Stakeholders may submit feedback through the ISTITLAA platform until 3 March 2026. The proposed framework introduces substance-based compliance requirements that may significantly impact existing and future SEZ structures, governance models, and operating arrangements.
Key Features of the Proposed ESR Framework
The draft regulations introduce a structured economic substance framework requiring investors to demonstrate real operational presence within the SEZ, including:
- Annual ESR Compliance: Investors would be required to meet ESR criteria on an annual basis starting from their first financial year.
- Physical Presence: Maintenance of adequate premises, infrastructure, and assets within the SEZ.
- Adequate Workforce: Employment of a sufficient number of personnel physically located within the zone and proportionate to the scale of activities.
- Operational Expenditure: Demonstration of relevant operational spending aligned with the activities carried out.
- Management and Control: Qualified management and strategic decision-making to be exercised from within the SEZ.
- Annual Reporting: Submission of an annual ESR return in a prescribed format for verification purposes.
Enforcement: Potential penalties and regulatory consequences for non-compliance.
Enhanced Requirements for Intellectual Property (IP) Activities
Investors engaged in IP-related activities may be subject to additional conditions, including:
- At least 50% of the directors managing the activities being residents in the Kingdom of Saudi Arabia.
- Submission of detailed employee and operational information.
- Preparation of a comprehensive business plan supporting the commercial rationale for holding IP assets within the SEZ.
Why This Matters
The introduction of ESR within SEZs signals a shift toward stronger alignment with international substance standards and may require investors to reassess current operational structures, staffing models, governance arrangements, and IP holding strategies within the Kingdom.
What Should Investors Consider Now
- Assess whether current SEZ structures demonstrate sufficient economic substance.
- Review governance and board composition, particularly for IP holding entities.
- Evaluate workforce presence and operational expenditure levels within the zone.
- Consider submitting feedback during the consultation phase where relevant.
Further implementation guidance is expected to be released by ZATCA and ECZA in the coming period.
Should you wish to discuss how these developments may impact your business or require support in preparing consultation feedback, please contact our tax team.
