Saudi Arabia’s RHQ Programme continues to gain momentum

In January 2021, Saudi Arabia implemented a significant new programme for multinational companies (MNCs) in the Kingdom, announcing that any MNC looking to win contracts with Saudi government entities would have first to establish a regional headquarters (RHQ) in the country.

The move was part of Saudi’s broader Vision 2030 plan, a long-term strategy to bolster the country’s fiscal position and diversify its economy away from dependence on oil. The strategy provides international firms with the opportunity to invest in the country, particularly in its non-oil sectors.

In 2024, the RHQ mandate is now in full effect. As of 1 January, MNCs without an RHQ in Saudi Arabia are no longer eligible to bid in government tenders above SAR1 million (USD266,000).

Over 350 MNCs have obtained RHQ licences, with most choosing Riyadh as their base of operations. The capital city is already an economic business hub and is fast becoming a regional headquarters destination for international companies, with big names like Amazon, Google, Microsoft and PepsiCo already having a presence there.

RHQs are not permitted to engage in commercial activities directly, so their focus has to be on regional management and support functions to serve their operations in the Middle East and North Africa (MENA) region.

There are several regulatory requirements that companies seeking an RHQ in Saudi Arabia must meet. These include obtaining an RHQ licence from MISA, hiring at least 15 full-time employees within a year of getting the licence, having key personnel, including C-level executives, based in the Kingdom, and ensuring that all entities within the MENA region report to the Saudi RHQ.

For a company to qualify as a MNC and apply for the RHQ programme, it must have a presence in at least two countries outside of its headquarters jurisdiction and KSA, be active in the MENA region, and engage in strategic direction, management functions, or support functions through its branches, subsidiaries, or affiliates within the MENA region.

These rules may deter some companies from expanding into the region, given the cost and logistical challenges involved. Setting up a new office, navigating local regulations and hiring qualified staff are all factors to be considered against the benefits.

However, the Saudi government has introduced several incentives to make the RHQ programme more attractive to MNCs. One of the biggest is a 30-year exemption from corporate income tax (CIT) and withholding taxes on eligible RHQ activities. Companies that establish an RHQ can also enjoy other non-tax benefits, including:

• 10-year exemption from ‘Saudization’ requirements.
• Unlimited numbers of visas for employees.
• Dependents of RHQ employees can seek employment opportunities in the KSA.
• Employees of RHQs holding valid professional accreditations in their home countries are exempt from the need to acquire additional local accreditations.

These benefits, as well as the opportunity to bid on government contracts worth over SAR1 million, make the Kingdom an attractive destination for companies looking to expand their regional presence. With Riyadh at the centre of this transformation, the city is fast becoming a business hub not only for Saudi but for the GCC and MENA regions.

The RHQ programme in Saudi Arabia is gaining momentum in 2024. According to recent data from the Ministry of Investment in Saudi Arabia (MISA), over 125 new RHQs were set up in the first quarter alone, a 477% increase year on year that demonstrates the confidence that global companies have in Saudi Arabia’s long-term economy.

To address this influx, the Saudi government has provided more clarity on eligibility and compliance to the RHQ programme, and more resources to help MNCs to set up. This is expected to continue to attract more international companies in the coming months and years.

It is worth noting that RHQs must be established either as a registered branch or as a subsidiary. It is not permitted to conduct RHQ functions from an existing operational entity in KSA. To fulfil the RHQ requirements, MNCs that are already operating in the Kingdom through another entity must either incorporate a branch or a new legal entity.

For MNCs, the decision to have an RHQ in Saudi Arabia is a strategic one. The benefits of government contracts, tax exemptions and a favourable regulatory environment have to be carefully weighed against the costs of relocating, hiring and complying with local regulations. But as Saudi Arabia implements Vision 2030 initiatives, companies that are part of the economic transformation will reap the biggest rewards.

Sovereign Saudi Arabia has extensive experience navigating the Kingdom’s regulatory landscape and enjoys strong relationships with key government agencies. We can streamline the process of establishing your RHQ, handling everything from licensing to visas and employment matters efficiently.

If you need assistance with setting up an RHQ in Saudi Arabia, contact James Elliot-Square, Regional Business Development Manager at Sovereign, below.