KSA Zakat, Tax and Customs Authority new regulations

The KSA Zakat, Tax and Customs Authority has on 2 July 2021 issued an immediately effective new decision No. 3852 (the “Decision”) setting new customs regulations. The Decision relates to GCC countries only.

What does the Decision mean?

1. If you are a GCC based manufacturer and wish to enjoy KSA customs exemption, you need to show that at least 25% of the labour of the product you are manufacturing are nationals of the GCC country your factory is in. The percentage can vary as per article 3 below.
2. GCC free zone goods are not exempted from customs tariff anymore. The Decision did not detail if this would include EFTA goods.
3. Any goods with an Israeli component will not be exempted from customs tariff.

More details on the most important articles in the said rules is below:

1. Article 3 imposes on GCC industrial entities a minimum of 25% national labour to be involved in the manufacturing of the goods to enjoy the preferable tariff:

Preferential Tariffs

1. Products may have preferential tariffs, if they are accompanied by a valid certificate of origin and directly shipped from the manufacturing country to the Kingdom of Saudi Arabia, without prejudice to the origin identification requirements.
2. GCC-based industrial facilities shall ensure that the workforce nationalisation is not less than 25% of the facilities staff, taking the following options and controls into consideration:
3. a)If workforce nationalisation is less than 25% of the facility’s staff, and provided that it is not less than 10% in any case, the same may be satisfied by materialisation of the added value of a commodity that exceeds the minimum limit (40) at the same percentage of workforce nationalization shortage.
4. b)If workforce nationalisation is more than 25% of the facilities staff, the same may be utilised by deducting the excessive percentage of workforce nationalisation – (20) maximum – from the minimum limit of added value (40) required for the commodity, to the extent that the commodity added value shall not be less than 20% in any case.
5. c)If the added value percentage materialised in the manufactured commodity exceeds 40%, the same may be utilised by deducting the excessive percentage of added value – (15) maximum – from the minimum limit of nationalisation percentage (25) required for the facility, to the extent that the percentage of naturalisation materialised in the commodity manufacturer shall not be less than 10% in any case.

2. Article 13 restricts goods enjoying preferable tariff to those: Transported directly from one of the GCC countries. Coming from outside the GCC countries however, with no transformation, amendment or reproduction of the goods should be made. Invoices and/or transport documents issued by the free zones in the GCC are not accepted:

Direct Transport

1. Under these Rules, preferential transaction shall be applied to the products that are directly transported to the Kingdom of Saudi Arabia. The product will be deemed to have been directly transported, if it is:
   1. transported without passing a Non-GCC State; or
   2. transported on transit basis through a Non-GCC State(s), whether or not the product is moved from a vessel to another or stored in such states, under the supervision their customs authorities, subject to the following conditions:
      1. The transit shall be made due to geographic considerations; and
      2. The product shall not be processed in any way during transit, except for loading, unloading, handling, or storage to keep the product safe or preserved.
2. Transport through free zones or under invoices or bills of lading issued by free zones or any facility established therein shall not constitute a direct transport.
3. Customs authorities shall be provided with any of the following proofs indicating that the conditions set forth in Clause (1) above have been fulfilled:
   1. One transport document covering the movement from the exporting state through transit country.
   2. A certificate issued by the customs authorities in the transit country, including:
      1. An accurate description of the products;
      2. Date of unloading and reshipment of products and, if applicable, the names of vessels or other means of transport used in this regard; and
      3. A certificate clarifying the circumstances in which the products remained in the transit country.
   3. In absence of the foregoing, any alternative documents satisfying Zakat, Tax and Customs Authority.

3. Article 15 excludes free zones and markets from any preferable treatment even if duty was already paid or if it consisted on raw material from the GCC countries:

Free Zones

Goods that moved from free zones and duty-free markets to the customs department shall be treated as foreign goods, even if they include local raw materials or items for which customs duties were paid before entering the free zones and duty-free markets.

4. Article 29 stipulates that the rules and procedures to verify the origin of the goods are yet to be issued:

Verification of Origin

Rules and conditions of origin verification shall be issued under a resolution of the Governor of Zakat, Tax and Customs Authority.

5. Article 31 stipulates that any goods with an Israeli component shall not in any way be considered of GCC national origin:

Non-National Origin Commodities 

A commodity shall be a non-national origin one, if any of its components is produced or manufactured in the Zionist Entity or any of the neutral elements set forth in Article (9) of the capital producing it is owned, in whole or in part, by Israeli companies or companies listed in the Arab Boycott of Israel.

There was no explanatory memo issued with the Decision. The scope of the Decision implementation including whether it will apply to all other GCC countries equally or if some countries will be exempted is still yet to be inquired.

How can we help?

Our Transport & Logistics sector team are available to advise on further details and product specific queries based on the Decision.