Saudi Arabia to allow some companies to operate without local headquarters

Rules introduced in 2021 restrict international firms without local headquarters from working with government

King Abdullah Financial District, north of Riyadh. Some firms will now be allowed to operate in Saudi Arabia without headquarters in the kingdom. Reuters

Saudi Arabia has announced some companies will be able to operate in the kingdom without having a headquarters in the country.

Companies with foreign operations not exceeding 1 million Saudi riyals ($266,000) can operate in the kingdom without local headquarters, it was reported on Sunday.

Firms competing for government contracts without any other bidders are also exempt from the rules.

The decision follows rules introduced in 2021 which require foreign firms to set up regional headquarters in the country by the end of this year or risk losing out on government contracts.

Companies will not be able to sign contracts with anybody, institution or fund affiliated to the government or its agencies without a headquarter in the kingdom, according to the restrictions.

Government agencies working with foreign companies who do not have a Saudi headquarter will have to submit a letter of explanation within 30 days of signing a contract.

Saudi officials hope for 480 companies to establish headquarters in the kingdom by 2030 as it looks to generate new industry and diversify the oil-rich economy.

In October 2021, 44 companies received government licences to set up headquarters in the country. The companies that had already relocated their regional headquarters by then included PepsiCo, DiDi, Unliver, Siemens, KPMG, Novartis, Baker Hughes, Halliburton, Philips, Flour, Schlumberger, SAP, PwC, Oyo, Boston Scientific and Tim Hortons.

The kingdom's Regional Headquarters Attraction Programme of Multinational Companies, a Vision 2030 initiative, is expected to yield significant local benefits to Saudi Arabia's economy. The move is designed to also provide opportunities for local talent to work with multinational companies.

Riyadh is striving to diversify the country's oil-dependent economy, create jobs for Saudi citizens, draw high-skilled talent and attract investment to the kingdom.

Vision 2030 has led to significant project announcements across various sectors to support the country's ambitions for economic diversification.

Saudi Arabia made a strong rebound from the coronavirus-induced slowdown, with economic momentum picking up pace last year amid a sharp rise in oil prices.

Key sectors of the kingdom's economy, from real estate to tourism and energy, are set to benefit from investments flow through the Vision 2030 programme as the country continues to diversify its economy, S&P Global Ratings said in a report last month.

The sectors including digital infrastructure, food and agriculture, health care, telecoms and utilities will see significant spending growth over the medium and long term, with funding to come largely from the debt capital markets, the rating agency said at the time.

Hiring at companies in Saudi Arabia's non-oil sector increased at its strongest pace in about five years in December, driven by "robust” business activity.

The reading on the Riyad Bank Saudi Arabia purchasing managers' index came in at 56.9 last month, slower than the 58.5 recorded in November, but still well above the neutral 50 mark that separates growth from contraction.

Saudi Arabia's preliminary estimates for next year indicate a real gross domestic product growth rate of 3.1 per cent, after an expected expansion of 8.5 per cent last year, Finance Minister Mohammed Al Jadaan said last month as the government approved the budget for this year.