Tuesday, January 18, 2022

Transferring the headquarters of foreign companies to Saudi Arabia … “the hammer of time and the anvil of opportunities”

Imposes the date set by the Kingdom of Saudi Arabia for international companies to establish their regional centers in Riyadh by 2024 (as a precondition in case they wish to deal with government bids), which imposes on these companies the need to make a decision that will determine whether or not to enhance their investment opportunities in the Kingdom.

The costs associated with these consequences, and changes in policy and related legal provisions, mean that companies will need to assess the risks of establishing regional headquarters in Saudi Arabia against the potential incentives promised by Saudi Crown Prince Mohammed bin Salman in light of economic reform.

A sleeping giant wakes up
Last Monday, the Kingdom of Saudi Arabia announced that it would grant government contracts only to international companies that have regional centers in the country, and attributed this to the need to stop the economic “leakage”.

International companies appear to have jumped from crises such as the arrests campaign that the Kingdom of Saudi Arabia has already witnessed (in 2017) against businessmen and members of the royal family in what is known as the “campaign against corruption”, and the crisis of the killing of the opposition journalist Jamal Khashoggi in 2018. However, the changes in the laws The sudden doubling of the value-added tax by three times has apparently caused uncertainty, especially as it adds to the cost burden.

Other Workarounds

Executives at several international companies said they are seeking alternative solutions.

A director at a global food company with its regional headquarters in Dubai said that his company could provide a second center for the Middle East in Riyadh, or ask local Saudi partners to work under its umbrella.

An executive at a company working in the advertising field said that the company intends to open a headquarters in Saudi Arabia, thanks to more work while keeping Dubai as a regional office.

During the fourth round of the “Future Investment Initiative” event in Saudi Arabia last month, 24 international companies, including “PepsiCo” and “Bosch” (a German multinational engineering and technology company), said that they had signed preliminary agreements to establish regional headquarters in Riyadh. , Although she waits for details before making commitments.

“It is likely that the time during the three years (until 2024) will represent a major shift for companies,” said Nono Gomez, Head of Recruitment for the Middle East, at Mercer Consulting, and it is estimated that the additional costs of opening a regional office in Riyadh will be 15%. 25%.

Saudi officials are aware of the scale of the challenge and are introducing changes such as an orderly reform of the judiciary, while rumors spread (among foreigners) to the point of indicating the possibility of easing the ban and drinking alcoholic drinks.

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