Updates on Saudi Arabia's Regional Headquarters Program

Effective January 1, 2024, multinational companies (“MNCs”) intending to do business in Kingdom of Saudi Arabia (“KSA”) with a KSA government entities are required to incorporate their regional headquarters (“RHQ”) in KSA.  Qualifying RHQs will benefit from a tax incentive program offering a zero percent corporate tax and withholding tax rate for thirty (30) years applied on the RHQ activities, as well as other benefits summarized in this update.

This is based on several developments.  Previously in February 2021, the Saudi Government announced its plans to limit contracting with foreign companies that do not have an RHQ in KSA.  In February 2022, the Ministry of Investment of Saudi Arabia (“MISA”) issued new guidance on its Invest Saudi portal aiming to motivate companies to set up RHQs in KSA.  By the end of 2022, the Ministry of Finance issued a new set of controls (effective from January 1, 2024) limiting the ability of Saudi government agencies to contract or do business with foreign companies that do not have their regional headquarters in KSA.

In March 2022, the Saudi Minister of Investment, H.E. Khalid Al-Falih, clarified that the tax regime for RHQs is under process and that income generated by RHQ from certain activities will be granted tax relief as part of addressing the concerns of multinational companies for setting up their RHQ in KSA.  In December 5, 2023, MISA announced the anticipated tax incentives for the RHQ program.  On February 16, 2024, the Zakat, Tax and Customs Authority (“ZATCA”) published its guideline specifying the RHQ tax rules, implementing the previously announced tax incentives for RHQs.  Under the new tax rules, only specific activities qualify for tax incentives.  The new RHQ tax rules aim to clarify the scope and conditions of tax reliefs for RHQ entities, as announced by MISA in December 2023.

This all takes us to a summary of benefits for setting up RHQ in KSA, which includes, but is not limited to:

• 10-year Saudization exemption;
• 30-year corporate income and withholding tax exemption (related to specific activities);
• Waiver of professional accreditation;
• Visa limit exemptions and issuance acceleration; and
• Government tendering priority.

The multinational company must start RHQ operations within six (6) months after its RHQ license is granted and it must establish three (3) optional activities chosen in the first year of the license operation.

The RHQ must have 15 full-time employees within the first year.  Also, at least 3 mandatory RHQ activity employees must be of executive or senior level (such as a Regional Managing Director or  Vice President) and to perform strategic management activities on behalf of its branches and other affiliates in the region.

The RHQ is not intended to conduct any commercial operations or activities that generate revenue.  All commercial activities must be conducted by the company's affiliates that hold a Service License, Commercial License, Industrial License, or any respective license for commercial operations as issued by MISA.

MISA announced that over 350 international investors have so far obtained licenses to establish their RHQs in KSA, most of which are in Riyadh.

We are expecting further updates in relation to the RHQ Program in the coming few months.  We highly recommend multinational companies aiming to contract with government entities in KSA to assess their corporate structures in light of these new rules.

To review our earlier publications on this topic, please visit:  https://www.mayerbrown.com/en/insights/publications/2023/03/kingdom-of-saudi-arabia-launches-regional-headquarters-program.

If you have any questions on this topic, please let us know.