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Saudi Arabia – Tax incentives proposed for RHQ regime

A 30-year tax incentive package have been proposed for Multinational Companies (MNCs) establishing Regional Head Quarters (RHQs) in Saudi Arabia. This is a joint initiative proposed by Ministry of Investment of Saudi Arabia (MISA) in coordination with the Ministry of Finance and the Zakat, Tax and Customs Authority (ZATCA).

Key points	Details
Background & *Development*	Regional Headquarters (RHQ) regime is an initiative jointly developed by the Ministry of Investment (MISA) and the Royal Commission for Riyadh City which aims to attract multinational companies (MNCs) to establish their regional headquarters in the KSA. KSA government announced its intention to cease contracting with companies that do not have their RHQ situated in KSA; The Regulations for Government Agencies Contracting with Entities that do not have a Regional Headquarter in KSA and their related parties (the Regulations) were issued during December 2022; and 30 years tax incentive regime have been proposed for MNCs with RHQ in Saudi Arabia, key proposals are as follows : [a] Nil Corporate tax on RHQ profits; and [b] Nil Withholding tax on payments to related and third parties, subject to conditions The proposed tax incentive shall be available to MNCs from the date of obtaining the RHQ license.
Effective	The Regulations for RHQs are effective from 1 January 2024 and may prevent all government agencies from contracting with companies that do not have an RHQ in the KSA and their related parties. MISA will maintain a list of MNCs with RHQ in Saudi Arabia on an online portal; and MISA may also consider maintaining a list of “MNCs that do not have an RHQ in Saudi Arabia and have an RHQ in the MENA Region
Restrictions	Government agencies will be restricted from contracting with MNCs and its related parties that do not have their RHQ in Saudi Arabia; and Government agencies includes ministries, governmental entities, public bodies, departments, institutions and independent agencies with a public legal personality
Exception	Contracts value less than SAR 1 million; Where there is only one technically acceptable offer; Can only be served by one company without an RHQ in the KSA; and Emergency and discretion of authorities
Activities permitted for RHQs	Mandatory : Strategic Director and Management functions Optional : Sales, Marketing, HR, Finance, IT, Procurement, Intellectual Property etc
Wayforward for MNCs	Evaluate the existing and/ or potential contracts with government agencies in Saudi Arabia; Understand the process & documentation involved for incorporating an RHQ entity; Understand the yearly tax and regulatory compliance requirements (e.g., transactions at arm’s length principle, Pillar 2 implications on incentive regime etc)

How we can support:

Guide MNCs to understand the objective of RHQ regime;
Support with a feasibility study for MNCs;
Advise on overall process and documentation involved for incorporating an RHQ entity;
Assist MNCs for coordination with tax and regulatory authorities; and
Assist MNCs with tax and regulatory compliances applicable for RHQ entiy

Contact:

Abdulmohsen Alkahtani

Office Managing Partner

abdulmohsen.alkahtani@sa.Andersen.com

Fouad Hourani

Middle East Co-Regional Partner

fouad.hourani@sa.Andersen.com

Ahmad A. Yousef

Managing Director- Zakat & Tax

ahmad.yousef@sa.Andersen.com

Ranjith Pathiyil

Managing Director – ITS and M&A

ranjith.pathiyil@sa.Andersen.com

Waleed Wabar

Tax Manager

waleed.wabar@sa.Andersen.com

Ahmed Al-Shebani

Tax Consultant

Ahmed.Alshebani@sa.Andersen.com

The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. No warranty or representation, express or implied, is made by Andersen Saudi Arabia LLC (“Andersen in KSA”), nor does Andersen in KSA accept any liability with respect to the information and data set forth herein. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein @2023 Andersen in KSA. All rights reserved.

About the Author

Ranjith Pathiyil
Managing Director – ITS and M&A