Are you considering doing business in Saudi Arabia? Understanding the guidelines for establishing a ‘Regional Headquarters’ (RHQ) is critical. Saudi Arabia, the fastest-growing G20 economy, has emerged as one of the world’s most appealing marketplaces. To leverage on this expansion, the Royal Commission for Riyadh City (RCRC) and the Ministry of Investment (MISA) have created the Regional Headquarters (RHQ) initiative. This seeks to position Saudi Arabia as the primary centre for international corporations in the MENA region. This blog will provide an in-depth understanding of the RHQ Programme.

To be able to bid on government contracts in Saudi Arabia, foreign enterprises must now have their regional headquarters there.

Saudi Arabia’s regional headquarters (RHQ) plan began on January 1, 2024, with the goal of recruiting around 480 multinational corporations (MNCs) to relocate their headquarters to the kingdom by 2030. The plan aims to diversify Saudi Arabia’s economy and lessen its dependency on oil.

This will summarise the programme, including eligibility and regulatory requirements, incentives, rewards, establishing a RHQ, and some scheme exceptions.

Saudi Arabia Regional Headquarters 

Regional Headquarters (RHQ) is a multinational corporation’s (MNC) principal office that acts as its administrative headquarters in a specific region of the world. The RHQ is in charge of overseeing, administering, and guiding the company’s operations within that specific region. Beginning January 1, 2024, Saudi Arabia’s government will cease to work with any foreign company with a regional headquarters in MENA outside the country. MENA countries include the GCC countries (Saudi Arabia, UAE, Kuwait, Bahrain, Oman, and Qatar), as well as Yemen, Iraq, Jordan, Palestine, Lebanon, Syria, Egypt, Libya, Tunisia, Algeria, Mauritania, and Morocco.

Timeline for the Saudi Arabia Regional Headquarters Programme

The Saudi Government made the initial announcement in February 2021, stating that they intend to limit their business ties with foreign businesses that do not have a Regional Headquarters (RHQ) in the Kingdom of Saudi Arabia.

In February 2022, the Saudi Ministry of Investment (MISA) took an important step. They added fresh guidelines to the Invest Saudi webpage. The primary goal of this move was to offer incentives to firms considering establishing a RHQ in the Kingdom.

In December 2022, the Saudi Ministry of Finance implemented a new set of strict rules. Effective January 1, 2024, these rules limit the capacity of Saudi government agencies to enter into business relationships with MNCs unless these corporations have a RHQ in Saudi.

In March 2023, the Saudi Minister of Investment, H.E. Khalid Al-Falih, made a significant declaration in response to the concerns of major international firms considering locating their RHQ in Saudi Arabia. He highlighted that the tax structure for RHQs is currently being established. Furthermore, he stated that income generated by RHQs from particular activities will be eligible for tax exemption.

The RHQ Requirements & Regulations in Saudi Arabia

1. In addition to Saudi Arabia or the location of the main office, your company must conduct business in two additional nations.

2. The Saudi Arabian RHQ needs to be an independent division or branch of the parent corporation.

3. After obtaining the RHQ Licence from MISA, mandatory operations must begin within six months. Learn more about how MISA licences in Saudi Arabia can lead to profitable business opportunities by reading our blog.

4. Obtain a copy of the yearly audited consolidated financial accounts confirmed at the Saudi Embassy level for the most recent fiscal year.

5. Complete the online RHQ form.

You May Also Read: Cost of Doing Business in Saudi Arabia: What You Need to Know

Types of RHQ Activities in Saudi Arabia

There are two primary categories of RHQ activities in Saudi Arabia: mandated and elective.

1. Mandatory Activities at RHQ:

 Functions of Strategic Direction:

•  Developing and managing regional strategies
• Organising in order to coordinate strategically
• Product and service integration in the area
• Encouragement of acquisitions, divestitures, and mergers
• Evaluations of financial performance

Functions of Management:

• Budgeting and planning for businesses
• Organising corporate operations
• Recognising untapped markets
• Keeping an eye on local competitors, market trends, and operations

Developing a regional marketing strategy:

Financial and operational reporting

2. Optional Activities at RHQ:

Assistance with marketing and sales

• Human resources and staff administration
• Instructional services
• Supervision of finances
• Foreign exchange and treasury services
• Internal controls and compliance
• Legal, accounting, and auditing duties
• Analysis, consulting, and research services
• Logistics and operational control

 Management of supply chains and global trade

• Engineering or technical assistance
• Network operations for IT
• Projects pertaining to research and development
• Management of intellectual property rights
• Supervision of production
• Purchasing components and raw materials.

Programme goals and incentives

Saudi Arabia launched the RHQ programme in February 2021 as part of its Vision 2030 strategy. The strategy aims to portray Saudi Arabia as a significant commercial hub and lure global corporations to establish operations in the Kingdom.

The Saudi Ministry of Investment (MISA) offers a number of incentives and perks to foreign enterprises participating in the new RHQ scheme. These include the option to grant an unlimited number of visas to RHQ personnel and a 10-year exemption from “Saudization” restrictions, which require a certain percentage of Saudi nationals in a company’s staff. In addition, RHQ workers with valid accreditations in their native countries are exempt from professional accreditation requirements. The plan also seeks to provide job possibilities for dependents of RHQ employees.

Under present guidelines, companies who participate in the programme will pay no corporate income tax or withholding tax for the first 30 years after receiving their RHQ licence.  

Implications of failing to participate in the programme

Organisations without a RHQ in Saudi Arabia may face restrictions on accessing special Saudi incentives, tax relief plans, and perks reserved for foreign corporations operating through regional headquarters in Saudi Arabia.

Critically, failure to establish a RHQ under the Saudi initiative will most certainly prevent a company from gaining Saudi government contracts. The RHQ programme forbids government agencies from working with connected parties of companies without a RHQ in Saudi Arabia on the same terms as companies with a RHQ.

Under present guidelines, an entity without a RHQ must submit a proposal for a government contract that is 25% less than the lowest competing bid, which is unlikely to be financially sustainable. It should be emphasised that if a corporation only has one entity in the region, which is in Saudi Arabia, MISA will decide whether any plans are appropriate. 

Programme requirements: Licencing and registration

To participate in the RHQ programme, a company must have two MENA (Middle East and North Africa) subsidiaries, one in Saudi Arabia, and a global headquarters. Within one year of receiving the RHQ licence, the organisation’s regional headquarters in Saudi Arabia must have at least 15 full-time workers, including at least three C-suite executives. Furthermore, the organization’s worldwide headquarters must have at least two subsidiaries reporting to them. 

To participate in the programme, a firm must submit a business plan outlining its activities and investment ambitions in the region. The strategy should explain the benefits that the regional headquarters will bring to the business and the kingdom.

The organisation must additionally secure a RHQ permit from MISA. MISA has streamlined the licencing process, including removing the attestation requirements for documents from outside Saudi Arabia.

To obtain a licence, an organisation must apply through the approved Saudi government institutions. The application process includes providing required documentation, conducting assessments, and following regulatory processes.

Once licenced, the RHQ organisation must be registered as a branch office or a limited liability company in the kingdom. Once created, the RHQ cannot carry out revenue-generating activities. Instead, it must function as the organization’s administrative hub in the MENA area.

The RHQ must begin operations within six months of the licence being obtained. The corporation’s existing MENA entities must report to its newly constructed RHQ in Saudi Arabia. Furthermore, the RHQ’s operations must adhere to a comprehensive list of MISA-specified mandatory functions, as well as at least three stated optional activities.

MISA has the authority to cancel a company’s RHQ licence in specific instances, such as failing to carry out mandatory or optional RHQ licence activities or failing to hire the required minimum number of employees within the stipulated timeframes.

What Are The Exceptions?

The new RHQ initiative makes some exclusions. For example, government contracts worth less than SAR one million (about USD 265,000) are exempt. (In other words, the Saudi government may contract with corporations that do not have a regional headquarters in Saudi Arabia for these smaller projects.) There are several exceptions, such as contracts signed outside of the kingdom and cases in which there is only one qualifying bidder.

These and other exceptions may change. In some situations, the Saudi agency in charge of a specific project may provide an exception after negotiations. Organisations considering establishing a RHQ under the initiative or operating in the kingdom without a RHQ in Saudi Arabia, should contact a third-party expert to ensure compliance and fully understand.