Saudi Arabia (Regional Headquarter License)

The revenue earned from the Kingdom of Saudi Arabia (“KSA”) in various sectors typically constitutes 30% to 80% of the total income of international companies operating in the MENA region.? This does not correspond to the size of the presence of these companies in KSA either in terms of their spend or location of their employee population. KSA is pursuing a transformation program to increase its economic footprint by 2030 and has been significantly investing in infrastructure and quality of life projects to attract senior expatriate workers. To support this transformation, KSA has introduced the well-known regional headquarter (“RHQ”) programme. The RHQ is targeted to attract the management of multinational companies which are established in KSA for the purpose of supporting, managing, and providing strategic direction to its branches, subsidiaries and affiliates operating in MENA region.?

The Ministry of Finance stated in its latest preliminary report for the 2024 budget that one of the Saudi government’s most prominent achievements so far is the issuance of regional headquarter licenses for more than 162 multinational companies by the end of 3rd quarter of 2023. For companies operating in the oil and gas sector, it is common news that Saudi Aramco will require that prospective bidders have their regional headquarter entity in KSA as a prerequisite for being able to participate in its tenders. Saudi Aramco has also included the RHQ in the In Kingdom Total Value Added (“IKTVA”) programme with complying companies being awarded an additional 1% to their IKTVA score.

The main incentive for setting up an RHQ entity is therefore to maintain or gain access to the Saudi government procurement which will become a requirement from 1 January 2024. Going forward, the Ministry of Investment, in coordination with the Ministry of Finance and the General Authority for Foreign Trade shall prepare a list of companies with no RHQ in KSA. The list will be updated periodically and will be published in the unified electronic portal for government procurement, meaning that such groups will not be awarded government projects other than in exceptional circumstances.

Multinational companies setting up their RHQ entity in KSA will benefit from:

• Potential tax incentives which their operating companies can benefit from (although details of those incentives have not been published yet)
• 10-year Saudisation exemption
• spouse work permits
• waiver of professional accreditation
• visa processing acceleration
• end to end services (business, personal & concierge)
• The RHQ entity will be exempted from withholding tax

The key features of the RHQ include the following:

• The RHQ can be set up as a limited liability company or a branch of a foreign company.
• Has a presence of physical office and acts as a center of administrative power over the MENA region. The only area of coverage available on the RHQ license application form is MENA so the RHQ entity must cover the MENA region.
• The RHQ is not intended to conduct any commercial operations (revenue generating activities). Commercial activities will be undertaken by the multinational company’s affiliates which hold operating licenses in KSA.
• The location of the RHQ can be in any city in KSA or can be set up in the King Abdullah Financial District in Riyadh. There are additional incentives for setting up in King Abdullah Financial District, but the details of those incentives are not yet available.
• The RHQ license will need to be applied for on behalf of a parent of the multinational company and ideally a parent company with listed/publicly audited statements.
• It is not a requirement that the RHQ entity acts as holding company for the multinational company’s subsidiaries in the MENA region.
• The RHQ must have a minimum of 15 employees. Three of those 15 employees must undertake the mandatory activities of controlling and formulating the strategic business and management functions of the multinational company as defined by the Ministry of Investment. Such key positions include the CEO, CFO and COO of companies. The remaining 12 employees can be of any managerial position from the optional activities defined by the Ministry of Investment (HR, logistics and supply chain, sales and marketing, legal, compliance and internal audit, accounting, auditing and sourcing of raw materials and parts). This requirement ensures that the RHQ entity is more than just a shell company and that it is genuinely involved in managing the multinational company's operations in the MENA region.

The RHQ entity must commence its operations within 6 months from the date of the investment license and must have the required 15 employees on its headcount within a year from the date of the investment license. Failure to adhere with these requirements can trigger a cancellation of the RHQ license.

Have you set up your RHQ entity in KSA yet?