Overview on Saudi Arabia Regional Headquarters for Multinational Corporation
In a move that aligns with its Vision2030, Saudi Arabia has recently introduced a groundbreaking policy aimed at reshaping the corporate landscape in the Middle East. This policy invites foreign companies to relocate their regional headquarters (RHQ) to Saudi Arabia, the capital and largest city of the Kingdom. The implications of this policy are far-reaching and offer significant opportunities for both businesses and investors.
A Paradigm Shift in Saudi Policy
Riyadh has emerged as the Kingdom’s business capital and is rapidly gaining recognition as the new rising star of the GCC. This dynamic city offers incredible opportunities to investors from around the world. Its strategic location and commitment to fostering a business-friendly environment make it an attractive destination for companies seeking to establish their RHQ.
In February 2021, the Saudi government announced a policy that encourages multinational companies to move their regional headquarters to Saudi Arabia to be able to benefit from a wide range of incentives and government contracts. This policy is a central pillar of Saudi Arabia’s Vision2030, a comprehensive plan designed to attract foreign investment, diversify the economy, and transform Riyadh into a central business nexus. The policy’s enforcement is set to commence in January 2024, marking a pivotal turn in the Kingdom’s economic narrative.
Benefits and Incentives for Relocating Your Headquarters to Riyadh
One of the key aspects that make Riyadh an appealing choice for companies is the package of benefits and incentives offered by the Saudi government. These incentives are designed to ease the transition and make the move financially attractive. They include tax exemptions, streamlined business processes, and access to a rapidly growing market. Furthermore, the government provides crucial support in navigating legal and regulatory frameworks, ensuring a smoother integration into the Saudi business environment.
Exclusive Bidding Advantage: Starting January 1, 2024, exclusive bidding opportunities with the Saudi government will be available only to RHQs, providing a competitive edge. Companies with no existing RHQs will have extremely limited exemptions.
10-Year Saudization Exemption: Enjoy a 10-year exemption from Saudization requirements, reducing the hassle for foreign businesses.
Simplified Work Visas: RHQ employees gain easier access to work visas for non-Saudi nationals in restricted professions, with no limitations on the number of visas that can be applied for.
Ajeer Program: Dependents of RHQ employees can benefit from the Ajeer program, which is a program implemented by the Ministry of Labor to streamline the process of hiring foreign workers in the Kingdom allowing them to work and apply for jobs, enhancing the expatriate experience.
Age Relaxation: The maximum age for residency of male dependents is extended to 25 years, improving the quality of life for employees and their families.
Professional Accreditation Exemption: RHQ employees who are duly accredited in their country of origin are exempted from professional accreditation requirements in Saudi Arabia.
MISA Subscription Discounts: RHQs enjoy a discount from MISA subscription fees following the first year of establishment. In addition to getting access to MISA’s “end-to-end” services at discounted rates with preferential treatment,
Requirements of Establishing an RHQ in Riyadh
To qualify for the RHQ program, companies must meet specific requirements. They should have a presence in at least two countries outside Saudi Arabia and operate as a separate legal entity, focusing on strategic and management functions without direct commercial activities. In return, Saudi Arabia offers a suite of benefits, including a 10-year exemption from Saudization requirements, work permits, and simplified visa processes, all of which make the transition smoother and more appealing.
The RHQ in Saudi Arabia serves as a special-purpose vehicle solely engaged in non-commercial activities. It is essential to note that RHQs shall not directly conduct commercial operations that generate revenue, except for RHQ License activities.
Mandatory and Optional RHQ Activities
The RHQ activities are classified into two categories: mandatory activities; and optional activities. The mandatory RHQ activities are the provision of strategic direction and management functions. An RHQ must provide mandatory RHQ Licence activities and at least three of the optional RHQ Licence activities to branches, subsidiaries and/or affiliates within the multinational company.
Mandatory RHQ activities revolve around providing strategic direction and management functions. Strategic direction functions include formulating and monitoring regional strategy, coordinating alignment, embedding products or services, supporting transactions, and reviewing financial performance. Management functions encompass business planning, budgeting, business coordination, identifying market opportunities, monitoring the regional market, competitors, and operations, developing a marketing plan, and handling operational and financial reporting.
Optional RHQ activities encompass a wide range of services such as sales and marketing support, human resources and personnel management, training services, financial management, compliance, internal control, accounting, legal, auditing, research and analysis, advisory services, operations control, logistics and supply chain management, international trading, technical support, research and development, intellectual property rights management, production management, and sourcing of raw materials and parts.
Case Studies: Realizing the Vision
Several multinational corporations have already embarked on the journey to establish their RHQ in Riyadh. Their experiences provide valuable insights into the practical aspects of the move, the challenges encountered, and the strategic benefits realized. Let’s take a look at some notable examples:
Lilly (United States): A prominent American pharmaceutical company, Lilly, has strategically centered its operations in Riyadh, emphasizing its commitment to providing innovative and safe medicines to the Saudi market. The company’s focus on innovation aligns with the Kingdom’s Vision 2030, setting the stage for continued growth and collaboration in the evolving healthcare landscape.
EAI Systems (United Kingdom): UK-based EAI Systems has positioned itself as a key player in Saudi Arabia’s digital future, leveraging local talent and aligning with the Kingdom’s technological ambitions. With its strategic move to Riyadh, EAI Systems is at the forefront of digital transformation solutions in the Middle East.
PepsiCo (United States): With a 50-year presence and 8,000 employees in Saudi Arabia, PepsiCo has positively noted Saudi Arabia’s efforts to simplify business processes and provide growth incentives. The company’s experience highlights successful alignment with the Kingdom’s vision, showcasing the potential for multinational corporations in a business-friendly environment.
The Road Ahead: New Opportunities
As the January 2024 deadline approaches, companies are poised to make pivotal decisions. This policy is not merely a regulatory change; it is a potential catalyst for growth and innovation. Businesses that embrace this change can expect to play a significant role in the evolving economic landscape of Saudi Arabia and the wider region.
To be eligible for establishing a regional headquarters in Saudi Arabia, you need to fulfill the following documents:
- A copy of the mother company’s commercial registration or commercial license, attested at the level of the Saudi Embassy in the respective country.
- Copies of at least two commercial registrations or commercial licenses issued in two different countries, excluding the Kingdom of Saudi Arabia and the country in which the headquarters of the Multinational Group is located, attested at the level of the Saudi Embassy in the respective countries.
- The annual audited consolidated financial statements of the last financial year of the applicant, attested at the level of the Saudi Embassy in the respective country.
- At least 3 employees of which must be of Executive Director level and Vice-President level.
- The RHQ must employ at least 15 full-time employees deployed in the conduct of RHQ activities within one year of issuing the RHQ License (including the senior level executives mentioned in point 4 above).
Closing Thoughts
In conclusion, Saudi Arabia’s RHQ policy represents a transformative shift in the region’s business environment. For businesses, investors, and industry observers eager to understand these new regulations, it is an essential development to watch closely. The opportunity to be part of Saudi Arabia’s growth story and the broader Vision2030 initiative is here, and it’s an opportunity that should not be missed.