Are you ready to seize the opportunities in one of the Middle East’s most dynamic markets? Saudi Arabia is opening its doors to multinational companies by offering a compelling incentive to set up regional headquarters (RHQs) within the Kingdom. Starting January 1, 2024, any multinational company aiming to do business with Saudi government entities will be required to establish their RHQs in the Kingdom. This strategic move comes with a lucrative tax incentive package, including a remarkable zero percent corporate income tax and withholding tax rate for a period of thirty years on RHQ activities, among other benefits.
Strategic Developments and Attractive Incentives
In an initiative announced in February 2021, the Saudi Government set the stage for this transformative policy by indicating that contracts with foreign companies lacking an RHQ in Saudi Arabia would be restricted. The Ministry of Investment of Saudi Arabia (MISA) followed up in 2022 by releasing guidance on the Invest Saudi portal, further encouraging companies to establish their regional hubs in the Kingdom. By the close of 2022, the Ministry of Finance established new regulations, effective January 1, 2024, that limit Saudi government agencies from engaging with foreign entities that do not have a regional base within the country.
In March 2022, H.E. Khalid Al-Falih, the Saudi Minister of Investment, underscored the development of a favorable tax regime for RHQs, addressing the concerns of global corporations about setting up shop in Saudi Arabia. On December 5, 2023, MISA revealed the comprehensive tax incentives for the RHQ initiative, followed by the Zakat, Tax and Customs Authority (ZATCA) detailing the tax guidelines on February 16, 2024. These new rules specify which activities are eligible for tax benefits, aiming to provide clarity on the scope and conditions of these incentives.
Comprehensive Benefits for Establishing RHQs in Saudi Arabia
Setting up an RHQ in the Kingdom comes with a host of benefits:
- A 10-year exemption from Saudization requirements,
- A 30-year exemption from corporate income and withholding taxes for qualifying activities,
- A waiver of professional accreditation requirements,
- Exemptions and accelerated processes for visa issuance,
- Priority in government tendering processes.
Multinational companies are required to initiate RHQ operations within six months of receiving their RHQ license. During the first year, they must select three optional activities and employ at least 15 full-time staff members. Additionally, at least three of these employees must hold executive or senior managerial roles, such as Regional Managing Director or Vice President, to oversee strategic management tasks across the region.
It’s important to note that RHQs are designed to focus on strategic management rather than commercial operations. Any revenue-generating activities must be conducted by affiliates holding the appropriate licenses, such as a Service License or Commercial License, issued by MISA.
As of now, over 350 international investors have been granted licenses to establish their RHQs in Saudi Arabia, with Riyadh being the primary location. This impressive growth signals a thriving investment environment in the Kingdom.
With more updates anticipated in the coming months, multinational companies are encouraged to review their corporate strategies to align with these new regulations and maximize their opportunities in Saudi Arabia.
