5 June, 2023

Access Alert: Saudi Arabia’s Cloud Computing Special Economic Zone

Background

The Economic Cities and Special Zones Authority (ECZA), in partnership with the Saudi Program for Attracting Regional Headquarters of International Companies,[1] hosted an Investment Forum on 29 May 2023, in Riyadh.

The forum made an announcement regarding Saudi Arabia’s Special Economic Zones (SEZ), stating that they have been officially granted operational licenses and have attracted significant investments amounting to USD 12.6 billion. These investments span various sectors such as maritime, mining, manufacturing, logistics, and technology. Additionally, ongoing discussions for potential investments amounting to USD 31 billion highlight the strong interest and potential for further growth in the SEZs.

Under the patronage of Crown Prince Mohammed bin Salman, ECZA has launched four new SEZs, which include:

The establishment of these SEZs aligns with Saudi Arabia’s state-centric policies and builds upon the success of the Special Integrated Logistics Zone (SILZ) launched in 2022. This strategic move aims to leverage the country’s rapid economic growth and global business prominence, contributing to the realisation of Saudi Arabia’s Vision 2030 economic development goals.

Key incentives for investment in the new SEZs

The new Saudi SEZs offer attractive incentives to businesses looking to invest in Saudi Arabia. Notably, these incentives include:

5% Corporate Income Tax rate for up to 20 years.
0% withholding tax on repatriation of profits from SEZ into foreign countries.
Customs duties deferral for goods inside SEZ or 0% Custom duties on capital equipment and inputs inside SEZ.
Flexible regulations for foreign talent in the initial five years.
0% VAT on intra-SEZ goods (for all goods exchanged within and between the SEZs).
Special tax treatment in line with OECD principles to prevent double taxation.
Competitive utilities rates, including electricity.
Exemption from operational fees for employees and their families within SEZ.

Cloud Computing SEZ

The Cloud Computing SEZ is one of the first in the region, offering cloud service providers the flexibility to establish data centres across the Kingdom, and the ability to provide various cloud computing services from the zone. It operates under distinct business and commerce laws, creating a specialised regulatory environment, with the aim to achieve the following targets:

7B SAR: The expected additional contribution to the GDP by 2030.
154B SAR: The projected size of the ICT market by the end of 2023, making it the largest in the region.
81B SAR: The estimated size of the technology market in Saudi Arabia by 2023.
4^th Globally: Riyadh’s ranking in the utilisation of technology and its applications.
80%: The target adoption rate of Cloud Computing services in the public sector by 2030.
22%: The expected compound annual growth rate (CAGR) of the public Cloud Computing market in Saudi Arabia, surpassing the global average.

The Communications, Space, and Technology Commission (CST) will oversee the Cloud Computing SEZ, providing tax treatments, legislative, administrative, as well as regulatory incentive to promote cloud computing adoption across sectors. Further guidance and regulations related to the provision of cloud services through the zone is expected to be announced by CST, offering clarity and support to the industry.

Implications

The Kingdom of Saudi Arabia, with its sizable domestic market of over 30 million people, achieved a remarkable economic growth rate of 8.7% in 2022, which stands out as one of the fastest among G20 economies. The establishment of these zones is set to play a pivotal role in Saudi Arabia’s ongoing economic transformation journey. Notably, KSA ranked 4^th among 15 regional cloud markets in the Cloud Competitiveness Index 2023 and is investing significantly in growing its cloud industry.

The cloud computing SEZ aims to offer a highly favourable ecosystem for businesses, particularly cloud service providers, to grow and increase their services in the kingdom. To support this endeavour, ECZA and CST will focus on ensuring an investor-friendly regulatory environment, providing competitive sector-specific incentives, and continuously improving integrated government services.

If you are interested in learning more about Cloud Computing SEZ, Saudi Arabia’s regulatory landscape, or require support in engaging the regulator, please contact Rati Kvantaliani at [email protected] and Nada Ihab at [email protected].