Relocation of Regional Headquarters to Saudi Arabia

In the announcement of the strategic goals of Saudi Arabia’s capital entitled “the Future Investment Initiative Riyadh 2030” on 15 February 2021, the Saudi government established new requirements whereby international companies are required to relocate their regional headquarters (RHQ) into Saudi Arabia in order to access government tenders and contracts with institutions, agencies and funds owned by the Saudi government. This requirement is believed to be implemented as from 1 January 2024.

RHQ Licensing & Other Considerations.

Although until this day no law has been issued regulating the RHQ, various governmental authorities dealt with RHQs. Both Invest Saudi and the Ministry of Investment (MISA) gave the RHQ a similar definition providing that it is ” …, 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”.

For its establishment in Saudi Arabia, a RHQ requires a license issued by MISA which typically includes filing  the following (i) a copy of the applicant’s commercial registration or trade license, (ii) copies of at least two commercial registration or commercial license issued in two different countries (excluding Saudi Arabia and the country in which the applicant’s headquarters is located), and (iii) the applicant’s annual audited consolidated financial statement of the last financial year; All these documents should be certified with the Saudi embassy in the relevant jurisdictions.

Following are MISA’s conditions to receive the RHQ’s license: (i) the applicant should have a minimum presence in two different countries excluding Saudi Arabia and the country in which the applicant headquarters is located, either through subsidiaries or branches; (ii) the RHQ should take the form of an independent legal entity i.e., either as a company or as a registered branch for a foreign company, (iii) RHQ should only generate revenue from conducting the RHQ’s licensed activity, (iv) RHQ must commence its mandatory[1] licensed activities within six months of issuing the license and at least three of its optional[2] activities within one year of issuing the license, (v) RHQ employees must have the relevant skills and knowledge developed at the headquarters or another regional headquarters of the multinational group (with at least three employees must be of executive director and vice-president level), and, (vi) the RHQ must employ at least fifteen full time employees deployed in the conduct of RHQ activities within one year of issuing the license.

Conversely, the RHQ’s license may be revoked by MISA in any of the following situations: (i) failure to commence the mandatory or optional RHQ licensed activities, or hiring the minimum number of employees within the stipulated time periods, (ii) the cessation of any mandatory RHQ activities or a minimum of three optional RHQ activities, (iii) the cessation of satisfying any of the RHQ license conditions by the RHQ or

[1] – Mandatory RHQ activities are the provision of strategic direction and management functions such as business planning and Budgeting etc

[2] – The optional RHQ activities such as Sales and Marketing Support, Human Resources, Training Services, Financial Management etc

the multinational group, and (iv) violation of any licensing regulation established by MISA constituting grounds for cancellation.

RHQ INCENTIVES

 As per Invest Saudi, RHQs benefit from several incentives as part of encouraging investment in Saudi Arabia, such as loan programs, energy and utility enablement, employment support program, exporting credit financing, guarantee and insurance, attractive tax credits and exceptions etc.

CONCLUSION

 The Saudi Vision 2030, which includes the RHQ program, constitutes an outstanding opportunity for multinational companies to take part in and benefit from the various opportunities available in Saudi Arabia. Per MISA, a large number of international companies have received licenses to relocate their regional headquarters to Riyadh as part of a program to attract regional headquarters. Given the Kingdom determination, more multinational companies are expected to relocate to Riyadh in 2023.