Transfer pricing in Saudi Arabia

Saudi transfer pricing rests on the arm's-length principle in the Income Tax Law and the Transfer Pricing Bylaws (2019, amended 2023), aligned with the OECD guidelines and administered by ZATCA. Where a related-party transaction isn't at arm's length, ZATCA can reallocate or disregard its result and adjust the tax accordingly. The regime applies to controlled transactions between related parties and those under common control — which, for any group with a Saudi entity charging or being charged by affiliates, means it applies to you.

What changed the audience for this is the 2023 amendment. Transfer pricing used to be a concern for large multinationals paying corporate income tax. Since financial years from 2024, it reaches Zakat payers too — so a GCC-owned, Zakat-paying Saudi company can no longer assume TP is somebody else's problem.

An RHQ exists to charge affiliates for regional services — precisely the kind of intra-group transaction transfer pricing polices. The RHQ's 0% tax benefit only covers eligible activities priced at arm's length; over-charge or mis-price the group services and that is exactly where the benefit unwinds and adjustments follow. The same is true of any group running management fees, royalties or cost-sharing into or out of Saudi Arabia.

And the positions are read together. The same intercompany charges that transfer pricing tests are the charges that withholding tax keys off — a management fee mis-characterised for WHT is usually a transfer-pricing problem too. ZATCA increasingly examines the TP, WHT and RHQ positions as one story, so a group that builds them separately, or builds the substance but not the TP support behind the charges, still has exposure.

The groups that stay out of trouble do four things. They keep documentation contemporaneous — written as the transactions happen, not reconstructed after a query. They price intra-group transactions on a defensible method with real benchmarking. They file the CTDF on time, every year. And they align the transfer-pricing position with their withholding-tax and RHQ treatment so the three tell a single, consistent story.

Where a position is material or uncertain, an Advance Pricing Agreement with ZATCA — now available to Zakat payers as well — can lock in certainty before you rely on it, rather than litigating it after an assessment. For a group with significant Saudi intercompany flows, the APA route is worth weighing against the cost and risk of defending the position reactively.

Pricing a related-party transaction at arm's length is not an assertion — it is an analysis. ZATCA's Bylaws follow the OECD's five methods (comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split), and the documentation has to show why the chosen method fits the transaction and support the result with real comparables. For a management or service charge into a Saudi entity, that typically means a benchmarking study demonstrating the margin a third party would charge for comparable services — not a round number inherited from a group policy written for another country.

The cost of getting it wrong is concrete. A transfer-pricing adjustment increases taxable profit and the tax due, with late-payment consequences on top; a missing or late CTDF, or a failure to produce the Master and Local Files within the 30-day window, attracts its own penalties; and a mispriced charge frequently drags the withholding-tax position with it. For a group with material Saudi intercompany flows, the documentation is cheaper than the adjustment — and far cheaper than defending an assessment with nothing contemporaneous on file.