Saudi Arabia is cracking down on shell companies in special zones to ensure genuine investment

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Zakat and tax require the actual existence of incentives in special zones

A crucial step to enhance investment transparency

In a significant regulatory move aimed at enhancing the integrity of the investment environment, the Zakat, Tax and Customs Authority in Saudi Arabia has emphasized the tightening of its oversight procedures for companies operating within special economic zones. The Authority clearly stated that benefiting from tax incentives and preferential advantages, including a zero percent corporate tax rate, is now directly linked to a company's "real and significant economic presence" within these zones. This decision is intended to put an end to attempts by so-called "shell companies" or fictitious entities to exploit these advantages, as they do not engage in any genuine activity that contributes to the national economy.

General context: Vision 2030 and special economic zones

This approach falls within the broader framework of Saudi Vision 2030, which aims to diversify national income sources and reduce dependence on oil. Special economic zones are a cornerstone of this vision, designed to serve as gateways for attracting foreign direct investment, transferring advanced technology, and creating quality job opportunities for Saudi citizens. To achieve this, the Kingdom has introduced an unprecedented package of incentives for investors in these zones, including tax and customs exemptions and streamlined regulatory procedures. However, the success of this initiative hinges on attracting genuine investments that add value to the economy, not merely entities registered on paper for tax evasion.

The importance of the decision and its expected impact

The decision by the Zakat, Tax and Customs Authority carries strategic importance on several levels. At the local level , it ensures that government support and incentives are directed towards serious companies that genuinely contribute to the GDP and provide real jobs, thus promoting fairness and healthy competition in the market. It also closes a loophole that could have been exploited for tax evasion, thereby safeguarding public revenues.

At both the regional and international levels , this measure enhances the Kingdom’s reputation as a transparent and reliable investment destination committed to the highest global standards and practices. This approach aligns with international efforts to combat Base Erosion and Profit Shifting (BEPS), spearheaded by the Organisation for Economic Co-operation and Development (OECD). By requiring genuine economic activity, Saudi Arabia sends a clear message to the international investment community that it welcomes sustainable, long-term investments that build real economies, not entities seeking only to exploit tax havens.