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The Saudi Arabian Vision 2030 is predicated on the development and diversification of the economy of the Kingdom of Saudi Arabia (Saudi Arabia). To realise Vision 2030, the Saudi Arabian government is relentlessly working to improve the country's socio-economic environment and expand economic opportunities to all citizens, including women. As part of Saudi Vision 2030 in attracting foreign investments and making Riyadh one of the ten largest city economies in the world, Saudi Arabia is welcoming foreign investors and multinational companies to relocate their regional headquarters to Saudi Arabia by implementing the Regional Headquarters (RHQ) program.
The RHQ program is a joint initiative between the Royal Commission for Riyadh City and the Ministry of Investment (MISA) tailored to attract multinational companies to establish and base their headquarters operations in Saudi Arabia under Saudi Laws to support, manage, and provide strategic direction to their branches, subsidiaries and affiliates operating in the Middle East and North Africa (MENA) region.
Companies with headquarters outside of Saudi Arabia, such as in neighbouring UAE, that want to start or continue business with Saudi Arabia's authorities and governmental bodies are the primary target audience for the RHQ initiative.
Government Tendering beyond January 2024
Multinational companies who do not wish to relocate their headquarters to the Kingdom can continue to work freely in Saudi Arabia. However, they may only deal with the private sector in terms of business. However, multinational corporations may not do business with the Saudi Arabian government beyond 2024 without a regional headquarter in Saudi Arabia. The Ministry of Investment reports that as of January 1, 2024, new legislation will restrict government contracts between Saudi Arabian government-owned enterprises and overseas businesses/companies without a regional headquarters in Saudi Arabia.
This will affect any government entity governed by the Government Procurement and Tender Law, such as Ministries, Authorities, Commissions, and any other wholly owned government entity.
Regarding semi-government organisations, policy formulation is underway. A further announcement can confirm if semi-government organisations can be considered for a government tender ban by 2024. SABIC and ARAMCO are examples of semi-government organisations.
By applying for the RHQ program, multinational companies will be offered other incentives as well if they agree to be part of this great economic initiative and relocate their regional headquarters to Saudi Arabia, the largest economy in the MENA region.
Besides the government tendering opportunity, overall, there are five other announced incentives so far that multinationals will benefit from relocating their regional headquarters to Saudi Arabia through the RHQ program:
• Exemption from Saudization requirements for ten years;
• waiver of Professional Accreditation for some professions such as engineering, medicine, accounting, and investment;
• exemptions on visa limits and acceleration in issuing them;
• spouse work permits and dependent age extension to 25 years old; and
• comprehensive services (business, personal and concierge services).
Since RHQ entities are not intended to conduct any commercial activities or generate revenues, they are also exempt from Income Tax, which is generally based at 20% of the profit generated during a fiscal year. Most importantly, RHQ entities will also benefit from an exemption on payment of Withholding Tax (WHT).
WHT generally varies from 5% to 20%, noting that dividend distribution is set at 5%.
Special Economic Zones (SEZ)
One important related announcement was that the tax exemptions would benefit RHQ Companies only in Special Economic Zones (SEZ). It is essential to highlight that Saudi Arabia until today has announced several SEZs such as King Abdullah Economic City (KAEC), The Knowledge Economic City (KEC), Prince Abdulaziz bin Mousaed Economic City (PABMEC), Jazan Economic City (JEC), Kind Abdulaziz Financial District (KAFD) and NEOM.
While these SEZs are expected to have some independent laws and regulations in the future, these SEZs are still regulated by conventional Saudi laws. The following months may reveal whether these SEZs will have any autonomous regulations similar to freezones regulations in the United Arab Emirates.
Multinationals already moving to Saudi Arabia
Initially, it has been announced that around 44 multinational companies from various sectors, including Unilever, Baker Hughes, and Siemens relocated their RHQs to Saudi Arabia and signed a Memorandum of Understanding (MoU) with MISA; this figure is expected to increase ahead of the 2024 deadline.
Requirements & Rules
The requirements for the RHQ program include having a physical presence in two countries, excluding Saudi Arabia and the location of the holding company’s headquarters. The RHQ Program also specifies time limits for when a corporation established under the program must begin undertaking permissible activities. RHQ-established entities are also limited to specific strategic, management-related, or other optional activities that are aimed at managing their branches within the MENA region.
Now is an excellent time for multinational companies to take part in the Saudi Vision 2030 and gain access to the various opportunities available in the region’s largest economy and oil exporter. To better compete for government contracts, bids, and findings, the RHQ program encourages multinational companies to relocate their regional headquarters from Dubai and other GCC countries to Saudi Arabia.
This article was published on 19 October, 2022.
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