Employment

‘No loopholes for companies’ to be found in Saudi HQ rules

January 3, 2024

A Saudi woman leaves her office. Foreign companies are setting up HQs in the kingdom to gain access to government contracts

Multinationals must have regional HQ
Unlocks access to government contracts
Only limited exemptions offered

Multinational companies looking for loopholes in Saudi Arabia’s regional headquarters rules will not find them, although the exceptions set out in the small print could affect negotiations, business relocation experts have told AGBI.

As of Monday, foreign companies looking to gain access to billions of dollars worth of government contracts must have their regional headquarters in Riyadh.

Businesses that do not relocate will still be allowed to bid for contracts worth less than SAR1 million ($266,700).

For larger government contracts, companies without a Riyadh regional HQ can only win work if their bid is considered technically superior and costs 25 percent less than the next best offer – or if no other bids are received.

There are also exemptions for contracts executed outside the kingdom, companies that are the sole provider of a particular service or commodity and emergencies that can only be handled by a foreign company.

However, these limited exceptions to the Saudi HQ rules do not amount to loopholes and are unlikely to have a significant impact, according to Scott Cairns, managing director of Dubai-based Creation Business Consultants.

“The ‘fly-in, fly-out’ model is not embraced by the Saudi government and the current Saudi market is witnessing unprecedented competition from foreign companies located within the kingdom,” he said.

Demand for relocation support is expected to continue throughout the year, he added.

Foreign direct investment to Saudi Arabia stood at $1.65 billion in the second quarter of 2023.

Nazar Musa, CEO of business set-up consultant Pro Partner Group, said the regulations and exceptions would lead to “harder negotiations” for Saudi-based companies.

“The problem is that, if company A based in the kingdom bids for 100 and somebody comes in and bids 74, the next conversation will be with company A. ‘If they can do it for 74, then why can’t you?’” he said.

“It’s going to create some competition and it’s going to create some noise.”

Surging demand for regional HQ licences

Cairns said enquiries to set up in Saudi Arabia had “nearly tripled” in the fourth quarter compared with Q3.

However, he added that “almost a third” of the queries failed to meet the Ministry of Investment’s terms for a regional HQ licence “primarily due to the requirement of a presence in three different countries or regions”.

By the start of last month, more than 200 companies had been licensed to operate their regional headquarters from Riyadh.

Companies with a regional HQ will be exempt from corporate tax for 30 years.

They also benefit from relaxed requirements for Saudisation – the programme to increase employment of Saudi nationals – and work permits for the spouses of company executives.

The regional HQ programme is part of plans to make Riyadh one of the world’s 10 largest city economies by 2030, and increase its population to as much as 20 million.