, competitive incentives specific to each sector and efficient, integrated government services. It supports investors throughout the investment process, from streamlining applications and approvals to facilitating a one-stop-shop initiative that includes all the services a company will require - company licensing/registration, tax and customs services, legal and compliance services, etc.
The Vision 2030 strategy aims to attract $1.3 trillion in foreign investment over the next decade.
Key SEZs in Saudi Arabia
SEZs in Saudi Arabia are strategically designed to capitalise on each zone's target industries and resources, offering specific advantages to investors.
There are three main types of SEZs in Saudi Arabia:
- Industrial zones: these focus on manufacturing and industrial activities, such as factories, production facilities and industrial parks. They provide infrastructure, utilities and incentives designed to support manufacturing businesses.
- Logistics hubs: these are strategic hubs for business activities in the transportation, warehousing and distribution sectors. Located near ports or airports and on major transport routes, logistics hubs focus on the efficient movement of goods and enhance supply chain management.
- Technology parks: these aim to promote innovation, research and development in a number of emerging technology sectors including IT, biotechnology and advanced manufacturing. Technology parks offer R&D facilities, specialised infrastructure and incentives designed for tech companies and startups.
The five special economic zones in Saudi Arabia are King Abdullah Economic City (KAEC) in the West, Jazan in Southwest, Ras Al Khair in the Northeast, Cloud Computing in King Abdulaziz City for Science and Technology (KACT) in Riyadh and Riyadh Integrated Special Logistics Zone (RISLZ).
King Abdullah Economic City (KAEC)
KAEC is a flagship SEZ situated on the Red Sea coast near KSA's major shipping routes. Covering more than 170 km2, KAEC is one of the largest and most ambitious economic projects in the country.
KAEC includes King Abdullah Port, the Coastal Communities residential districts, the Haramain Railway district and the Industrial Valley.
KAEC's proximity to King Abdullah Port – rated the world's most efficient port by World Bank in 2022 - enhances its appeal as a gateway for international trade. This strategic location allows easy access to global markets, making it an ideal destination for trade, logistics and manufacturing activities.
The focus industries in KAEC are logistics, consumer goods, pharmaceuticals, electronic light manufacturing, MedTech and automobile supply chain and assembly.
Jazan
The Jazan SEZ spans 24.6 km². It is strategically located along a vital shipping route on the Red Sea, offering close proximity to mines and industrial facilities.
The main objective of Jazan is to broaden the role of Saudi Arabia's mining industry in global construction and further expand into the processed metals and minerals markets.
The focus industries are food processing, metal conversion and logistics.
Ras Al Khair
Ras Al Khair is located in Ras Al Khair Industrial City, just 100km from Jubail City in the heart of the Arabian Gulf region.
The aim of this SEZ is to build on the established maritime industries in the area and grow them to become major players in the sector, thereby contributing to Saudi Arabia's goal of developing a US$14 billion maritime industry.
Ras Al Khair benefits from a highly specialised workforce and an efficient transport system that allows companies to reach key global markets.
The focus industries are shipbuilding and MRO, and rig platforms and MRO.
Cloud Computing in King Abdulaziz City for Science and Technology (KACST)
This SEZ is different from the others in that does not have a central physical location. It is a virtual SEZ with headquarters in the Innovation Tower at King Abdulaziz City for Science and Technology in Riyadh.
This is Saudi Arabia's version of Silicon Valley, an incubator region that provides support for businesses throughout the country that are involved in emerging and advanced digital technologies.
Cloud Computing has a projected growth of US$13 billion in investments by 2030 across the data and AI sectors.
Riyadh Integrated Special Logistics Zone (RISLZ)
RISLZ was the inaugural SEZ in Saudi Arabia established in 2022. Launched with the express purpose of making logistical processes easier and more efficient, Riyadh Integrated combines best practices in regulation, technology and infrastructure from around the world, providing investors with a flawless logistics experience.
Located in the heart of the nation's capital city just 8km from King Khalid International Airport, this 3km² zone is connected to the airport by a bonded corridor, allowing companies seamless access to the airport's infrastructure and global air routes.
The infrastructure expedites the time it takes a business to get goods from the airport directly to the market, reducing costs and increasing efficiency.
Investment opportunities in SEZs
Following the launch of Saudi Arabia's SEZs, the ECZA published an overview of the tax incentives and exemptions on offer within the zones to attract FDI. The following incentives are offered in all five SEZs:
- 5% corporate income tax (CIT) for up to 20 years
- 0% unlimited withholding tax for the repatriation of profits from an SEZ to foreign
- countries
- 0% customs duties deferral for goods and equipment made inside the SEZ (for Jazan – only on capital
- equipment and inputs)
- 0% VAT on goods exchanged within an SEZ and between SEZs
- expat levy exemptions for employees and their families
- tax treatment under OECD principles to avoid double taxation.
In addition to tax incentives, SEZs provide a range of other incentives to attract investors, such as subsidised utilities, land grants, residential housing and commercial facilities. The world-class infrastructure within the SEZs makes them ideal for companies wanting straightforward setup requirements and streamlined administrative processes.
For example, investors will benefit from simplified regulatory processes including expedited approvals and reduced documentation requirements.
SEZs also provide ample opportunities for business growth and expansion. They host regular networking events and conferences, bringing together industry leaders, investors and government officials. These platforms offer companies the chance build partnerships and exchange knowledge.
Some SEZs have incubators and innovation centres that provide resources and support for startups, SMEs and entrepreneurs. Others have created industry-specific associations that bring together companies operating within the same sector, providing fertile ground for collaboration and joint initiatives.
SEZ specialised facilities, such as in the field of research and development (R&D), provide companies with access to state-of-the-art equipment and laboratories, as well as the expertise to support R&D and innovation. SEZs involved in these sectors offer incentives such as grants and funding.
Some SEZs work closely with universities to foster technology transfer and innovation through joint research projects, internships and knowledge exchange programmes.
By creating a favourable business environment and providing companies with both tax incentives and a range of other benefits, SEZs have become a compelling argument for investors looking to expand into Saudi Arabia.
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