Vistra Insights

What you need to know about Saudi Arabia's local headquarters rule

Saudi Arabia now requires foreign companies to base their regional headquarters within the country to be eligible to bid on government contracts.

Saudi Arabia’s regional headquarters (RHQ) programme took effect on 1 January 2024, with the goal of attracting approximately 480 multinational corporations (MNCs) to move their headquarters to the kingdom by 2030. The programme looks to diversify Saudi Arabia’s economy and reduce its reliance on oil.

This article provides a summary of the programme, including eligibility and regulatory requirements, incentives, benefits, setting up an RHQ, and some programme exceptions.

Programme goals and incentives

In February 2021, Saudi Arabia introduced the RHQ programme as part of its Vision 2030 plan. The plan seeks to position Saudi Arabia as a major business hub and entice multinational organisations to establish operations in the country.

The Ministry of Investment of Saudi Arabia (MISA) provides several incentives and benefits for foreign companies that participate in the new RHQ programme. These include the ability to issue an unlimited number of visas to RHQ employees and a 10-year exemption from “Saudization” requirements, which demand a specific percentage of Saudi nationals in a company’s workforce. In addition, RHQ employees who hold valid accreditations in their home countries are exempt from professional accreditation requirements. The programme also aims to create job opportunities for dependents of RHQ employees.

Companies that participate in the program will, under current rules, enjoy a zero percent corporate income tax and withholding tax rate for 30 years after the RHQ licence is issued. 

Implications of failing to participate in the programme

Organisations that do not have an RHQ in Saudi Arabia may face limitations in accessing specific Saudi incentives, tax relief plans, and benefits designated for foreign companies operating through regional headquarters in Saudi Arabia.

Critically, failure to open an RHQ under the Saudi programme will likely prevent a company from obtaining Saudi government contracts. The RHQ programme prohibits government agencies from engaging with related parties of companies without an RHQ in Saudi Arabia on the same parameters as other companies with an RHQ.

Under current guidance, an entity without an RHQ would need to submit a proposal for a government contract that is 25 percent lower than the lowest competing bid, which is unlikely to be financially viable. It should be noted that in the event a company has only one entity in the region, and that entity is in Saudi Arabia, MISA will determine if any proposals are acceptable. 

Programme requirements: Licencing and registration

To participate in the RHQ program, an organisation must have two subsidiaries in the MENA (Middle East and North Africa) region, one subsidiary in Saudi Arabia and a global headquarters. The organisation’s regional headquarters in Saudi Arabia must have a minimum of 15 full-time employees, including at least three C-suite executives, within one year after the RHQ licence is issued. Additionally, the organisation’s global headquarters must have at least two subsidiaries reporting to it. 

To enter the program, an organisation must submit a business plan that outlines the scope of operations and investment plans in the region. The plan should demonstrate the value that the regional headquarters will contribute to the organisation and to the kingdom.

The organisation must also obtain an RHQ licence through MISA. MISA has simplified the procedural requirements for obtaining a licence, including waiving the attestation requirements for documents originating outside of Saudi Arabia.

To acquire a licence, an organisation must apply through designated Saudi government agencies. The application process involves submitting necessary documentation, undergoing assessments and adhering to regulatory procedures.

Once licensed, the organisation must register the RHQ entity as either a branch office or a limited liability company in the kingdom. Once established, the RHQ cannot engage in revenue-generating activities. Instead, it must serve as the organisation’s centre of administrative control in the MENA region.

The RHQ must start operating within six months from the date of the licence being issued. All the existing MENA entities of the corporation must report to the newly established RHQ in Saudi Arabia. Furthermore, the RHQ’s activities must comply with a complete list of mandatory functions specified by MISA, and the RHQ must undertake at least three listed optional activities.

MISA can revoke a company's RHQ licence under certain circumstances, including but not limited to failing to undertake mandatory or optional RHQ licence activities or not hiring the required minimum number of employees within the specified timeframes.

Exceptions

The new RHQ programme has some exceptions. For example, government contracts valued at less than SAR one million (about USD 265,000) are exempt. (In other words, the Saudi government may contract with companies that do not have an RHQ in Saudi for these smaller projects.) There are other exceptions, such as for contracts executed outside the kingdom and for situations where there is only a single qualified bidder.

These and other exceptions are subject to change. In some cases, an exception may be granted by the Saudi agency responsible for a given project following negotiations. Organisations considering establishing an RHQ under the programme or operating in the kingdom without an RHQ in Saudi Arabia, should consult a third-party expert to ensure compliance and fully understand the programme’s benefits and limitations.

This article was updated on 14 February 2024.

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