Insights into establishing RHQs in Saudi Arabia

It has been three years since Saudi Arabia first introduced the Regional Headquarters Programme (RHQ), aiming to position itself as a leading global hub for multinational corporate operations. With the Ministry of Investment of Saudi Arabia releasing application guidelines in early 2022, and commencing the acceptance of applications, numerous multinational enterprises have since obtained RHQ licences. These include prominent Chinese companies such as China Harbour Engineering, China Civil Engineering Construction Corporation, China Railway Construction Corporation, China Geo-Engineering Corporation, China Communications Services Corporation, Huawei, Nuctech, and DiDi.

This article focuses on practical issues enterprises may encounter during the application process for an RHQ licence, and aims to provide insights to help facilitate a smooth application process.

Non-profit nature of RHQ

Before applying for an RHQ licence, enterprises need to understand RHQs are non-profit entities that cannot engage in commercial activities as specific project companies or operating entities. As defined in the Ministry of Investment’s service manual, RHQs are institutions that provide support, management and strategic guidance activities to subsidiaries, branches and other affiliated entities of multinational corporations operating in the Middle East and North Africa (MENA) region. They cannot directly engage in revenue-generating business activities.

Within six months of obtaining the RHQ licence, mandatory RHQ activities must be undertaken and at least three optional RHQ activities must be initiated within one year of receiving the licence. The service manual outlines the specific content of mandatory and optional activities. Some optional activities, such as sales and marketing support, training and legal services have a commercial nature. Would charging fees for these services be prohibited due to non-profit requirements?

In practice, being non-profit does not necessarily mean RHQs cannot pay or charge fees for any services rendered. For example, under RHQ licensing conditions, RHQs can pay or charge reasonable fees to cover the costs of providing support, management and strategic guidance activities to subsidiaries, branches and other affiliated entities of multinational corporations operating in the MENA region. However, the fees must not be excessive to the extent that they transform the nature of the activities into for-profit ventures.

Company structure related to RHQ

One of the conditions for applying for an RHQ licence is that the multinational corporation applicant must have at least two subsidiaries or branches in two different countries or regions other than Saudi Arabia and its home country. Is there a requirement for an equity relationship between an RHQ and its subsidiaries or branches in other countries (including the MENA region)?

According to previous communications with the Saudi Ministry of Investment, there is no strict requirement for an equity relationship between RHQs and their subsidiaries or branches in the MENA region. Therefore, the RHQ does not necessarily need to be a shareholder of the subsidiaries of the multinational corporation in the MENA region.

When submitting the application, the RHQ licence applicant (i.e. multinational corporation) needs to provide the company registration certificates of its headquarters country, as well as those of two subsidiaries or branches in other countries, among other required documents. Additionally, the applicant must indicate the legal form of the newly established companies, whether as subsidiaries or branches of the multinational corporation.

Personnel arrangement for RHQs

According to the service manual, RHQs must employ at least 15 full-time employees within one year of obtaining an RHQ licence, including three executive-level employees, such as CEOs, CFOs and vice presidents, to engage in functional activities for headquarters.

Typically, when hiring employees, Saudi companies must comply with “Saudisation” requirements, which mandate the employment of Saudi citizens and foreign employees in specific ratios based on the types of business activities listed on their commercial registration certificates.

However, RHQs may enjoy certain preferential policies including: (1) exemption from compliance with the Saudisation requirements for 10 years after obtaining an RHQ licence; (2) issuance of work visas, originally limited to Saudi citizens, to RHQ employees; (3) no quantity restrictions on RHQs’ applications for Saudi work visas for employees; and (4) exemption from relevant local certification requirements in Saudi Arabia if RHQ employees have obtained professional qualifications in their home countries.

It is worth noting that the Saudi Ministry of Investment requirements mean employees serving in RHQs, whether Saudi citizens or foreign nationals, cannot simultaneously work for other commercial entities. In other words, if a Chinese company intends to appoint senior management personnel from its domestic or overseas companies to work in its Saudi RHQ, such personnel must first terminate their employment with the current company before joining the Saudi RHQ.

In conclusion, although RHQs can enjoy significant policy benefits in areas such as Saudisation, work visas and taxation, the operations and personnel hirings of RHQs may still incur certain operational costs for establishing enterprises. Therefore, multinational corporations should comprehensively consider whether it is necessary to apply for an RHQ licence based on their business operations in the Middle East region.

Wang Jihong is a senior counsel and Liu Ying is an equity partner at Zhong Lun Law Firm