KSA Customs Update – New rules of origin for national goods
Saudi Arabia’s Minister of Finance and Board Chairman of the Zakat, Tax and Customs Authority (ZATCA) issued Ministerial Decree No. 3852 introducing new rules of origin for GCC manufactured goods and the conditions to qualify those goods as ‘national’ for applying the GCC preferential treatment during the import into the KSA as per the GCC Unified Economic Agreement.
The new National Rules of Origin (“RoO”) entered into force on the 2nd of July, 2021, and are valid until the GCC Unified Rules of Origin are issued and become effective.
What is new?
The RoO specifies conditions for GCC manufactured goods to qualify as ‘national’ for applying the GCC preferential treatment (i.e. customs duty exemption).
The key requirements are as follows:
- The goods should be supported by a valid Certificate of Origin;
- The goods should be transported directly from the manufacturing GCC country to KSA (or transit through non-GCC countries if under Customs control);
- The requirements of GCC origin labeling have to be considered;
- For products that are not wholly manufactured in the concerned GCC country, the manufacturing process shall represent at least 40% of added value on the ex-factory final product price, calculated as per specific formulae; and
- The GCC manufacturing entities should achieve a localization rate of a national workforce of not less than 25% of the total workforce of the factory.
It is important to consider that the RoO provides certain flexibility by introducing the possibility to offset the added value and the localization rates. Meaning, if a manufacturer has achieved a localization rate above 25% and an added value of less than 40%, or vice versa, a decrease in one of the variables can be offset with the excess of the other if:
- The localization rate is not less than 10%; or
- The added value is not less than 20%.
Treatment of goods from free zones
According to the RoO, goods manufactured or released from the GCC free zones should be treated as foreign goods. Subsequently, such goods do not qualify for preferential treatment and are subject to customs duty.
Businesses operating in the KSA should consider how new rules of origin for national goods impact their importing and exporting operations. In cases new conditions are not satisfied during the import of goods into the KSA, customs duties will be applicable in the KSA.
Who we are?
Rethink as an entity provides VAT advisory, optimization, registration, implementation, compliance, and training services in Bahrain, UAE, KSA, and the GCC.
Our team is here to guide you through the VAT law and regulations and ensure full compliance with the law. Based on our local and international experience, we understand that VAT is a complex tax and would certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises.
Associate Director (Indirect Tax)