SharkBX Guide to Setting Up a Regional Headquarters in Saudi Arabia

SharkBX Guide to Setting Up a Regional Headquarters in Saudi Arabia

Introduction

Welcome to the SharkBX Guide to setting up a Regional Headquarters (RHQ) in Saudi Arabia. At SharkBX, we specialize in business consulting and support services, including company establishment and post-setup solutions. Our deep local expertise and commitment to our clients’ success make us the ideal partner for navigating the complexities of establishing a regional presence in the Kingdom of Saudi Arabia. This guide provides an overview of the incentives, requirements, and processes involved in setting up an RHQ in Saudi Arabia, along with the benefits and challenges you may encounter.

Why Saudi Arabia Encourages Regional Headquarters

Saudi Arabia is actively encouraging multinational corporations to establish their regional headquarters in the country as part of its Vision 2030 initiative. The aim is to diversify the economy, reduce dependence on oil, and transform Saudi Arabia into a global business hub. The government offers a range of incentives to attract companies from various sectors, positioning the Kingdom as a strategic location for overseeing operations in the Middle East and beyond.

What is an RHQ in Saudi Arabia?

In Saudi Arabia, an RHQ refers to a business entity established by a multinational corporation to manage its operations within a specific region. This entity plays a crucial role in overseeing the company’s activities, including sales, marketing, finance, and administration, within Saudi Arabia and potentially the wider Middle East region. The RHQ acts as a strategic hub, enabling companies to streamline operations and make decisions tailored to the local market.

Key Strategic Functions of RHQ in Saudi Arabia

RHQ strategic functions include:

  • Formulate and monitor the regional strategy
  • Coordinate strategic alignment
  • Embed products and/or services in the region
  • Support acquisitions, mergers and divestments
  • Review financial performance

RHQ management functions include:

  • Business planning
  • Budgeting
  • Business coordination
  • Identification of new market opportunities
  • Monitoring of the regional market, competitors, and operations
  • Marketing plan for the region
  • Operational and financial reporting

Types of RHQ Activities:

  • Sales and Marketing Support
  • Human Resources, and Personnel Management
  • Training Services
  • Financial Management, Foreign Exchange, and Treasury Centre Services
  • Compliance and Internal Control
  • Accounting
  • Legal
  • Auditing
  • Research and Analysis
  • Advisory Services
  • Operations Control
  • Logistics and Supply chain management
  • International Trading
  • Technical Support or Engineering Assistance
  • Network Operations for IT System
  • Research and Development
  • Intellectual Property Rights Management
  • Production Management
  • Sourcing of Raw Materials and Parts.

Benefits of Establishing an RHQ in Saudi Arabia

Strategic Presence

An RHQ in Saudi Arabia allows companies to establish a strategic foothold in the region, expanding market reach.

Gateway to a Diversifying Economy

Establishing an RHQ here positions companies to ideally capitalize on burgeoning sectors such as technology, tourism, and renewable energy.

Local Expertise

Access to local talent and expertise helps companies navigate market complexities and develop tailored strategies for success.

Efficiency

By consolidating operations in an RHQ, companies can achieve economies of scale, leading to cost savings and improved efficiency.

Cultural Understanding

The RHQ provides insights into local culture, customs, and consumer behavior, enabling companies to develop products and services that resonate with Saudi consumers.

The Process of Setting Up an RHQ in Saudi Arabia

Understanding the Requirements

Setting up an RHQ involves navigating around 25 steps and interacting with approximately 12 government portals. This process requires a thorough understanding of the regulatory framework and administrative procedures involved.

Key Steps

  1. Initial Consultation: Assess the business goals and eligibility for an RHQ license.
  2. Document Preparation: Prepare all necessary documents, including financial statements and business plans.
  3. Submission: Submit the application to the relevant authorities, ensuring all paperwork is completed accurately.
  4. Approval and Compliance: Navigate compliance requirements and ensure adherence to relevant regulations.

Eligibility Criteria for an RHQ License

To be eligible for an RHQ license, a company must meet the following requirements:

  • Existence: Should have minimum existence in two different countries, excluding the Kingdom of Saudi Arabia and the country in which the headquarter of the Multinational Group is located.
  • Regional Operations: At least 3 years of operation in the MENA region.
  • Physical Presence: RHQs are expected to maintain an adequate physical presence in Saudi Arabia.

Incentives for Establishing an RHQ

Tax Incentives

  • Income Tax: 0% income tax on the qualifying income. Income derived by the RHQ from non-qualifying activities shall be treated according to the provisions of the relevant tax regulations in the Kingdom.
  • Withholding Tax: 0% withholding tax (WHT) on the payment made by the RHQ to non-residents, meeting any of the following criteria:
    • Payments of dividends.
    • Payments to related parties.
    • Payments to third parties for services necessary for the RHQ’s activities.

The tax incentives are applicable to the qualifying activities for renewable 30 years, starting from the date of obtaining the RHQ license to carry out the qualifying activities and shall expire on the earlier of:

    • The elapsing of the 30-years period.
    • The entity ceasing to be qualified as an RHQ for whatsoever reason.

RHQs are required to comply with the tax and Zakat regulations with respect to filing the tax and Zakat returns. In addition, should comply with the annual report (according to the form provided and the specified procedures by ZATCA).

Non-Tax Incentives

  • Eased Saudization Requirements: Companies with regional headquarters licenses enjoy eased Saudization requirements for its first 10 years.
  • Flexible Work Permit Provisions: Spouses of executives working for these companies receive more flexible work permit provisions.
  • Professional Accreditation: Waiver of professional accreditation rules.
  • Visa Exemption: Visa limit exemption and issuance acceleration.

Economic Substance Rules for the RHQs

RHQs shall fulfill ALL of the following Economic Substance requirements:

  1. Must obtain a license from the relevant authority and can only engage in activities authorized by that license.
  2. Must commence its operations within six (6) months after their RHQ license is issued and must establish three (3) optional activities chosen in the first year of their license.
  3. Required to have sufficient assets, including an appropriate building, to perform its functions.
  4. Strategic activities, including board meetings where strategic decisions are made, must be overseen and managed within Saudi Arabia.
  5. Should proportionately incur operating expenses in the Kingdom in relation to its activities.
  6. Must earn revenue from its qualifying activities within the Kingdom.
  7. Required to have at least one resident director in the Kingdom.
  8. Must have at least 15 full-time employees within the first year.

Conclusion

Setting up a Regional Headquarters in Saudi Arabia offers significant potential but requires a strategic approach and thorough understanding of the local business landscape. By understanding the key requirements and process involved, companies can ensure a seamless and successful business setup. At SharkBX, we are here to help you navigate this complex journey. Our team of experts connects the dots for you, allowing you to focus on your core business operations.

Don’t let the setup process hold you back. Contact SharkBX today, and let’s get your business off the ground smoothly! For more detailed guidance and support, visit our website or contact us for a free consultation.