Saudi Arabia’s Regional Headquarters Program: Insights for multinationals

The Kingdom of Saudi Arabia (KSA) has been carrying forward a historically significant reform, the Vision 2030 Plan, which aims to transform and broadly diversify its economy and reduce its dependence on oil. Part of that plan is the newly introduced Regional Headquarters Program, a strategic initiative designed to encourage multinational companies (MNCs) to establish their regional headquarters in Riyadh.

In this issue of Middle East Initiative, we summarize the main elements of the Regional Headquarters Program.

Overview of RHQs

The KSA has launched an ambitious strategy to become a central business hub in the Middle East through the introduction of the Regional Headquarters (RHQ) Program. Designed to encourage multinational corporations to base their Middle East and North Africa (MENA) regional headquarters within the KSA, the program is promoting a more interconnected and centralized business landscape.

Defined as “a unit of a Multinational Group duly established under the laws of Saudi Arabia for the purpose of supporting, managing, and providing strategic direction to its Branches, Subsidiaries and Affiliates operating in MENA region,” the RHQ is a robust entity registered under Saudi laws, fitting neatly with Saudi Vision 2030. The program promises 100 percent foreign ownership, stressing its distinct legal standing separate from any commercial branch within the KSA. It's an exclusive class of entity, equipped with its own commercial registration, bank account, and the autonomy to sponsor employees – not just a certificate to be added to commercial entities or operations.

The government envisions these RHQs as nerve centers, not merely managing but actively enhancing the administrative prowess and strategic footprint of companies across the region.

Incentives

A decisive lure of the RHQ initiative is its generous incentive package. RHQs will benefit from a 30-year tax relief incentive, beginning the day they receive their RHQ license which includes 0 percent rate for corporate income and withholding taxes related to RHQ activities. Companies that opt for Saudi Arabia as their regional administrative epicenter can expect a 10-year exemption from local workforce quotas (Saudization), easing into the local market. Furthermore, the top three executives of the RHQ can enjoy the privilege of premium residency free of charge, a perk that extends an inviting hand to global business leaders.

Additional incentives include accelerated visa processes and exemptions, notably for 250 visas to start with, and end-to-end support by the Ministry of Investment through MISA's RHQ Care team for services such as finding accommodation or navigating government paperwork.

The spotlight, however, shines on government tender prioritization – companies competing for a government contract and sporting an RHQ badge will find the path smoother than those without.

RHQ license requirements

To qualify for an RHQ license, a company must present a substantial international presence, excluding Saudi Arabia and their home country, shown through minimum operations in two different countries. A physical office anywhere in the KSA is required, serving as the central command from which strategic and managerial functions are directed across the region.

With an annual license fee standing at SAR2,000 and an initial subscription cost of SAR10,000 or MISA investor relations centers for the first year, the financial barriers are minimal compared to the potential returns. Within its first operational year in the KSA, the RHQ must hire a minimum of 15 full-time employees, at least three of whom are at a high executive level. RHQ employees must be based in and have residency, bank accounts, and rental tenancy in the KSA. The multinational group must start RHQ operations within six months after the license is granted.

RHQ activities

An RHQ must fulfill certain mandatory RHQ activities and at least three optional license activities to branches, subsidiaries, and/or affiliates of the multinational group.

The mandatory RHQ License activities are:

The optional activities provided to the entities managed in the region consist of sales and marketing support; HR and personnel management; training services; financial management, foreign exchange, and treasury center services; compliance and internal control; accounting; legal; auditing; research and analysis; advisory services; operations control; logistics and supply chain management; international trading; technical support or engineering assistance; network operations for IT system; research and development; IP rights management; production management; and sourcing of raw materials and parts.

Failure to perform the required activities or maintain the license requirements or violation of any licensing regulation established by MISA may constitute grounds for cancellation of the license.

The future

As the RHQ program continues to unfold, its influence on the economic landscape looks favorable. The Saudi Arabian Monetary Authority (SAMA) and Capital Marketing Authority (CMA) have been very cooperative and are looking forward to seeing the best way to support financial sector companies. The flexibility and benefits offered aim to signal a commitment to evolution and adaptation – evident in the continuous refinement of the RHQ guidelines and the conscientious curation of benefits to meet international standards and appeal to multinationals.

If you have any questions or would like more information about RHQs, please do not hesitate to contact Dr. Ehab Elsonbaty.