Restrictions for Government Contracts and Other Legislative Reforms Forthcoming
February 24, 2021
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At a Glance
- Effective January 1, 2024, international businesses without regional headquarters in Saudi Arabia will not be able to contract with agencies, institutions and funds owned by the Saudi government.
- The proposed law does not aim to restrict companies already in Saudi Arabia nor those seeking to establish their presence in the Kingdom from doing business with the private sector.
- Under the new law, companies that choose to set up or relocate their headquarters in Saudi Arabia will be exempt from Saudization requirements.
- As many industries in Saudi Arabia are government-owned and operated, this law could have a significant impact on company operations within the country.
The situation
The Ministry of Investment announced that international businesses without regional headquarters in Saudi Arabia will not be able to contract with agencies, institutions and funds owned by the Saudi government, under a law going into effect January 1, 2024.
A closer look
The new law contains the following details:
- Definition of regional headquarters. The Saudi Minister of Investment stated that companies will be required to have their executive staff, operations and support functions based in Saudi Arabia, preferably in Riyadh, in order to be able to refer to that entity as their regional headquarters. Other locations in Saudi Arabia, including Dammam and Jeddah, can also qualify as a regional headquarters after a pre-approval by the Saudi government.
- Exemption from Saudization. Companies that choose to set up or relocate their headquarters in Saudi Arabia will be exempt from Saudization requirements. It is not clear to what extent this incentive will be implemented but it is expected that the Ministry of Human Resources and Social Development will release more information on this exemption in the next two years.
Impact
As many industries in Saudi Arabia are government-owned and operated, this new law could have a significant impact on how companies conduct business in Saudi Arabia. With the incentive to allow companies to contract with the government sector and avoid Saudization requirements by creating their regional headquarters in Saudi Arabia, many companies with government contracts operating in the country may decide to move their regional headquarters to Saudi Arabia.
The proposed law does not aim to restrict companies already in Saudi Arabia nor those seeking to establish their presence in the Kingdom from doing business with the private sector.
Background
This new law is aligned with Saudi Arabia’s plan to announce a new strategy to encourage foreign investment in Riyadh, which, with a population estimated to be around 15 to 20 million by 2030 and its relatively inexpensive infrastructure and real estate development costs, is expected to become one of the world’s top urban economies.
Looking ahead
Further details relating to this law are expected later this year. Additionally, the government is considering other legislative reforms that will be announced in the coming months, including:
- changes to the Premium Residency Card Program, which has opened a path for retirement in Saudi Arabia; and
- NEOM – a cross-border city that is planned to be built by 2025, that will connect Saudi Arabia with neighboring countries and serve as an innovation incubator, tourist destination and a model of sustainable and data-driven living for the world.
Fragomen will report on related developments.
This alert is for informational purposes only. If you have any questions, please contact the global immigration professional with whom you work at Fragomen or send an email to [email protected].
