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Inside Saudi’s RHQ tax incentives: Stimulating Economic Sustainability and Inclusive Growth

Announcements

13 Mar 2024

AstroLabs Team

Saudi Arabia's RHQ program appears to be operating in full-swing. Explore the latest RHQ tax benefits announcements and compliance requirements that are enhancing global integration, in alignment with Vision 2030.

Saudi Arabia is already making strides toward being a global business powerhouse, attracting multinational companies (MNCs) from various sectors to open regional headquarters in the Kingdom. To further encourage MNCs to settle in and operate in the country, it introduced a Regional Headquarters (RHQ) Program to help MNCs set up their headquarters and start obtaining governmental contracts, among fiscal and non-fiscal incentives.

The RHQ program, initially announced in February 2021, is an initiative of the Ministry of Investment of Saudi Arabia (MISA) and the Royal Commission for Riyadh City, designed to attract 480 MNCs by 2030, catalyzing Saudi Arabia’s Vision 2030 objectives to increase the private sector's contribution to GDP from 40% to 65%.

The program started to pay dividends as the number of companies in Saudi Arabia reached 200 in 2023, outpacing the year’s initial target of 160 companies. The milestone does not only speak to the country's rising allure as a hub for innovation and economic vitality but also to its private sector dynamism, which is vital to achieving inclusive growth that creates economic opportunities for global businesses in Saudi Arabia.

New RHQ Tax Incentives: Attracting a New Wave of Offshore Companies

Starting this year, overseas firms with the intention of operating in the Kingdom have to establish an RHQ in order to be able to be awarded governmental contracts. The move cements the Kingdom's position as an inviting, business-friendly operating environment.

Businesses setting up headquarters in Riyadh are mainly drawn by the newly introduced tax incentives, designed to attract foreign investment, strengthen the labor market, and establish the country as the dominant business hub in the MENA region.

To realize this goal, the country passed a law that came into force on February 16th, 2024, enabling multinational companies to qualify for a 30-year income tax exemption from the date they obtain their regional headquarters license.

This followed Saudi Arabia’s December 2023 launch of a tax incentive scheme aimed at overseas corporations. With the enactment of this legislation, qualifying companies are set to benefit from both zero income tax and withholding taxes for up to 30 years on payments made by the company to non-resident individuals.

This delineation ensures that the incentives precisely target increased regional engagement and operational excellence among the established RHQs in Saudi Arabia. As a result, by the end of 2023, over 200 global companies had secured eligibility for Saudi government contracts by establishing regional headquarters in Riyadh. Prominent examples of companies that recently established their RHQ include Northern Trust, Bechtel, Pepsico, IHG Hotels and Resorts, PwC, and Deloitte.

In line with the Kingdom's forward-thinking initiatives to promote economic growth and global integration, Saudi Arabia set forth eligibility and compliance requirements for multinational corporations that want to benefit from the 30-year income tax exemption. These guidelines align with the broader tax and Zakat regulatory framework and adhere to the National Classification of Economic Activities.

This includes having a valid license from MISA and maintaining robust operational expenditures and revenue generation in Saudi Arabia. Apart from tax relief, businesses with RHQ can benefit from relaxed Saudization (hiring local talent) requirements for 10 years and streamlined work permit provisions for spouses of executives of companies situated in the Kingdom. This is in addition to the generation of employment opportunities for dependents of RHQ employees via the Ajeer program and the exemption from professional accreditation requirements for RHQ employees holding valid accreditations in their home country of origin. As per the RHQ program, companies can issue an unlimited number of visas to RHQ staff.

Certain compliance regulations have been set for companies to be able to access and enjoy these benefits – circumstances such as unapproved activities or tax avoidance can lead to ineligibility for tax exemptions. The requirements outlined in the tax law also ensure adherence to record-keeping and reporting procedures, in line with the framework of the Zakat, Tax, and Customs Authority. To learn more about the compliance requirements, head to our RHQ page.

These rules are designed to prevent tax evasion or avoidance strategies and ensure that RHQ operations and transactions genuinely reflect its economic status and meet regulatory standards, signaling the Kingdom's commitment to strengthening a stable business environment.

Achieving Softlanding to Economic Prosperity

From attracting major global businesses to becoming an international capital of entertainment and tourism, Saudi Arabia is strengthening its ambition to be one of the best places in the world to live. Improving the quality of life by nurturing a conducive environment to develop new lifestyle options is a key priority in Vision 2030.

The Kingdom’s forward-looking vision and economic goals are demonstrated through the country’s commitment to new legislation that makes it easier for multinational businesses to prosper within Saudi Arabia’s borders. The new RHQ tax regulations are a prime example of this.

By attracting multinational corporations to establish their regional headquarters in Saudi Arabia, the country is not only diversifying its economy but also solidifying its position as a global business hub. This strategic move is expected to usher in a new era of growth, innovation, and international collaboration, which goes further in tandem with the Kingdom’s wider vision to be among the top 15 economies globally by the year 2030.

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