ECONOMY

SAUDI OFFERS INCENTIVES TO FOREIGN COMPANIES IN THE REGIONAL HEADQUARTERS SCHEME

Saudi Arabia’s Regional Headquarters (RHQ) programme, which requires foreign companies to establish their offices within the kingdom to be eligible to bid on government contracts, commenced on 1 January.

It aims to attract around 480 multinational corporations (MNCs) to relocate their headquarters to the country by 2030, as part of the government’s efforts to diversify the economy and reduce dependence onvhydrocarbon resources.

Investment minister Khalid al Falih Al-Falih told the media last year that upward of 180 licenses have been issued, giving qualified companies special incentives for moving their regional base to Saudi. “The rate is picking up to the tune of 10 companies per week that are being licensed,” he said.

INCENTIVISING COMPANIES

The Ministry of Investment of Saudi Arabia (MISA) oversees the RHQ programme, offering various incentives and benefits to entice foreign companies to participate. These incentives include the ability to issue unlimited visas to RHQ employees, a 10-year exemption from "Saudisation" requirements, and 0% corporate income tax and withholding tax rates for 30 years after obtaining the RHQ license. Organisations failing to establish their regional main once in Saudi Arabia may face limitations in accessing specific incentives, tax relief plans, and benefits designated for foreign companies operating through the RHQ programme.

Moreover, they may be ineligible to bid on government contracts, as the RHQ programme prohibits government agencies from engaging with companies without an RHQ on equal terms.

To qualify for the programme, an entity must have two subsidiaries in the Middle East and North Africa (MENA) region, with one subsidiary in Saudi Arabia, and a global headquarters. The RHQ in Saudi Arabia must have a minimum of 15 full-time employees, including three C-suite executives, within one year of obtaining the license.

Saudi Arabia is increasingly becoming an attractive place to set up base and take advantage of the wealth of opportunities.

APPEAL GAINING GROUND

The number of new investment licenses surged 125%, or 2,884 in the fourth quarter of 2023, compared to 1,282 in the same quarter of the previous year (excluding licenses issued as part of the anti-concealment law enforcement), according to MISA. The total number of new investment licenses reached 2,898 licenses for the same period.

Several investment licenses were issued for activities involving construction, manufacturing, vocational, educational and technical services, ICT, accommodation and food, wholesale and retail trade, repair of motor vehicles and motorcycles, representing 80.4% of the total issued in Q4 2023.

Electricity, gas, steam and air conditioning recorded the highest growth of 400% in investment licenses, compared to the same quarter in the previous year, followed by education and construction by 292.3% and 160.3%, respectively, highlighting growth in power demand, education, and infrastructure.

With regards to the distribution of licenses by country (a share was calculated for each country participating in the ownership of the capital), Egypt received the highest number of investment licenses issued by MISA in Q4 2023 with 409 licenses, followed by India with 145 licenses, Yemen with 139 licenses, then Pakistan with 81 licenses, and Jordan with 68 licenses,” according to MISA.

Overall in 2023, the number of new investment licenses increased by 95.8%, or 8,540 licenses compared to 4,362 licenses in 2022, taking the total number of new investment licenses to 8,595 during the year.

PRIVATE SECTOR SENTIMENT

The kingdom’s private sector activity continues to grow although the pace of expansion is easing up. The non-oil economy has continued to rise, despite challenges stemming from high costs and interest rates that have been common feature across the global economy.

This resilience underscores the diversification efforts within the Saudi economy. Despite cost increases, output prices have remained low, signalling a high level of competitiveness in the market, according to the latest S&P Global Purchasing Managers’ Index (PMI).

“Activity continued to increase due to a rise in new business intakes, however the rate of sales growth eased considerably to a five-month low,” according to the PMI reading in February. “Several businesses reported a slowing of demand momentum amid competitive pressures, while new export work dropped for the fourth time in six months.”

Increased levels of new business fuelled a rise in input demand as purchasing activity and inventory holdings grew sharply. However, the rate of buying growth slowed amid waning demand conditions.

Despite facing cost pressures, the resilience of the non-oil economy, competitive output prices, and the notable increase in construction activities collectively paint a complex yet potentially optimistic economic scenario for Saudi Arabia.