Updates on Saudi Arabia's Regional Headquarters Program

Effective January 1, 2024, multinational companies (“MNCs”) intending to do business in the Kingdom of Saudi Arabia (“KSA”) with 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 income tax and withholding tax rate for thirty (30) years applied on RHQ activities, as well as other benefits summarized in this alert.

This is based on several developments.  In February 2021, the Saudi Government announced its plans to limit contracting with foreign companies that do not have an RHQ in KSA.  The following year, the Ministry of Investment of Saudi Arabia (“MISA”) issued new guidance on its Invest Saudi portal aiming to incentivize 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 RHQs from certain activities will be granted tax relief as part of addressing concerns of multinational companies with respect to setting up their RHQs in KSA.  On 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 guidelines specifying its RHQ tax rules and 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 RHQs in KSA, which includes:

• A 10-year Saudization exemption;
• a 30-year corporate income and withholding tax exemption (related to specific activities);
• a waiver of professional accreditation;
• visa limit exemptions and issuance acceleration; and
• government tendering priority.

Multinational companies must commence RHQ operations within six (6) months after their RHQ license is issued and must establish three (3) optional activities chosen in the first year of their license.An RHQ must have at least 15 full-time employees within the first year.  In addition, at least three (3) mandatory RHQ activity employees must be of executive or senior level (such as a Regional Managing Director or Vice President) and perform strategic management activities on behalf of the RHQ's branches and other affiliates in the region.

RHQs are not intended to conduct any commercial operations or activities that generate revenue.  All commercial activities must be conducted by an RHQ's affiliates that hold a Service License, a Commercial License, an Industrial License, or any other license for commercial operations as issued by MISA.

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

We expect further updates in relation to the RHQ Program in the coming months. We highly recommend multinational companies looking 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.