Saudi Arabia: The New Companies Law
The Kingdom of Saudi Arabia (KSA) has issued regulations governing KSA government agencies contracting with companies that do not have their regional headquarters in the KSA.
By way of background, the Regional Headquarters (RHQ) Programme is an initiative jointly developed by the Ministry of Investment (MISA) and the Royal Commission for Riyadh City which aims to attract multinational companies to establish their regional headquarters in the KSA. The RHQ Programme forms part of the Vision 2030 initiative to enhance and diversify the KSA economy.
In February 2021, the KSA government announced its intention to cease contracting with companies that do not have their RHQ situated in KSA.
On 27 December 2022 the KSA Council of Ministers issued a resolution approving the Regulations of Government Agencies Contracting with Entities that do not have a Regional Headquarter in KSA and their related parties (the Regulations).
The Regulations come into effect on 1 January 2024 and prevent all government agencies, when carrying out their works and securing procurements, from contracting with companies that do not have a RHQ in the KSA and their related parties.
MISA will be tasked with preparing a list of names of companies without a RHQ in the KSA and maintaining such list on an online portal.
The Regulations define companies that do not have a RHQ in the KSA as “foreign companies that do not have a RHQ in the KSA and have a RHQ in the Middle East and North Africa Region and are included in the list to be prepared and maintained by MISA”.
The Regulations also restrict government agencies from contracting with any related parties to those companies that do not have their RHQ in the KSA. The Regulations define a related party as any agent for companies that do not have a RHQ in the KSA, or any distributor, supplier or provider of their goods or services with respect to those goods and services.
It should be noted that the Regulations apply to all government agencies and not only those that are subject to the KSA Government Tenders and Procurement Law that came into force on 29 November 2019. The Regulations define KSA government agencies as ministries, governmental entities, public bodies, departments, institutions and independent agencies with a public legal personality.
The Regulations will not apply to government works or procurements with an estimated value of less than SAR 1 million (such threshold may be amended from time to time) or where the works are to be executed outside the KSA.
The Regulations also set out limited exceptions whereby government agencies will be able to contract with companies that do not have their RHQ in the KSA (or their related parties) in the following cases:
Government agencies that wish to benefit from the above exceptions must prepare a report that includes the reasons that prompted them to contract with a company that does not have its RHQ in the KSA and to provide the KSA General Auditing Bureau and the Expenditure and the Project Efficiency Authority with a copy of such report within 30 business days of signing a contract with the company in question.
The Regulations confirm that government agencies will be permitted to make applications to exempt certain companies from the Regulations for a certain period of time or for a specific project and that a special committee will be formed to consider such applications. The committee will be required to accept or reject applications based on the Regulations and what is deemed to be in the public interest.
We expect further guidance and regulations relating to the RHQ Programme to be announced in the coming months. It is important that companies that wish to contract with government agencies in the KSA consider their corporate structures and, if they consider appropriate, set-up their RHQ in the KSA before 1 January 2024.