A monthly insight into Saudi Arabia's regulatory landscape

Welcome to our monthly series, where we dissect the latest changes, offering clarity on the implications and applications of these regulatory shifts. Our monthly articles will help guide you through the changes in legislation, ensuring you are well-equipped to navigate the evolving regulatory landscape of Saudi Arabia.

Regulations Issued or Amended

Below is a concise list of the latest and most influential legal updates in Saudi Arabia, straight from the Official Gazette (Um Al-Qura), providing a straightforward overview of the recent changes in the Kingdom’s legal scene.

• The Official Correspondence and Preservation of Documents and Information Therein, issued pursuant to Council of Ministers Resolution No. (584) dated 07/18/1445H (corresponding to 01/16/2024G)
• The Executive Regulations for the Real Estate Contributions Law, pursuant to the decision of the Board of Directors of the Real Estate General Authority (REGA) No. (Q/M/E/H/1/2024/T) dated 07/18/1445H (corresponding to 09/25/2023G)
• The Basic Regulation of Supporting and Developing Legal Departments in Government Agencies Program, issued by Cabinet Resolution No. (719) dated 08/24/1445H (corresponding to 03/05/2024G)
• The National Infrastructure Fund Law, issued pursuant to Royal Decree No. (M/142) dated 08/01/1445H (corresponding to 01/16/2024G)
• Bonded Zones Rules, issued pursuant to the decision of the Governor of the Zakat, Tax and Customs Authority (ZATCA) No. (28918) dated 25/05/1445H (corresponding to 01/02/2024G)
• Rules for dealing with requests from public entities to establish companies or participate in their establishment, or to establish any entity whose purpose is investment or is for profit, issued by a decision of the Council of Ministers dated 09/16/1445H (corresponding to 03/26/2024G)
• Regional Headquarters Tax Rules, issued by decision of the Board of Directors of the Zakat, Tax and Customs Authority No. (9-1-24) dated 07/23/1445H (corresponding to 02/04/2024G)

In this segment, we will spotlight regulations that influence diverse sectors, aiming to provide a concise yet comprehensive glimpse into the transformative forces at play in Saudi’s legal evolution.

Definition of Some of the Terms Used in This Article:

• Royal Decree: An official written document explicitly voicing the endorsement of the King on a subject submitted to the Council of Ministers and the Shura Council after each of the councils presents their findings and decisions to the King.
• Council of Ministers Resolution: Written decisions that express the will of the Council of Ministers, bearing the signature of the Prime Minister or his deputy in their capacity as deputy Prime Minister, and are considered one of the most critical legislative tools as Resolutions are issued continuously and affect daily life, and these Resolutions are issued after the weekly meeting of the Council. 
• Ministerial Decisions: Decisions issued by a Minister or a government official with the authority of a Minister, and often, the authorization to issue legislative decisions by an official as head of the governmental office they hold, is given by a Resolution of the Council of Ministers.
• Royal order: the most potent and highest organizational decision in the kingdom, an official written document disclosing the King’s direct and unilateral will, issued in a specific format and bearing the King’s signature, without the subject being presented to the Council of Ministers and the Shura Council.

Legal Departments Support Program

Council of Ministers Resolution No. (719) was issued regulating the basis for the program to support and develop legal departments in government entities.
The resolution included the authorities granted to the program and its goals. The program aims to provide legal and technical support for legal departments in government entities (upon request).

The program set to help legal departments in government entities, by providing support in cases that is filed in favor or against the government entity, whether before the courts, local arbitration bodies, or other bodies with judicial jurisdiction within the Kingdom.

The program also provides support to the legal departments of government entities to enable them to study draft laws & regulations and to express the entity’s opinion regarding them.

Regional Headquarters Tax Rules 

The Board of Directors of the Zakat, Tax and Customs Authority issued Resolution No. (9-1-24) approving the Regional Headquarters Tax Rules (the “RHQ Tax Rules”). The purpose if the RHQ Tax Rules is to prescribe the provisions related to Tax Incentives available for Regional Headquarters.

The RHQ Tax Rules define Regional Headquarters as: “The regional headquarters or a unit of a Multinational Group duly established under the laws of Saudi Arabia and the concept of regional headquarters activities of  international companies applies according to the National Classification of Economic Activities No. (701011).” The RHQ Tax Rules stipulate that regional headquarters that meet the conditions, will be granted the following Tax Incentives:

1. 0% income tax on the Eligible Income
2. 0% withholding tax on payments made by the Regional Headquarters to non-residents, with respect to the following: (a) dividends; (b) payments to related persons; and (c) payments to unrelated persons for services that are necessary for the Regional Headquarters activities

Finally, the duration of the tax incentives according to the RHQ Tax Rules is (30) years, subject to renewal. The duration starts from the date of obtaining the regional headquarters license to carry out Eligible Activities until the date of any of the following:

1. a period of (30) years lapses; or
2. the Entity ceases to be regional headquarters for any reason.

Moreover, ZATCA can, under article (15) of the RHQ Tax Rules, issue detailed guidance or explanatory material to the provisions of the RHQ Tax Rules.

Rules of Dealing with Requests From Public Entities to Establish Companies or Participate in Their Establishment, or to Establish Any Entity Whose Purposes Include Investment or Intended for Profit.

Cabinet Resolution No. (804) approved the Rules of Dealing with Requests From Public Entities to Establish Companies or Participate in Their Establishment, or to Establish Any Entity Whose Purposes Include Investment or Intended for Profit (the “Rules”).

The Rules obligate public entities that aim to establish a profit or investment entity or aim to contribute to its establishment, own an existing company, or purchase shares or shares in a profit or investment entity to address the Public Investment Fund (PIF) to make that through the PIF. If the PIF deems that the entity’s request is not appropriate and the entity continues to see the need of the request, it may refer its request to the Ministry of Finance accompanied by the PIF’s response. If there is no agreement between the Ministry of Finance and the entity, and the entity still believes its need exists. The entity may submit to the Royal Court a request clarifying that need and its justifications along with the opinion of the Ministry of Finance and PIF in that regard, so that the Royal Court may consider its request and take whatever action deemed necessary.

The Rules also obligated public entities to inventory the profit or investment entities they have established and what they own or own shares in, and the companies and entities for which approval has previously been submitted. That to provide PIF with data on that along with appropriate alternatives for dealing with these entities in regarding the ownership of it. With all its financial and regulatory data necessary to study its conditions in accordance with the Fund’s governance to come up with a clear vision regarding it. That and to study the appropriateness of transferring any of these entities to PIF or not, or adopting the request of the public entity that had been previously submitted to consider approval. Provided that all the mentioned actions do not disrupt the ongoing operations of these companies and entities, they will continue their work until a decision is reached regarding whether to transfer ownership of any of them to PIF or to approve the public entity’s request.

The Rules excluded some public entities from the above-mentioned procedures, including the General Organization for Social Insurance (GOSI), the Saudi Central Bank (SAMA), the National Center for Privatization (NCP), and any companies or entities established in accordance with the provisions of the state’s general budget decree.