For companies just establishing their presence and operations in the Kingdom of Saudi Arabia, the approach to the In-Kingdom Total Value Add (IKTVA) program differs significantly from that required of established suppliers with a history of in-Kingdom expenditures. The fundamental principle is that a brand-new entity, lacking historical operational data within Saudi Arabia, is not expected to provide an IKTVA score based on past performance. Instead, the focus is on demonstrating a clear commitment to future localization through a comprehensive IKTVA Action Plan.
The formal IKTVA score, which is a quantitative measure derived from audited financial data reflecting actual in-Kingdom value creation, becomes mandatory only after a supplier has completed their first full fiscal year of significant operations within Saudi Arabia or once their cumulative billings with Saudi Aramco (or other entities that mandate IKTVA compliance) surpass a specific reporting threshold, commonly cited as SAR 375,000 in annual revenue with Aramco.
Understanding the Difference: Action Plan vs. IKTVA Score
The distinction between the IKTVA Action Plan and the IKTVA Score is crucial for new market entrants:
- IKTVA Action Plan: This is a forward-looking projection. It outlines a company’s strategic intent and concrete plans to contribute to in-Kingdom value creation over a defined period, typically five years. It details anticipated investments, planned Saudization efforts, training programs, expected local sourcing of goods and services, and R&D initiatives. The Action Plan is a statement of commitment and a roadmap for achieving future localization targets. It is used by entities like Aramco for pre-qualification and by financial institutions like SIDF to assess a project’s potential contribution to the Saudi economy. For new companies, this plan is based on forecasts and business projections, not historical audited figures.
- IKTVA Score: This is a historical measurement. It is a calculated percentage reflecting the actual in-Kingdom value added by a supplier over a specific fiscal year, based on audited financial data. The score is calculated using a formula that considers various factors such as localized goods and services spend, Saudi payroll, training expenditure, supplier development spend, R&D spend, and company revenue (specifically from Aramco and potentially other in-Kingdom customers and exports). The score is used by Aramco in procurement decisions and for monitoring the performance of existing suppliers against their localization commitments.
IKTVA Reporting Requirements: New Entrants vs. Existing Suppliers
Here is a more detailed comparison of the IKTVA requirements based on a supplier’s status:
| Situation | What Saudi Aramco (and other IKTVA-mandating entities) Expects | Which File(s) You Submit | Timing and Frequency |
| New Entrant (Newly registered entity with no prior significant operations or production in Saudi Arabia) | Demonstrate a clear and credible commitment to future in-Kingdom value creation. Provide a detailed, forward-looking plan outlining specific localization initiatives and targets across key IKTVA categories (e.g., CAPEX localization, Saudization, training, SME engagement, R&D) over the initial years of operation (typically a 5-year forecast). No audited historical spend figures are required for the first year. | The official IKTVA Action-Plan Standard Form (Excel). You will populate the columns designated for “Planned” or “Forecast” data for the relevant years, leaving the “Actual” columns blank initially. A supporting narrative explaining the plan is also beneficial. | The IKTVA Action-Plan is typically required as part of tender submissions, pre-qualification processes with Aramco or other major clients, and loan applications (e.g., with SIDF). It should be updated at least annually to reflect any changes in business plans or market conditions. |
| Existing Supplier (Entity with at least one full fiscal year of operations in Saudi Arabia and exceeding the minimum revenue threshold with Aramco or other IKTVA-mandating entities) | Submit an annual, audited report detailing their actual in-Kingdom expenditures and activities across all relevant IKTVA categories for the completed fiscal year. This data is used to calculate their official IKTVA score. This report must be verified by a third-party auditor accredited by Aramco for IKTVA verification. | The official Supplier Quarterly / Annual IKTVA Form. This form requires populating both historical “Actual” data (for the completed fiscal year) and potentially “Planned” data for the upcoming year. This submission must be accompanied by a formal opinion letter from an IKTVA-approved auditor attesting to the accuracy and completeness of the reported data. | The Annual IKTVA Survey, along with the auditor’s opinion letter, is typically due four months after the end of the supplier’s fiscal year. Some entities may also require quarterly updates on key metrics. |
| Transition Year (e.g., a new manufacturing facility is commissioned and begins commercial operations partway through a fiscal year) | For the first reporting cycle covering a partial year of operations, provide a report that reflects both the actual performance during the months of operation and a forecast (Action Plan) for the remainder of that partial year and potentially future years. This acknowledges that a full year of operational data is not yet available. | The same Supplier Quarterly / Annual IKTVA Form is used, but it should be clearly annotated to indicate which period the “Actual” data covers (i.e., the months of operation) and which period the “Planned” or “Forecast” data covers. The auditor’s role in the first year may involve reviewing the actual data for the operational period and assessing the reasonableness of the forecast. | This is a one-time reporting approach for the initial partial year of operation. Subsequent reporting will be based on full fiscal years of audited actual data. |
The Importance of the IKTVA Action Plan for Financing (e.g., SIDF)
For companies seeking financing for new projects in Saudi Arabia, particularly from institutions like the Saudi Industrial Development Fund (SIDF), the IKTVA Action Plan plays a critical role in the evaluation process. SIDF’s assessment of a green-field project’s feasibility study will place significant emphasis on its potential contribution to the Saudi economy through localization. Key aspects SIDF will scrutinize include:
- The IKTVA Action-Plan File: SIDF will require the submission of a well-developed IKTVA Action-Plan file that credibly demonstrates how the project intends to achieve a substantial IKTVA percentage by the time it reaches steady-state operations (typically within 4 to 5 years). They will evaluate the specific commitments outlined in the plan across all IKTVA categories.
- Narrative Detailing the Localisation Strategy: The feasibility study must include a comprehensive narrative section outlining the specific strategies and initiatives the company will implement to achieve its planned IKTVA targets. This should cover detailed plans for local CAPEX sourcing, the recruitment and development of Saudi nationals (including target Saudi payroll percentages and dedicated training budgets), and concrete strategies for engaging and developing local Small and Medium Enterprises (SMEs) as suppliers and subcontractors.
- Alignment with National Incentives: The narrative should also highlight how the project plans to leverage governmental support and incentives offered through programs like the National Industrial Development and Logistics Program (NIDLP) or assistance from entities such as Modon to facilitate and enhance its localization efforts.
- Sensitivity Analysis (Proactive Consideration): It is often beneficial, and sometimes specifically requested by SIDF, to include a sensitivity analysis within the feasibility study. This involves modeling the impact of potential changes or delays in specific localization plans (e.g., delaying the local manufacturing of a key component by a certain period) on the projected IKTVA percentage and job creation numbers. Building a simple scenario analysis tab within or alongside the IKTVA Action-Plan workbook can effectively demonstrate the project’s resilience and the potential consequences of deviating from the plan. This shows a thorough understanding of the drivers of IKTVA performance.
Practical Next Steps for a New Entity
Applying these principles to a hypothetical new entity like “X Arabia,” the practical steps for addressing IKTVA in the initial phase would involve:
- Obtain the Official IKTVA Action-Plan Standard Form: Download the most recent version of the IKTVA Action-Plan Standard Form (typically an Excel file) from the relevant Aramco portal or through official channels.
- Populate the “Planned” Columns: Work diligently to populate only the “Planned” or “Forecast” columns within the Excel form. This requires translating your company’s business plan, investment strategy, and operational projections into the specific categories of the IKTVA framework. Forecast your anticipated local spend on capital expenditures and operational expenses, project the ramp-up of your Saudi national workforce and their associated payroll costs, allocate budgets for training and development programs for Saudi employees, plan for expenditure on developing the capabilities of local suppliers, and forecast any planned investment in local R&D activities.
- Develop a Concise IKTVA Narrative: Create a clear and compelling one-page summary or a dedicated annex within your feasibility study or business plan that serves as a narrative explanation of your IKTVA Action Plan. This narrative should briefly introduce your company’s commitment to IKTVA, highlight the key localization initiatives you plan to undertake, and summarize the expected impact on in-Kingdom value creation.
- Integrate into Submissions: Ensure that the completed IKTVA Action-Plan file and the accompanying narrative are formally included as part of your submission for SIDF financing and any pre-qualification or tender packages you submit to potential clients like Saudi Aramco or other entities that require IKTVA information upfront.
- Commit to Annual Review and Update: Recognize that the IKTVA Action Plan is a living document. Commit to reviewing and updating it at least annually, or whenever significant changes occur in your business strategy, project scope, or market conditions. This ensures the plan remains relevant and accurately reflects your company’s evolving localization commitments.
- Prepare for the Transition to Audited Reporting: Understand that once your facility is operational, production commences, and you begin generating revenue by invoicing clients in Saudi Arabia (particularly IKTVA-mandated entities), the requirement will shift from submitting a forecast-based Action Plan to providing annual, audited reports based on your actual performance. Begin to establish internal processes and record-keeping systems that will facilitate the accurate tracking and reporting of your IKTVA-related expenditures and activities in preparation for this transition.
By proactively developing and submitting a credible IKTVA Action Plan, a new company demonstrates its commitment to contributing to the Kingdom’s economic diversification and localization goals. This approach not only satisfies the requirements of entities like SIDF for project financing but also aligns with the expectations of potential major clients like Saudi Aramco during their pre-qualification and vendor selection processes, effectively addressing the IKTVA requirement even before the company has any historical operating data in the Kingdom.
