KSA: Provisional Admission Of Leased Heavy Machinery And Equipment – How Does It Work In Practice?

Due to the increasing number of business opportunities in the Kingdom of Saudi Arabia (“KSA”), many projects require smooth delivery practices to meet the project needs on time. Therefore, the logistics sector plays an important role in determining whether a project succeeds or fails. Among the most prevalent practices in the logistics sector is that of temporary entries of shipments into the KSA, legally termed “provisional admission”. This article outlines its purpose and describes the process of obtaining provisional admissions for the temporary import and export of heavy equipment and machinery into KSA.

Project owners are keen to ensure that their projects are adequately supplied and equipped with advanced technologies to meet their objectives. In large projects in heavy industries where heavy equipment is required, maintaining this heavy equipment will be the responsibility of the project owners/consignors. To reduce costs, project owners tend to lease overseas equipment for a temporary period, which must be handled according to particular legal procedures. In doing so, importers / lessors navigate a myriad of legal challenges.

In what follows, we outline the procedure and identify practice for the mitigation of risk.

The regulatory body for customs matters in KSA is the Zakat, Tax and Customs Authority (“ZATCA”). Since KSA is part of the GCC, its customs regulations are also governed by the Common Customs Law, issued by the cooperation council for the Arab States of the Gulf. (the “Customs Law”).

The Customs Law provides for provisional admission which permits entry of shipments on a temporary basis, with no tax imposed, and they can then be re-exported once their purposes have been fulfilled and the time limit for their stay KSA: Provisional Admission of Leased Heavy Machinery and Equipment – How Does it Work in Practice? in the country has expired. The provisional admission facilitates the temporary entry of shipments that are specified in the law including heavy equipment and ensures that the inbound shipments are utilised for the same purpose declared to the competent authority prior to import. The provisional admission procedure involves several legal requirements stipulated in the Customs Law for the importer (lessor) and the consignee (lessee) to consider. Inter alia, they must ensure that the shipped heavy equipment is not available on the local market, and that it remains in KSA for six months, renewable for a similar period not exceeding three years unless it is a lengthy project. A shipment type may not be changed without the approval of the customs admission. It must be temporarily admitted for the completion of government projects or investment projects requiring the admission of such heavy equipment.

Lessors and lessees should also provide; a copy of the underlying contract agreement with either a governmental or private entity; fill in and submit the customs declaration form; and either a bank guarantee or cash deposit equal to the amount of the customs tax duties. Lessors and lessees should also provide; a copy of the underlying contract agreement with either a governmental or private entity; a completed customs declaration form; and either a bank guarantee or cash deposit equal to the amount of the customs tax duties.

Accordingly, the lessor and lessee of the shipment are required to ensure the entry and exit of temporary shipments are conducted legally, while minimising the risks associated with transport. For example, whenever equipment is imported on a temporary basis, it must be used for the specified project, and may not exceed the timeframe of the project. Also, the importer must declare the full specifications of the shipment to ZATCA, failing which the procedure will be delayed or denied.

To ensure compliance with the requirements of the provisional admission procedure, both parties should prepare and sign a lease agreement that identifies the roles and responsibilities according to the Customs Law and best practices. The lease agreement should provide for responsibilities in respect of the provisional admission application, importation, re-exportation, and penalties for failure or delay in re-exportation.

We recommend that our clients prepare a lease equipment agreement which systematically and methodically addresses all the requirements under the Customs Law and KSA practice. For example, the lease agreement should allocate responsibility for compliance with KSA laws and the KSA end-user's requirements (usually allocated to the lessee). The allocation of liability for fines should be clearly identified (it is usually at the risk of the lessee).

Another common inclusion in the lease agreement is that the lessee is obligated to perform and comply with the Customs Provisional Admission requirements as per the relevant KSA laws, specifically:

1. Use the equipment during the legal period and re-export it to the Lessee
2. Use of the equipment shall be dedicated for the appointed projects
3. Submit all the required documents and declarations to the KSA authorities
4. Obtain all the required approvals related to this transaction
5. Submit a bank guarantee or cash deposit to the competent authority
6. Fill in the customs declaration form and submit it to the customs authority.

Furthermore, it is important to note that the lessor is entitled to apply at any time for a writ of attachment on leased equipment. This usually becomes relevant when the lessee fails to return the equipment, often due to overruns, disputes or poor logistical management.

Where there is a serious risk, the property will not be returned, the lessor may file a request to the court to attach the equipment.

Finally, a lease agreement must be attested before the competent authority to ensure it is deemed valid before the KSA courts.

For those concerned with the import and re-export of heavy machinery and equipment in the context of a project, the provisional admission procedure allows for a regulated, zero- tax way to facilitate this. Notwithstanding the presence of the provisional admission option in the Customs Law, the procedure is best executed by the parties pursuant to a carefully worded, and properly attested, lease agreement. In the absence of such an agreement, a plethora of problems may still arise.

Originally Published by August 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.