Transfer Pricing in Saudi Arabia | OECD Guidelines & ZATCA Compliance Explained

With Saudi Arabia’s strengthening of the country’s tax and regulatory frameworks, Transfer Pricing in Saudi Arabia has become one of the major focus areas for multinational groups and local companies in the region. Companies operating in the Kingdom now face increased scrutiny of related-party transactions and the necessity to consider pricing policies consistent with international standards, but at the same time to meet local regulatory expectations. Understanding how global principles and local enforcement interact is essential to managing risk and protecting profitability.

Understanding Transfer Pricing in Saudi Arabia

Transfer Pricing in Saudi Arabia is usually defined as the price at which the cross-border movement and trading of goods, services, financing, or intellectual property between parties linked to each other (e.g., subsidiaries, branches, and affiliated companies) occurs.

Although the Kingdom has its own enforcement mechanism, it follows international principles, and Transfer Pricing is under the practice of global best practices, but managed and monitored locally to ensure that the profits are not artificially shifted outside the tax base.

Saudi Arabia has aligned its framework with world standards to attract foreign investments, ensure transparency, and secure revenue for the government, while local enforcement ensures practical compliance.

What Is Transfer Pricing in Saudi Arabia?

In simple terms, Transfer Pricing in Saudi Arabia ensures that related-party transactions are performed at a price determined as if they were independent from each other. This principle is called “the arm’s length principle.”

In practical terms, Transfer Pricing in Saudi Arabia has:

• Sales of goods between group entities
• Management and technical service fees
• Intercompany loans and guarantees
• Royalty and licensing arrangements

ZATCA supervises intercompany pricing to prevent the shifting of profits, taxation base erosion, and manipulation of taxable incomes through non-market pricing structures.

How OECD Guidelines Shape Transfer Pricing in Saudi Arabia

As a component of the overarching transfer pricing framework in effect in Saudi Arabia, the OECD transfer pricing guidelines have globally accepted standards on which to base the evaluation of related-party transactions under the Member States. They include the practical provisions of applying the arm’s length principle and the determination of acceptable pricing methodologies.

Key elements adopted under OECD guidelines in Saudi Arabia include:

• Equivalence Uncontrolled Price (CUP) method
• Repriced and Cost Plus methods
• Transactional Net Margin and Profit Split Methods
• Alignment with the BEPS framework

Thus, Transfer Pricing in Saudi Arabia contributes to making the country credible, consistent, and attractive to investors while easily fitting into international tax systems.

ZATCA’s Role in Transfer Pricing Compliance

The major executive body that supervises Transfer Pricing in Saudi Arabia is the Zakat Tax and Customs Authority (ZATCA). Guidance, audit, and enforcement of penalties upon non-compliance are some of the roles played by ZATCA.

Under ZATCA transfer pricing, the powers vested in the said authority include:

• The ability to review the intercompany pricing principles
• Capacity for adjustments to taxable income
• Imposition of fines for non-compliance or misreporting
• Advice for detailed supporting documentation

Proactive ZATCA audits make Transfer Pricing a portion of practical compliance requirements rather than just a theoretical requirement.

ZATCA Transfer Pricing Documentation Requirements

A fundamental pillar of Transfer Pricing in Saudi Arabia is maintaining robust documentation that supports arm’s-length pricing. ZATCA transfer pricing documentation requirements have a definition in line with international best practice and usually include:

• Master File: Key details about group-level information, organization structures, and global transfer pricing policies.
• Local File: An analysis of local related-party transactions and benchmarking, narrowed down.
• Country-by-Country Reporting (CbCR): High-level declaration of global income, taxes, and economic activities.

These documents must be accurately prepared within stipulated timelines to avoid penalties and audit challenges.

OECD vs ZATCA: How the Rules Work Together in Saudi Arabia

The main aspect of Transfer Pricing in Saudi Arabia is in the relationship between the local enforcement and international standards. While the OECD transfer pricing guidelines broadly define how transfer pricing is done globally, ZATCA transfer pricing regulations, on the other hand, locally define how such rules are implemented and enforced.

Under the guidance of OECD in Saudi Arabia, the OECD sets the principles, methodologies, and conceptual framework, which ZATCA applies through audits, documentation reviews, and assessments, all supported by ZATCA transfer pricing documentation requirements.

In simple words, OECD is the one that types the rulebook, while ZATCA makes sure that rules are followed within the Saudi tax system.

Common Transfer Pricing Risks in Saudi Arabia

Many high-risk areas are present concerning Transfer Pricing in Saudi Arabia, especially in the course of ZATCA auditing. The following are the most common risk areas:

• Unreasonable or unsubstantiated management charges
• Interest charged on intercompany loans is not from a commercial perspective
• Royalty payments that cannot be logically substantiated
• Profit shifting through thin distribution strategies

Absence of these considerations may lead to tax adjustments, penalties, and reputational damage.

How to Stay Compliant with Transfer Pricing in Saudi Arabia

Transfer pricing compliance in Saudi Arabia has to be proactive and systematic. Corporations may focus on:

• Carry out benchmarking studies regularly
• Establish and maintain contemporaneous documentation
• Align all policies to OECD standards/guidelines
• Develop internal review mechanisms for audit readiness

Such compliance in Saudi Arabia with strong transfer pricing reduces the chances of audit while clarifying, consistency, and defensibility in dealings with tax authorities.

How Arnifi Helps with Transfer Pricing in Saudi Arabia

Arnifi provides fully comprehensive transfer pricing solutions designed for the Saudi regulatory environment, taking businesses from end to end. Our services include:

• OECD-aligned transfer pricing policy design
• Documentation preparation compliant with ZATCA
• Benchmarking and economic analysis
• Audit defense and dispute support

By combining international expertise with local regulatory insight to navigate complexities while ensuring due compliance.

Conclusion

A well-structured transfer pricing framework is necessary for businesses operating in Saudi Arabia’s changing tax landscape. Aligning with OECD principles and complying with ZATCA enforcement expectations will enhance profits, minimize disputes, and ensure continued sustainability. 

With a proper strategy, documentation, and expert assistance behind them, companies can shift compliance from being a burden to a potential advantage. Achieve unhindered transfer pricing compliance in Saudi Arabia with Arnifi‘s OECD-aligned, ZATCA-ready expertise.