KSA Employment considerations under the Regional Headquarters Initiative

Saudi Arabia Focus

KSA Employment considerations under the Regional Headquarters InitiativeContents

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Law Update: Issue 356 - Saudi Arabia

KSA Employment considerations under the Regional Headquarters Initiative

Mohsin Khan
Partner,
Employment & Incentives

Hamza Ajaj
Trainee Lawyer,
Employment & Incentives

Tamam Al Dakheel
Trainee Lawyer,
Employment & Incentives

As part of the Saudi Arabian government’s Vision 2030, and in line with its objective to attract foreign investment to the Kingdom of Saudi Arabia (“KSA”), the KSA government announced the Regional Headquarters (“RHQ”) initiative in 2021 with the aim of encouraging multinational companies to base their regional headquarters in KSA. Compliance with the requirement to have a RHQ in KSA will be a condition to be able to secure government contracts for foreign investors in the Kingdom (with some limited exceptions). As a result, over 70 multinational companies have already obtained the relevant licenses for their RHQ entities, and many more are currently in the process of obtaining the relevant approvals in order to enhance their presence in a continuously growing market with vast investment opportunities. The grace period for multinational companies to establish their RHQs will expire at the end of this year and the requirements of the RHQ initiative will come into force on 1 January 2024 marking another milestone in KSA’s investment landscape. In this article, we look at some of the employment implications relating to the RHQ initiative that employer will need to consider as they adapt to a change in the way that they operate in the region.Employment requirements
under RHQ initiativeThe Ministry of Investment in Saudi Arabia (“MISA”), being the governmental body regulating the RHQ initiative, has stipulated a number of functions as well as mandatory and optional activities which the RHQ entity must undertake. These functions and activities will determine the nature and number of roles that will need to be based at the RHQ in KSA. According to MISA’s requirements, a RHQ entity must have at least 15 full-time employees based in the RHQ by the end of the first year and these roles will need to perform the mandatory and optional activities required by MISA.The mandatory activities involve the strategic direction and management functions of the multinational group within the region and include the following functions:

formulating and monitoring the regional strategy;

reviewing financial performance;

business planning;

budgeting;

marketing plans; and

financial reporting.

The optional activities include:

human resources;

compliance;

accounting;

legal;

information technology; and

training services.

Multinational companies must implement six mandatory activities and six optional activities by the end of the first year. At least three mandatory activities must be of a corporate executive level such as CEOs, CFOs, and Vice Presidents.Multinational companies who are establishing or relocating their RHQs to KSA will therefore need to consider the workforce planning strategically to ensure the employees based at the RHQ cover the mandatory and optional activities and functions which must be performed by the RHQ entity.Exemptions related to employment regulations in KSAIn order to facilitate and attract multinational companies to establish or relocate their RHQ to KSA, a number of exemptions and incentives have been offered to foreign investors, including in relation to employment matters.The most significant employment-related exemption that applies to RHQ entities is a 10-year exemption from Saudisation requirements. This is particularly significant given that Saudisation is a key strategic national policy designed to increase the national workforce’s participation in the private sector and to contribute towards economic growth under Vision 2030. The exemption from Saudisation requirements under the RHQ initiative therefore represents the government’s flexibility to adapt the investment framework to assist multinational companies comply with the requirements of the RHQ initiative. In practice, and subject to any amendments to the RHQ initiative’s regulations, this will allow multinational entities to plan their RHQ headcount without the need to comply with Saudisation requirements for a 10-year period. This exemption also extends to allowing the issuance of work visas for professions limited to Saudi nationals. The RHQ entity can therefore consist of expatriate employees familiar with the region, the company’s markets as well as the company’s practices, to rapidly establish and strengthen the entity’s presence in KSA. Over time, it is expected that the companies participating in the RHQ initiative will also tap into the growing pool of increasingly qualified Saudi nationals to deliver the activities and functions required under the RHQ initiative.In addition to the exemption from Saudisation requirements, employees in RHQs will also be exempt from the requirement to obtain local accreditation and certificates which forms part of the Professional Accreditation Program introduced in July 2021. The Program includes 1,000 specialized occupations organised into 23 specialist categories, including professions such as engineering, accounting, and investment. This exemption, however, facilitates internationally accredited professionals to be eligible to work in KSA using valid internationally recognised accreditation.Further, spouses of employees in RHQs will also benefit from receiving work permits as an exception to the general restriction on employment of spouses. Under the exemption, spouses of RHQ employees will be allowed to work in in certain fields within KSA.ConclusionThe implementation of the RHQ initiative aims to create approximately 30,000 new job opportunities by 2030. The RHQ initiative is a priority for the Saudi government to realise binding commitments with companies in the private sector, and which will help to realise the Kingdom’s goal of accelerating growth in employment opportunities to fulfil a key pillar under Vision 2030. Multinational companies will be attracted to the KSA market due to the unmissable opportunities available, as well as the measures being implemented by the government to facilitate their establishment in KSA as their regional base, particularly in light of the increased flexibility in employment related matters to ensure the RHQ initiative will be a success.

The RHQ initiative is a priority for the Saudi government to realise binding commitments with companies in the private sector, and which will help to realise the Kingdom’s goal of accelerating growth in employment opportunities to fulfil a key pillar under Vision 2030.

For further information,
please contact Mohsin Khan, Hamza Ajaj and Tamam Al Dakheel.

^{Published in March 2023}