Saudi Arabia, the biggest economy in the Middle East, has introduced a Regional Headquarters (RHQ) Program to support its economic diversification efforts. Effective January 1, 2024, companies that have not set up their RHQs in Saudi will not get government contracts, among other benefits.
Here’s what you need to know about this initiative.
What is Saudi’s Regional Headquarters Program?
Saudi Arabia’s Regional Headquarters Program incentivizes multinational corporations (MNCs) to establish their regional headquarters in the kingdom. Having an RHQ in Saudi means being eligible to obtain government contracts.
First announced in February 2021, the RHQ program is an initiative of the Ministry of Investment of Saudi Arabia (MISA) and the Royal Commission for Riyadh City. The program aims to attract 480 MNCs by 2030. In 2023, Saudi outperformed its target of 160 and attracted over 180 companies.
“The law has the potential to benefit every sector, including real estate, financial services, tourism and communications,” remarked Junaid Ansari, director of the Investment Strategy and Research at Kamco Invest.
The program can also “establish Saudi Arabia as a regional powerhouse with established industries that provide employment opportunities to the locals and result in an all-round development of the economy,” added Ansari.
Benefits of having an RHQ in Saudi
Companies establishing their RHQs in the country can help boost employment, facilitate knowledge transfer and, ultimately, foster economic growth. But what’s in it for these MNCs? Apart from the chance of getting government contracts, they will have the following benefits:
- The company will be exempted from Saudization requirements for 10 years.
- The company will have no limit on the number of work visas for RHQ employees.
- The company will not have to pay MISA subscription fees for the following year.
- The company will have access to MISA’s “end-to-end” services at lower rates and with preferential treatment.
- The dependents of RHQ employees can work and apply for jobs in the country via the Ajeer program.
- RHQ professionals properly accredited in their home of origin will be exempted from Saudi’s professional accreditation requirements.
Recently, MISA, in coordination with the Ministry of Finance and the Zakat, Tax and Customs Authority, also announced a 30-year tax exemption package for companies moving their RHQs to the country. The package includes a zero percent corporate tax rate for 30 years. There will also be a zero percent withholding tax on payments made by the company to non-residents (e.g., cash dividends).
These tax incentives are subject to renewal after the said period.
Exceptions
While Saudi Arabia’s Regional Headquarters Program is in effect, there are certain cases wherein government agencies may contract MNCs with no RHQs. These can happen when the procurements and works involved are worth less than SAR1 million. The exception also applies if the procurement and services are conducted outside the country.
MNCs with no RHQs can also win a bid from a government agency if there is only one technically accepted bid for the project. Another case is when the bid that the MNC submitted is considered the best one after an overall evaluation. Additionally, its bid must be 25 percent more affordable than the second-best bid.
Moreover, MNCs that do not have RHQs in Saudi can participate in limited tenders if there is only one qualified bidder or an emergency situation necessitates the involvement of companies with no RHQs in the country. When it comes to participation in direct purchases, MNCs with no Saudi-located RHQs can only be welcomed if the MNC or a related party uniquely offers the required works or procurement — or when there’s an emergency that can only be solved by purchasing from the MNC or a related party.
Final thoughts
According to Economy and Planning Minister Faisal Alibrahim, the country’s non-oil economy could grow between 4.5 and 5 percent in 2024. Saudi Arabia’s Regional Headquarters Program plays a vital role in achieving that. The program grants MNCs the opportunity to obtain government contracts. MNCs with RHQs in the country also enjoy many other benefits, including a 30-year tax break.
However, an MNC that has received a license to establish an RHQ in Saudi can still lose the said permit. Among other situations, an MNC can lose its RHQ license if it does not begin the mandatory or optional activities for the RHQ license or fails to meet the minimum number of employees within a set period.
For more economic stories, click here.
