Saudi Arabia has implemented new regulations requiring foreign companies to set up regional headquarters in the kingdom or risk losing out on government contracts. This initiative is part of the kingdom’s Vision 2030 agenda. It aims to diversify the Saudi economy away from oil and encourage foreign direct investment (FDI).
Thresholds and exceptions
The regulation came into effect on Monday, January 1st. It sets a requirement for companies with foreign operations exceeding SAR1 million ($266,000) to establish a regional headquarters in Saudi Arabia. However, smaller companies falling below this threshold can still operate in Saudi Arabia without the necessity of a local headquarters.
Other exceptions include contracts executed outside of Saudi Arabia and deals with companies that are the sole providers of their service or commodity. Emergencies that can only be addressed by a foreign company without a regional headquarters are also exceptions to the regulation.
Goals and projections
Economist Carla Slim from Standard Chartered Bank projects robust non-oil growth of 5 percent for Saudi Arabia in 2024. This positions the country as the non-oil leader in the Gulf Cooperation Council (GCC). Moreover, Vision 2030 aims to have 480 global companies establish regional headquarters in Saudi Arabia by 2030. This goal promotes economic output and recovery beyond post-pandemic levels.
As of October 2021, 44 companies, including PepsiCo, DiDi, and Unilever, had received government licenses to set up regional headquarters in Saudi Arabia. The headquarters program offers benefits and premium support services, including a 30-year tax break, to attract multinational companies.
Moreover, experts, such as Junaid Ansari from Kamco Invest, believe that the new regulation has the potential to benefit various sectors. This includes the real estate, financial services, tourism, and communications sectors. Relocating regional headquarters is expected to create up to 50,000 new jobs in the first year alone, contributing to the overall development of the Saudi economy.
Read: Saudi Arabia approves contracting regulations for non-Saudi firms
Future outlook
IHG Hotels and Resorts, GE Healthcare, and Bechtel have already announced plans to open regional headquarters in Saudi Arabia as part of their regional expansion. The Ministry of Investment has licensed over 200 companies since 2021. Its projections indicate that relocating regional headquarters could attract $100 billion in FDI by 2030.
While the relocation initiative presents promising opportunities, challenges remain. The influx of companies and personnel necessitates rapid infrastructure development and talent acquisition. Therefore, experts emphasize the need for a transparent and efficient regulatory environment to sustain growth.
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