Sharp slowdown in companies opening Saudi HQs

Reuters/Luca Lorenzetti

• Number drops 55% in Q2
• Interest picking up again
• Saudi office space demand up 20%

The number of companies setting up headquarters in Saudi Arabia slowed sharply in the second quarter of 2024, after a rush to Riyadh at the start of the year.

The country’s regional headquarters programme came into operation at the start of 2024, forcing international companies wanting to win government contracts worth SAR1 million ($260,000) or more to have their regional HQ in the Saudi capital, Riyadh.

That prompted 127 new licences to be issued in the opening three months of the year. The number dropped by 55 percent to 57 new licences in Q2, according to Saudi Arabia’s Ministry of Investment, suggesting interest had reached a plateau.

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Scott Cairns, managing director of Creation Business Consultants in Dubai said: “We observed a rush toward the end of last year and the beginning of this year, as many companies were eager to establish their regional headquarters.” 

Initial demand dropped by around half in the second quarter, although interest has since increased, “indicating that some took their time and are now ready to establish their operations,” he added.

The most recent global commercial property monitor report by the UK’s Royal Institution of Chartered Surveyors found that demand for space in Saudi Arabia rose by 20 percent in the second quarter of 2024. That was a slowdown from a 53 percent rise in Q1. 

• Ministry issues record Saudi business licences in Q1

• Looming deadline sees scramble for Riyadh offices

• Saudi offers 30-year tax breaks under regional HQ schem

Office space was top of the list, with a 35 percent increase in demand, followed by industrial space with a 19 percent increase and retail space with a 6 percent increase.

The so-called RHQ program incorporates an incentive scheme which includes a 30-year exemption on corporate income tax and withholding tax related to headquarters activities, as well as discounts and support services.

Companies looking to move their regional headquarters to the kingdom must have a minimum of 15 employees.

Kunal Fabiani, director of global solutions at Hawksford, an international provider of corporate, private client and funds services, said: “The second half could see renewed momentum as businesses finalise their relocation plans, driven by opportunity and the need for compliance.” 

Investment licences

The total number of investment licences issued in Saudi Arabia in Q2 2024 was 2,728, up by almost 50 percent compared to the same quarter in 2023, but down from 3,166 in Q1. 

Construction, manufacturing, professional, scientific and technical activities, information and communication, accommodation and food, and wholesale and retail represented more than 80 percent of the licences issued by the Ministry of Investment over the period. 

Some foreign companies are still wary about the ease of doing business in Saudi Arabia, although it has succeeded in becoming the region’s venture capital centre. Funding for small companies from banks, financial institutions and venture capitalists rose sharply in 2023. 

The kingdom has set a target of attracting $100 billion a year in foreign direct investment by 2030.