Saudi Arabia Implements Exceptions to Regional HQ Requirement

In a significant development, Saudi Arabia's deadline requiring foreign companies to establish regional headquarters within the kingdom or risk losing lucrative government contracts has officially come into effect. However, alongside this mandate, exceptions have been outlined to address specific circumstances.

The exceptions, as reported by the state gazette Um Al-Qurra, encompass contracts valued below 1 million riyals ($266,681), contracts executed outside the kingdom, agreements with sole-service or commodity providers, and emergencies requiring immediate foreign intervention without regional headquarters.

It's noteworthy that companies without regional headquarters can still participate in government tenders. Nevertheless, their approval will hinge on demonstrating technical superiority and offering a cost advantage of at least 25% compared to the next best offer. Alternatively, approval may be granted if there are no competing offers.

While the Saudi cabinet approved contracting regulations last week, specific details were not disclosed at the time. The announcement has created a sense of urgency among foreign companies, many of which were grappling with unclear tax and jurisdiction regulations. In response to these concerns, tax incentives, including a 30-year exemption for corporate income tax, were unveiled less than a month before the deadline.

In November 2023, Saudi Investment Minister Khalid Al-Falih revealed that 180 companies had committed to establishing their regional headquarters in Riyadh. 

The move aligns with the kingdom's efforts to position itself as an attractive destination for foreign capital and business, reflecting the broader transformation goals set by Crown Prince Mohammed bin Salman to diversify the economy and reduce dependence on oil.