Contracting regulations for companies with no Regional Headquarters in KSA

Following the Council of Ministers’ Decision No. 337 dated 27 December 2022, detailed regulations were issued under Decision No. 461 in December 2023, introducing controls on government agencies contracting with companies without a Regional Headquarters (RHQ) in the Kingdom of Saudi Arabia (KSA) and their related parties (the “Controls”).

Effective from 1 January 2024, government agencies, when conducting business and securing purchases, may not contract with “companies with no RHQ in the Kingdom” or any of their “related parties,” except in accordance with the Controls.

Key definitions

• “Companies with no RHQ in the Kingdom” are defined as foreign companies lacking an RHQ in the Kingdom but have one in the Middle East and North Africa region. They are included in the list prepared by the Ministry of Investment, in coordination with the Ministry of Finance and the General Authority for Foreign Trade, that will be published in the unified electronic portal for government procurement.
• “Related parties” of companies without RHQ in the Kingdom are their agents, distributors, suppliers, or providers of goods or services.

Controls for contracting with companies with no RHQ in the Kingdom

• Government agencies may contract with companies without RHQ in the Kingdom or their related parties without RHQ in KSA under the following conditions:
  • The estimated cost of works and purchases is less than one million Saudi Arabian Riyals (SAR 1M).
  • The purchases are executed outside the Kingdom.
• Companies without RHQ in the Kingdom and their related parties may submit proposals for any public tender offered by government agencies. However, these proposals may only be accepted if:
  • There is only one technically acceptable proposal.
  • The proposal submitted is the best from a technical perspective, and its value is at least 25% less than the value of the second-best proposal.
• Government agencies may not invite companies without RHQ in the Kingdom or their related parties to participate in limited tenders, except in the following cases:
  • There is only one qualified bidder (excluding companies without RHQ in the Kingdom and their related parties).
  • There is an emergency that can only be addressed by inviting companies without RHQ in the Kingdom or their related parties.
• Government agencies may not invite companies without RHQ in the Kingdom or their related parties to contract directly with them, except in the following cases:
  • The purchases are exclusively available from the company without RHQ in the Kingdom or its related parties
  • .There is an emergency that can only be addressed by direct contracting with the company without RHQ in the Kingdom or its related parties.

Exemption from the Controls

• A government agency may contract with a company without RHQ in the Kingdom or its related parties for a project or a specified period, provided the “Committee on Exemption from the Controls of Government Agencies Contracting with Companies without Regional Headquarters in the Kingdom and the Related Parties” approves a request from the government agency.
• The Committee, formed under the Ministry of Finance, will be chaired by a representative from the Ministry of Finance, with members representing the Ministry of Investment, the Local Content and Government Procurement Authority, the Government Expenditure and Projects Efficiency Authority, the Saudization and Balance of Payments Committee, and up to three experienced and specialized members appointed by the Minister of Finance in agreement with the Minister of Investment.

Reporting of contracts with companies without RHQ in the Kingdom or their related parties

Government agencies that contract with a company without RHQ in the Kingdom or its related parties must report the reasons for such contracting to the General Court of Audit and Government Expenditure within 30 business days from the date of signing the contract.

Regional Headquarters in KSA

In February 2022, The Ministry of Investment of Saudi Arabia published detailed guidance of what constitutes a RHQ, along with an explanation of the RHQ prescribed activities, licensing, and employment regulations.

According to the guidance, multinational groups with foreign parents, that conduct business in more than two jurisdictions through the parent entity, subsidiaries, branches, or affiliates, may apply for a RHQ license in KSA to support, manage, and provide strategic direction to their branches, subsidiaries, and affiliates operating in the MENA region. 

The guidance further specifies that an RHQ is limited to performing RHQ activities and must provide mandatory RHQ activities within six months after the grant of the RHQ license and at least three optional RHQ activities within twelve months after the grant of the RHQ license.

Mandatory RHQ activities:

• Formulating and monitoring the regional strategy.
• Coordinating strategic alignment.
• Embedding products and/or services in the region.
• Supporting acquisitions, mergers, and divestments.
• Reviewing financial performance.

RHQ management functions: 

• Business planning.
• Budgeting.
• Business coordination.
• Identifying new markets.
• Monitoring regional markets, competitors, and operations.
• Marketing plan for the region.
• Operational and financial reporting.

Optional RHQ activities:

• Sales and Marketing Support.
• Human Resources and Personnel Management.
• Training Services.
• Financial Management, Foreign Exchange, and Treasury Centre Services.
• Compliance and Internal Control.
• Accounting.
• Legal.
• Auditing.
• Research and Analysis.
• Advisory Services.
• Operations Control.
• Logistics and Supply Chain Management.
• International Trading.
• Technical Support and Engineering Assistance.
• Network Operations for IT Systems.
• Research and Development.
• Intellectual Property Rights Management.
• Production Management.
• Sourcing of Raw Materials and Parts.