Jurisdiction Update: Saudi Arabia
Saudi Arabia
Ahmed Mahomed Senior Counsel, Corporate Structuring
Antonis Theodosiou Associate, Corporate Structuring
The Regional Headquarter (“RHQ”) Programme is a ‘Vision 2030’ initiative jointly developed by the Ministry of Investment Saudi Arabia (“MISA”) and initially the Royal Commission for Riyadh City (“RCRC”), with the objective of inviting global companies to establish or relocate their regional headquarters in the Kingdom of Saudi Arabia.
It is a major development strategy for the Government of the Kingdom of Saudi Arabia, as it seeks to transform Riyadh into one of the top 10 city economies globally by the year 2030. The Board of the RCRC has confirmed the Government’s proposal to double the current population of Riyadh to between fifteen and twenty million, while increasing the number of visitors to more than forty million by the year 2030. (As a result of continuous evolution of the RHQ Programme, we understand it is possible that its scope may be expanded and/or adjusted)
MISA has now issued the first set of guidelines for companies wishing to participate in the RHQ Programme and the team at Al Tamimi & Company has extensive corporate structuring experience to provide guidance and assistance to foreign companies who propose to establish their RHQ in the Kingdom of Saudi Arabia.
The RHQ Programme is open to companies operating across all industries including those in the Telecommunications, Media and Technology sectors. To this extent, MISA has already announced that a number of key global technology companies have signed up to the RHQ Programme – a factor that will significantly alter the investment landscape in the Kingdom of Saudi Arabia over the next few years.
Foreign investors wishing to secure government contracts, must have their RHQ in the Kingdom of Saudi Arabia.”
Pursuant to the initial guidelines, MISA defines RHQ as “a unit of a Multinational Group, duly established under the laws of the Kingdom of Saudi Arabia, for the purpose of supporting, managing, and providing strategic direction to its branches, subsidiaries and affiliates operating in the Middle East North Africa Region.”
For the purposes of the above definition:
“Multinational Group’ is defined as a group of entities that has a foreign parent entity and which group carries on business in more than one jurisdiction through the parent entity, its subsidiaries, branches or affiliates.
‘Middle East North Africa Region’ includes the countries of the Gulf Cooperation Council (Kingdom of Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Oman, and Qatar), Yemen, Iraq, Jordan, Palestine, Lebanon, Syria, Egypt, Libya, Tunisia, Algeria, Mauritania, and Morocco.
To be eligible for the RHQ Programme, the investor must have at least two (2) subsidiaries or branches of the multinational group in two (2) different countries other than the Kingdom of Saudi Arabia and its country of incorporation (i.e. its official headquarters).
In addition and amongst other requirements, the RHQ must:
Operate as registered foreign company in the Kingdom of Saudi Arabia;
Have a separate legal personality in the Kingdom of Saudi Arabia
Have a presence of a physical office and act as a centre of administrative power over the region; and
Not conduct any commercial operations (i.e. activities that generate revenue).
There are no minimum share capital requirements – this is of course consistent with the entity not being required to conduct operational/business activities.
The RHQ must provide and be licensed to carry out:
Mandatory RHQ Licence activities, which includes inter-alia:
Strategic direction activities (which includes for example, formulating and monitoring regional strategy); and
Management functions (which includes for example, business planning).
At least three optional activities (which includes for example, sales and marketing support and human resources and personnel management).
The initial guidelines set out a minimum number of RHQ senior executives (and requirements about their responsibilities and supervision) and employees.
The Multinational Group must start its RHQ operations within six (6) months from the date of issuance of the licence and establish the three (3) optional activities chosen in the first year of the licence operation.
The RHQ must have a minimum number of employees and corporate executives.
While the practical implication is yet to be confirmed, MISA has indicated that the following types of incentives will apply
Saudisation exemptions;
Visa limit exemptions;
End to end business services;
Spouse and dependent work permits; and
Other benefits/incentives.
Importantly, the Government of the Kingdom of Saudi Arabia has announced that foreign investors wishing to secure government contracts, must have their RHQ in the Kingdom of Saudi Arabia, in order to be eligible to secure these government contracts – (this is to be in law by 1 January 2024). How this will be managed or implemented on a practical level is yet to be seen, but we have no doubt that this requirement will materially alter the investment landscape in the Kingdom of Saudi Arabia over the coming years.
Note that as part of the RHQ licensing procedure, the proposed RHQ will receive a special RHQ licence. The application process would require submission of a number of documents to MISA, including inter-alia, a proposed business plan where the Multinational Group must identify the entities of the Group that will come under the purview of the RHQ.
For further information, please contact Hesham Al Homoud.
Published in June 2022
