The Royal Commission of Riyadh City and the Ministry of Investment of Saudi Arabia jointly launched their Regional Headquarters Plan to support the Saudi Vision 2030 social and economic transformation plan, and to encourage multinational corporations to Saudi Arabia.
The plan aims to make Saudi Arabia a leading regional centre for multinational corporations. This article briefly introduces the importance of a regional headquarters (RHQ), its requirements, related preferential policies, and pros and cons for companies interested in investing in Saudi Arabia.
RHQ REQUIREMENTS
An RHQ refers to an institution established by a multinational corporation in Saudi Arabia under Saudi law to provide support, management and strategic guidance for the corporation’s subsidiaries/branches and other affiliated institutions operating in the Middle East and North Africa (MENA) region.
Before establishing an RHQ, an applicant must obtain an RHQ licence from the Ministry of Investment of Saudi Arabia. An applicant must also meet the following conditions:
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- The applicant must have at least two subsidiaries in two or more countries/regions outside Saudi Arabia and the country where its headquarters is located;
- The RHQ is established as a separate legal personality in Saudi Arabia, either as a subsidiary company or as a registered branch of a foreign company;
- The RHQ cannot engage in any business activities that generate commercial revenue, but can provide mandatory or selective headquarters functions allowed under its RHQ licence to its branches, subsidiaries and/or other affiliated institutions within the multinational corporation’s regional network;
- The RHQ must commence the mandatory RHQ activities within six months, and at least three optional RHQ activities within one year of issuing the RHQ licence;
- RHQ employees carrying out mandatory RHQ licence activities must have the relevant skills and knowledge, at least three of which must be of executive director level or vice-president level;
- The RHQ must employ at least 15 full-time employees deployed in the conduct of RHQ activities within one year of issuing the RHQ licence.
It should be noted that, as confirmed by the Ministry of Investment of Saudi Arabia, the current policy does not require the RHQ to have equity relationships with its managed or supported units (the multinational corporation’s subsidiaries/branches) in the MENA region. In other words, the RHQ does not need to be a shareholder of the multinational corporation’s subsidiaries in the MENA region.
PREFERENTIAL POLICIES
According to official information from Saudi Arabia, multinational enterprises that establish RHQs will enjoy special preferential policies such as localisation rates, employee work visas and qualifications certification, and employment opportunities and residency rights for employees’ families in Saudi Arabia, as well as continuing to participate in the implementation of government projects after 2024.
ADVERSE CONSEQUENCES
According to the Council of Ministers Resolution No. 377 of Saudi, effective from 1 January 2024 multinational enterprises that do not establish RHQs may face adverse consequences including the inability to sign contracts with Saudi government agencies and participate in the implementation of government projects in Saudi Arabia. The main contents of this resolution are as follows:
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(1) Contracts. Saudi government agencies will be strictly limited in their ability to sign contracts with companies or their related parties that do not have Saudi RHQs. The related parties are any agents, distributors, suppliers or goods or service providers associated with the companies without RHQs. Government agencies include various ministries, authorities, institutions and committees of the Saudi government.
Government agencies can only sign contracts with companies without RHQs in Saudi Arabia or their related parties under certain circumstances, such as meeting certain standards, in emergencies, or where no other required goods or services providers are available. For example, companies without RHQs and their related parties are not excluded from participating in any public tenders issued by government agencies. However, government agencies may only accept these tenders:
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- If there is only one technically acceptable bid; or
- If, after an overall evaluation, the bid submitted by a company without an RHQ is deemed the best technically, and its price is more than 25% lower than that of the second-best bid in financial terms.
(2) Invitations. Government agencies can only invite bids from companies without RHQs in Saudi Arabia or their related parties: if there is only one qualified bidder (excluding companies without RHQs or their related parties); or if certain cases can only be resolved by inviting companies without an RHQ or their related parties.
(3) Direct procurement. Government agencies can only invite companies without RHQs or their related parties to participate in direct procurement: if the relevant engineering or procurement services can only be provided by companies without RHQs or their related parties; or if certain cases can only be resolved by directly purchasing from companies without RHQs or their related parties.
Resolution No. 377 does not apply to government agencies’ transactions or purchases that do not exceed SAR1 million (USD266,000) – this limit may be revised from time to time – or to business or purchases conducted outside Saudi Arabia.
(4) Appeals. Saudi Arabia will establish an exemption committee (reporting directly to the Ministry of Finance) to review any exemption applications submitted by government agencies. The exemption committee may approve or reject a request in the public interest. Government agencies may submit opposition to the exemption committee’s decision to the Minister of Finance, who may make a final binding decision regarding the opposition.
Given that large-scale engineering projects in Saudi Arabia are often organised and implemented by the government, it is suggested that foreign investors who intend to undertake Saudi government projects and enjoy the above-mentioned preferential policies should plan ahead with the assistance of professional institutions, apply for RHQ licences in advance, and establish their RHQs in Saudi Arabia to avoid negative impacts on their business operations after the implementation of resolution No. 377. Companies can also further support and expand their business activities in the MENA region through RHQs.
Wang Jihong is a partner and Wu Peng is an associate at Zhong Lun Law Firm
22-31/F, South Tower of CP Center
20 Jin He East Avenue
Beijing 100020, China
Tel: +86 10 5957 2288
Fax: +86 10 6568 1022
E-mail:
wangjihong@zhonglun.com
stevenwu@zhonglun.com
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