General Guideline

Income tax Eligible income earned by an established entity within the zone from the activities of the zone is subject to income tax at a rate of zero percent (0%) during the tax exemption period. Ineligible income earned by the entity from sources other than the zone’s activities or after the expiration of the period of tax incentives shall be taxed at the current basic rate of twenty percent (20%) currently in force in accordance with the Tax Law applicable in the mainland. Such income from Ineligible Activities shall be calculated separately, and the process of submitting a tax return for income from eligible activities and income from ineligible activities shall be in accordance with the procedures set forth in paragraph (2.6) of this Guideline. If a non-resident person who does not have a physical presence in the Kingdom carries on activities related to goods located in the zone, such activities are not considered permanent establishment for income tax purposes. (8)Article 4 of the Special Tax Rules. 4.2 Withholding Tax Established entities can benefit from exemption from withholding tax during the tax exemption period, with respect to the following types of payments to non-residents in the Kingdom: 1. Dividends. 2. Loan charges. 3. Royalties, provided that the recipient of such Payment is a Related Person(9) to the Established Entity. 4. Consideration for technical services, other service, or both provided that the recipient of Payment is a Related Person to the Established Entity. “Recipient” in clauses (3) and (4) above means the ultimate beneficiary or beneficial owner of the payments. Exemption from withholding tax shall not apply in the following cases: 1. If the payment made by the Established Entity relates to Non-Prescribed Activities. 2. If the payment made by an Established Entity are or will be sourced from Payments made by Related Persons carrying on activities in the Mainland, which relate to the same types of payments exempt from the withholding tax. 3. Cases of tax avoidances, as described in more detail in Section (5) below. Income that is not eligible for exemptions is treated, from a tax perspective, in accordance with the tax regulations in force in the Kingdom, i.e., applicable in the mainland. (9)A person is considered associated with another person in case of the application of the conditions contained in the Income Tax Law.