As the year draws to an end, it is evident that a vast number of corporate giants consider the RHQ program a worthwhile one. To date, over 540 multinational companies have become participants, exceeding Saudi Arabia’s original target of 500 companies by 2030. Participants span a number of sectors and include technology firms like Amazon and Google, as well as the professional services companies PwC and Deloitte. More recently, the asset management giant BlackRock announced that it received approval to set up its regional headquarters in Riyadh ahead of its plans to launch an investment platform called BlackRock Riyadh Investment Management (BRIM), which aims to bring more FDI into the Kingdom.
That said, some foreign enterprises are uncertain about the policy and its longer-term merit, and it still appears too early to tell whether the RHQ program will achieve its broader economic and strategic objectives.
Shifting landscape for business in the Gulf
The RHQ program exists against the backdrop of economic competition between Gulf Cooperation Council (GCC) states for foreign investment, with Saudi Arabia and the UAE leading the pack. Despite an outwardly close rapport between Saudi Crown Prince Mohammed bin Salman and UAE President Mohammed bin Zayed, nicknamed MBS and MBZ, the two states are locked in a quiet but fierce geoeconomic competition for regional dominance amid preparations for a post-oil economy.
The common strategic interests that once solidified the Saudi-UAE alliance now seem to diverge. Historically, the two Gulf states were united in countering Iranian influence in the region, severing diplomatic ties with Qatar in 2017 and participating in a strategic war in Yemen. The UAE’s military withdrawal from Yemen in 2019, Saudi Arabia’s diplomatic rapprochement with Iran via a China-brokered deal in March 2023, and the UAE’s normalisation of relations with Israel through the Abraham Accords have accentuated existing tensions.
Today, the two powers continue to vie for the favour of international investors in a series of projects implemented under their ambitious modernisation plans: Saudi’s Vision 2030 and UAE’s Vision 2071. In 2023, the UAE emerged as the world’s second-largest market for greenfield FDI. In contrast, Saudi Arabia attracted a smaller number of such projects for the same year, albeit at a higher average value than the UAE.
Saudi Arabia, however, faces mounting pressure to bolster FDI inflows as it contends with weak oil prices amid the need for funding. This has led to budget deficits on some of its megaprojects, including its ambitious Neom development, which demands substantial foreign capital and expertise.
Uncertainties remain under the nascent RHQ program
Among the many considerations preceding a relocation to the Kingdom is the reluctance of many foreigners to settle there long-term. Despite a flurry of ambitious reforms pushing Saudi Arabia closer towards modernisation, the UAE, known for its cosmopolitan and liberal environment, will likely remain the more attractive choice for expatriates. Even with the prospect of higher salaries in Riyadh, concerns about securing quality schooling, healthcare, and social opportunities for foreigners linger.
Beyond hesitations on an individual scale, businesses have also struggled with some of the lack of clarity surrounding the technical implications of the RHQ program. There are several requirements for the six month period between a business obtaining its RHQ licence and opening its physical headquarters. Some of these include the presence of three decision-making executives in the office and periodic board meetings there.
The banking industry is one of the sectors facing uncertainty amid growing pressure to join the program. The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, was notably not classed as a government body under the RHQ program. The PIF is known for its widespread investments across a number of sectors globally, leading to some speculation that its inclusion might have encouraged more entrants. However, the PIF has recently started inquiring about the RHQ licence as part of its procurement process, leading to concerns among bankers hoping to collaborate with the fund.
Evolving scene
That notwithstanding, Saudi Arabia has undoubtedly been proactive in appeasing concerns and easing the transfer of newcomers to the country. In August 2024, Saudi Arabia announced a new investment law aimed at enhancing the Kingdom’s investment climate through increased transparency and fair treatment. The new law, pursuant to Royal Decree No. (M/19), will ensure that local and foreign investors are treated equally, ease mechanisms for repatriating funds, and create a new forum for resolving disputes outside the traditional court system.
The updated regulations are set to take effect in early 2025.
Saudi Arabia has also rolled out several Special Economic Zones (SEZs) as part of its Vision 2030. These zones, like King Abdullah Economic City, Jazan SEZ, Ras Al-Khair, and the Cloud Computing SEZ, are yet another push for foreign companies to reinvest earnings from government contracts back into the Kingdom. However, Saudi SEZs, implemented only last year, face stiff competition from regional players like the UAE, whose long-standing free zones boast well-established procedures and infrastructures, financial centres following English Common Law, and expansive incentives for foreign businesses.
Despite these efforts, questions remain about the Kingdom’s ability to balance investor expectations with localisation policies, such as Saudisation, which mandates companies to hire a certain percentage of Saudi nationals while delivering on its long-term Vision 2030 goals. As the Kingdom continues ramping up efforts to diversify its economy, companies are increasingly pressured to invest locally and hire Saudi nationals. By contrast, the UAE has loosened restrictions around foreign labour in line with its image as a business-friendly hub for global companies.
One year into the implementation of the RHQ program, it is clear that the policy is still in its early stages and remains subject to ongoing refinement. It is likely that Saudi authorities, including the Zakat, Tax and Customs Authority (ZATCA) and the Ministry of Investment (MISA), will continue to introduce or clarify regulations concerning eligibility, benefits, and compliance requirements. As such, it is essential for multinational companies to monitor updates in order to stay compliant with the evolving regulatory landscape.
If you have questions about navigating these changes or want to learn more about how our services can support your strategy in the Middle East, please contact us.