On 1 January 2024, a rule approved by the Council of Ministers took effect: government entities, institutions and government-affiliated funds may not contract with foreign companies whose regional headquarters for the Middle East and North Africa is outside the Kingdom. The restriction also extends to those companies’ agents, distributors and suppliers.
Who it applies to
The rule targets foreign companies on a list maintained by the Ministry of Investment whose regional headquarters sit elsewhere. It does not require every foreign company to open an RHQ, but for groups that want government business in Saudi Arabia it has become a strategic question rather than an administrative one.
The exemptions
- Contracts below SAR 1 million
- Work carried out entirely outside the Kingdom
- Tenders with only one technically compliant bid
- Where the best technical bid is at least 25% cheaper than the next
- Emergencies, or where only one provider is available
- Since November 2025, government entities can request exemptions for specific projects through Etimad before tendering
One question comes up often from software companies: does a service delivered remotely count as work carried out entirely outside the Kingdom? No published guidance answers it yet, so treat it as open and take advice on the specific contract before relying on the exemption.
What an RHQ involves
An RHQ licence requires at least 15 full-time employees within the first year, including three executives, and operations must start within six months of licensing. The RHQ itself may not earn commercial revenue: commercial work runs through licensed affiliates in the Kingdom.
The incentives
- 0% income tax on eligible RHQ income for 30 years, renewable
- 0% withholding tax on qualifying dividends and payments
- A 10-year Saudization exemption, visa facilitation and a waiver of local professional accreditation
More than 700 companies had established RHQs by the end of 2025.
| Entry route | Control | Speed to market | Set-up cost | Market and tender access | Partner dependence | Best suited to |
|---|---|---|---|---|---|---|
| Joint venture with a Saudi partner | Medium | Medium | Medium | High | High | Tenders and projects where local presence, content and relationships decide eligibility |
| Agent or distributor | Low | High | Low | Medium | Medium | Testing product demand quickly with low commitment, under an agreement registered with the Ministry of Commerce |
| Wholly owned company (LLC) | High | Low | High | Medium | Low | Long-term operations where control and IP protection matter most |
| Branch of the foreign company | High | Medium | Medium | Low | Low | Project delivery by an established foreign firm under its own name |
| Regional headquarters (RHQ) | High | Low | High | High | Low | Groups seeking government contracts and a regional base, with 0% tax on eligible RHQ income for 30 years |
Indicative comparison for orientation only; the right route depends on sector, buyers and ownership rules. Not legal advice.
How to decide
Start from the pipeline. If a meaningful share of your target revenue sits with government entities, model the cost of an RHQ against the contracts it unlocks and the tax incentives, and compare it with partnering with a Saudi firm that can contract in its own name.
It is rarely a straight choice. Many groups do both: an RHQ that keeps them eligible for government work, and a Saudi partner or joint venture that brings local content, relationships and delivery capacity. More than 700 groups had made the RHQ decision by the end of 2025, against an original 2030 target of 500.
Sources
- Clyde & Co, Saudi Arabia regional headquarters programme
- Deloitte, contracting regulations for companies without an RHQ
- DLA Piper, RHQ tax and non-tax incentives (2024)
- ZATCA, Guideline for Regional Headquarters in KSA
- Royal Commission for Riyadh City, RHQ programme
- Arab News, RHQ exemptions (February 2026)
Figures reflect the latest published data at the date shown. This briefing is general information, not legal, tax or investment advice.