In response to new regulations set by the Saudi government, global technology giants, including Amazon, Google, and Microsoft, are bolstering their presence in the country by establishing regional headquarters in Riyadh.
The move comes as the government aims to limit “economic leakage” by awarding contracts exclusively to companies with a substantial local presence.
The Saudi government announced these rules in February 2021, expressing a desire to curb spending that does not benefit firms with a significant footprint in the country.
The January 1 deadline prompted a surge in activity, with several major corporations, including Airbus, Oracle, and Pfizer, securing licenses to set up regional headquarters in Riyadh.
Crown Prince Mohammed bin Salman’s economic agenda aims to retain government and citizen spending within the country. The push includes restrictions on state contracts for international firms that merely shuttle executives in and out of the kingdom. The initiative is part of a broader strategy to boost the economy and attract foreign investment.
While the Crown Prince has implemented reforms such as loosening gender restrictions, allowing women to drive, and promoting public entertainment, challenges such as limited lifestyle options and the continued ban on alcohol have made some foreign executives hesitant to relocate to Saudi Arabia.
Despite these challenges, Saudi Arabia’s position as the largest economy in the region, coupled with ambitious plans to invest trillions of dollars to become a prominent tourism and commercial hub, has compelled multinational corporations to reconsider their operations in the Middle East.
The Saudi government’s move is widely perceived as an effort to rival Dubai, the region’s leading business hub, known for its lifestyle, low taxation, and connectivity. Traditionally, many global firms managed their Middle East operations from Dubai, keeping smaller offices in Saudi cities. The impact of establishing regional headquarters in Riyadh on operations elsewhere in the region remains uncertain.
Companies obtaining a special HQ license in Riyadh must meet specific criteria, including maintaining a minimum of 15 staff and overseeing operations in at least two other countries. Incentives offered by the Saudi government include tax breaks and exemptions from certain hiring rules. In December, the government announced a 30-year tax holiday for firms with a designated regional headquarters license.
Despite the opportunities, the Saudi plan has faced confusion, with executives seeking clarity on how the rules apply to various businesses and which government entities are subject to procurement restrictions.
The Ministry of Investment, responsible for overseeing the process, has not provided clarification on these uncertainties. Nonetheless, more than 200 firms have reportedly received HQ licenses, with notable names like Bechtel, PwC, and PepsiCo. announcing Riyadh as their regional headquarters.
