Advance Pricing Agreements in Saudi Arabia: How ZATCA's APA Works

Transfer pricing certainty has become one of the most valuable assets a cross-border group can hold. For UAE headquartered businesses with Saudi subsidiaries or significant related-party flows into the Kingdom, Saudi Arabia's introduction of Advance Pricing Agreements is a meaningful development. The Zakat, Tax and Customs Authority (ZATCA) issued its first-edition APA Guidelines in February 2025, confirming that Saudi taxpayers can now agree a transfer pricing method with the authority in advance, rather than defending it years later in an audit.

This guide explains what a ZATCA APA is, how the 2025 guidelines work, and why it matters for UAE groups that trade with, invoice, or manage entities in Saudi Arabia. It also connects the Saudi position to the wider arm's length framework and to your UAE Corporate Tax and Transfer Pricing obligations. For a focused companion piece, our team has also published a detailed explainer on how ZATCA's Advance Pricing Agreement process works.

What is an Advance Pricing Agreement?

An Advance Pricing Agreement is a formal understanding between a taxpayer and a tax authority that fixes, in advance, the transfer pricing method for specified related-party transactions over a set number of years. Instead of pricing a transaction, filing, and then hoping the method survives a later audit, the taxpayer agrees the approach up front and gains certainty for the covered period.

APAs sit within the global transfer pricing framework built on the arm's length principle. That principle, set out in the OECD Transfer Pricing Guidelines, requires related parties to price their dealings as independent parties would. APAs are a recognised tool within the OECD's wider work on transfer pricing to prevent double taxation and reduce disputes.

There are three broad types of APA:

• Unilateral: one taxpayer and one tax authority.
• Bilateral: two tax authorities, concluded under the mutual agreement procedure of a tax treaty.
• Multilateral: more than two tax authorities.

The distinction matters greatly for cross-border groups, as explained further below.

Why ZATCA introduced APAs

Saudi Arabia added APAs to give taxpayers a route to resolve transfer pricing questions before transactions happen, rather than through drawn-out and costly audits. The mechanism reflects the same logic that drives global transparency initiatives such as country-by-country reporting under BEPS Action 13, where tax authorities increasingly use detailed data to risk-assess multinational groups. As scrutiny rises, certainty becomes more valuable, and an APA is one of the cleaner ways to obtain it.

Two features are worth understanding early. First, an APA is a discretionary service, not an automatic right. A taxpayer may apply, but ZATCA is not obliged to grant one. Second, the method fixed by the APA must be an approved transfer pricing method, or another justifiable method that aligns with the arm's length principle.

Legal basis: Article 23 of the Saudi Transfer Pricing Bylaws

The APA mechanism was introduced through Article 23 of Saudi Arabia's Transfer Pricing Bylaws, brought in under Board Resolution No. [8-2-23] dated 28/08/1444H, corresponding to 20 March 2023. The first-edition APA Guidelines published in February 2025 then set out how the process operates in practice.

Under this framework, an APA covers a defined number of zakat or tax years and sets the key criteria in advance, including the method, the comparables, and any adjustments, while taking account of critical assumptions about the business and its environment. ZATCA administers zakat and tax in the Kingdom, and its guidance sits within its broader body of published rules and regulations.

What the 2025 APA Guidelines introduced

The first-edition guidelines confirmed several defining features of the Saudi regime. The most important is that ZATCA is currently accepting only unilateral APAs. Bilateral and multilateral APAs are on hold until further notice, because the regime is new in the Kingdom.

The guidelines also set out the eligibility threshold, the timing rules, the process stages, and the ongoing compliance obligations that keep an agreement alive. Each of these is covered in the sections that follow.

Unilateral, bilateral, and multilateral APAs

For now, only unilateral APAs are available in Saudi Arabia. A unilateral APA binds only ZATCA and the taxpayer. For a purely domestic Saudi controlled transaction, that delivers clean certainty. For a cross-border flow, the picture is more nuanced.

Consider a UAE parent that charges management fees to its Saudi subsidiary. A unilateral APA with ZATCA can fix the Saudi-side treatment of those fees. However, if the tax authority on the other side of the transaction later disagrees and makes its own adjustment, ZATCA is not obliged to defend the APA. The taxpayer then carries the risk of double taxation. A bilateral APA, concluded under a treaty's mutual agreement procedure, is what normally solves that two-sided risk, and it is precisely what is not yet available.

The practical takeaway for UAE groups is clear. A unilateral ZATCA APA removes Saudi-side uncertainty but does not eliminate foreign-side exposure. Groups with significant two-sided flows should weigh this carefully within their broader international tax planning.

Who can apply and the SAR 100 million threshold

Eligibility flows from Article 23 of the Bylaws. As a general rule, each transaction covered by the APA must be worth at least SAR 100 million a year. Two flexibilities apply around this floor:

• The Governor may exempt genuinely complex transactions from the threshold.
• Closely linked transactions can be aggregated to reach the threshold.

A "complex" transaction, in this context, means one that is genuinely hard to price. Examples include cases where there is substantial doubt about which method applies, where the method itself is intricate such as a profit split, or where reliable comparables are scarce and need significant adjustment.

Two further limits are important. The taxpayer must start the process at least 12 months before the first fiscal year the application is meant to cover. In addition, ZATCA will not consider applications that include profit attribution to a permanent establishment.

The APA process stages

ZATCA runs the APA through a structured sequence of stages, from application to ongoing compliance. Unilateral applications are filed electronically through the ERAD portal, while complex transactions exempted by the Governor are routed through the assigned relationship manager or the APA team instead. The table below summarises the flow described in the guidelines.

Missing the 12-month lead time is fatal to an application. An incomplete filing by that deadline is rejected automatically through the portal, and the taxpayer then has to move the effective start year. During processing, ZATCA may narrow or expand the proposed scope, or reject the request outright.

Documentation and critical assumptions

An APA application is only as strong as the analysis behind it. Expect to frame the covered transactions clearly, justify the proposed method against the arm's length principle, and support the position with robust functional analysis and comparables. This is the same technical foundation that underpins any defensible transfer pricing position, whether for an APA or for routine documentation prepared under the OECD Transfer Pricing Guidelines.

Every APA also rests on critical assumptions. These are the conditions about the taxpayer, related persons, the industry, and economic conditions that must hold for the agreed method to remain appropriate. If any of these assumptions change significantly, or if a change materially affects the suitability of the chosen method, the taxpayer must notify ZATCA. The APA may then be revised or cancelled. Building your APA on a realistic and clearly stated set of assumptions is therefore not a formality, it is central to keeping the agreement durable.

Term, renewal, and annual compliance

Under Article 23(2)(c), a Saudi APA typically runs for three years. It is binding on both ZATCA and the taxpayer, contingent on the taxpayer submitting its Annual Compliance Report. Three features define the term:

• The APA applies only to future transactions and cannot be backdated.
• It can be renewed for a further three years by mutual agreement.
• It remains conditional on annual reporting throughout its life.

The Annual Compliance Report is due within 120 days of each year-end, alongside the tax or zakat return. Failure to file it can itself cause cancellation. In other words, a single missed report can undo three years of hard-won certainty. Disciplined governance is essential here, and preparing for a possible review or challenge remains sensible even with an APA in place. Where questions do arise, structured audit and dispute resolution support helps protect the position.

A practical example

Consider a UAE headquartered group with a Saudi manufacturing subsidiary. The subsidiary buys raw materials from a related UAE procurement entity, and the annual value of that single flow is SAR 140 million. Because the transaction exceeds the SAR 100 million threshold and involves a method the group wants certainty on, it is a candidate for a unilateral APA with ZATCA.

The group wants the APA to cover the fiscal year starting 1 January 2027. To meet the timing rule, it must begin the process at least 12 months before that year starts, so no later than the start of January 2026. It files through ERAD, attends the introductory meeting, and works through evaluation. Once signed, the APA fixes the Saudi-side method for three years.

Two cautions follow from this example. First, the APA secures only the Saudi treatment. If the UAE side of the pricing were later questioned by the UAE authorities, the unilateral APA would not bind them. Second, the group must file its Annual Compliance Report within 120 days of each year-end to keep the agreement valid. A second example shows the threshold flexibility: if the same subsidiary had three closely linked service flows of SAR 40 million each, those could potentially be aggregated to reach the SAR 100 million floor, subject to ZATCA's assessment.

What this means for UAE headquartered groups

Many UAE groups run regional structures where Saudi Arabia is a major market. The ZATCA APA regime intersects with the UAE tax position in several ways, and treating the two systems as connected rather than separate is the stronger approach.

First, the arm's length principle is common ground. The UAE applies transfer pricing rules under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, administered by the Federal Tax Authority, and the UAE's approach is aligned with OECD standards. The method a group agrees with ZATCA should be consistent with the position it takes in its UAE filings, so that both sides of a related-party flow tell the same story.

Second, documentation must reconcile. UAE groups meeting the relevant thresholds prepare related-party disclosures and, where required, Local File and Master File documentation. The analysis supporting a Saudi APA should sit comfortably alongside that UAE documentation. Coordinating both through disciplined Transfer Pricing support reduces the risk of inconsistency.

Third, the unilateral-only limitation is a planning point, not a footnote. Because a ZATCA unilateral APA does not bind the UAE side, groups should assess where a UAE-side adjustment could still create double taxation, and factor that into how they structure and document the flow. Aligning the Saudi APA strategy with the group's wider UAE Corporate Tax position keeps the overall picture coherent.

Common mistakes and challenges

Several recurring errors undermine APA outcomes, particularly for groups new to the process.

• Missing the 12-month lead time. An application filed too late is rejected automatically, forcing the start year to move.
• Assuming a unilateral APA removes all cross-border risk. It fixes only the Saudi side, leaving foreign-side double-taxation exposure with the taxpayer.
• Treating the SAR 100 million threshold as rigid. Complex transactions may be exempted by the Governor, and closely linked transactions may be aggregated.
• Including permanent establishment profit attribution. ZATCA will not consider applications that do this.
• Understating critical assumptions. Vague or unrealistic assumptions invite later revision or cancellation.
• Forgetting the Annual Compliance Report. Missing the 120-day deadline can cancel the APA entirely.
• Preparing the APA in isolation from UAE documentation. Inconsistencies between the Saudi and UAE positions weaken both.

Practical recommendations

• Map your Saudi related-party flows early and identify which transactions meet or approach the SAR 100 million threshold.
• Decide whether an APA is the right tool, weighing the certainty it offers against the unilateral-only limitation for two-sided flows.
• Start at least 12 months before the intended first covered year, and build in time for a complete, well-supported application.
• Frame realistic critical assumptions, since these govern whether the APA survives changes in the business.
• Diarise the Annual Compliance Report the moment an APA is signed, so the 120-day deadline is never missed.
• Align the Saudi method with your UAE Transfer Pricing and Corporate Tax positions so both sides reconcile.
• Prepare defensible documentation in advance, treating audit readiness as part of the APA lifecycle rather than an afterthought.

If your group is weighing an APA for its Saudi operations, a short scoping conversation can clarify the key questions quickly. You can reach our specialists through the contact page.

Frequently asked questions

What is a ZATCA Advance Pricing Agreement?

It is an agreement in which a taxpayer and ZATCA fix, in advance, the transfer pricing method for specified related-party transactions over a set number of years. Introduced under Article 23 of the Transfer Pricing Bylaws, it is a discretionary service designed to give tax certainty and reduce disputes.

Does ZATCA offer bilateral or multilateral APAs?

Not yet. Because the regime is new, ZATCA is introducing only unilateral APAs and will not process bilateral or multilateral APAs until further notice. A unilateral APA gives Saudi-side certainty but leaves any foreign-side double-taxation risk with the taxpayer.

What is the minimum transaction size for a ZATCA APA?

As a general rule, each covered transaction must be worth at least SAR 100 million a year. The Governor may exempt genuinely complex transactions from this floor, and closely linked transactions can be aggregated to meet it.

When should a taxpayer apply for a ZATCA APA?

The application must start at least 12 months before the beginning of the first fiscal year it is meant to cover. Missing that lead time causes automatic rejection through the ERAD portal and forces the effective start year to move.

How long does a Saudi APA last, and can it be renewed?

A Saudi APA typically runs for three years, applies only to future transactions, and can be renewed for a further three years by mutual agreement. It remains contingent on the taxpayer filing an Annual Compliance Report within 120 days of each year-end.

Can a ZATCA APA cover profit attribution to a permanent establishment?

No. ZATCA will not consider APA applications that include profit attribution to a permanent establishment.

How does a ZATCA APA affect a UAE group's tax position?

A unilateral ZATCA APA fixes only the Saudi-side treatment. UAE groups should ensure the agreed method is consistent with their UAE Corporate Tax and Transfer Pricing positions under Federal Decree-Law No. 47 of 2022, and assess where a UAE-side adjustment could still create double taxation.

Conclusion

Saudi Arabia's 2025 APA Guidelines give taxpayers a structured way to lock in transfer pricing certainty, built on Article 23 of the Transfer Pricing Bylaws and, for now, limited to unilateral agreements. For UAE headquartered groups with Saudi subsidiaries or large related-party flows, the regime is a genuine opportunity, but it comes with clear conditions: a SAR 100 million threshold, a strict 12-month lead time, an exclusion for permanent establishment profit attribution, and an annual reporting obligation that must be met within 120 days.

The strongest approach treats the Saudi APA as one part of a connected regional tax position rather than a standalone Saudi exercise. Align the method with your UAE filings, state realistic critical assumptions, prepare robust documentation, and manage the annual compliance calendar with discipline. Groups that plan early and coordinate both sides of each transaction will turn the APA from a procedural hurdle into a durable source of certainty.

This publication is for general information only and does not constitute professional advice. Please consult a qualified advisor before acting on any matter covered here.

25/3/25 Ministerial Decision No. 84

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