RIYADH: As a result of ongoing economic reforms, Saudi Arabia recorded a 29.13 percent surge in foreign direct investment inflows in the third quarter of 2023, compared to the previous three months.
FDI inflows, which refer to the total amount of capital and investment into Saudi Arabia from foreign investors or entities, totaled SR7.99 billion ($2.13 billion), a rise from SR6.2 billion recorded in the previous quarter, data from the Saudi Central Bank, also known as SAMA, showed.
By contrast, the Kingdom’s total investment in foreign countries dipped by 8 percent during the same period and amounted to SR17.21 billion.
This rise in FDI coincides with Saudi Arabia’s implementation of substantial legal, economic, and social reforms to attract greater external funding.
These efforts encompass various initiatives, such as the introduction of the National Investment Strategy, the launch of the regional headquarters program, and newly introduced tax incentives, including zero levies, for foreign companies.
Regarded as a crucial enabler of Vision 2030, this new strategy aims to propel the growth and diversification of the Kingdom’s economy.
As outlined in Vision 2030, this involves elevating the contribution of FDI to the gross domestic product to 5.7 percent and positioning Saudi Arabia among the top 10 economies in the Global Competitiveness Index by 2030.
Furthermore, in February 2021, the Saudi government expressed its intention to restrict contracts with foreign companies without regional headquarters in the Kingdom. A year later, guidelines were issued to encourage companies to establish such bases in Saudi Arabia.
The Ministry of Finance later set January 2024 as the deadline following which the government agencies would face limitations in conducting business with companies operating without their regional headquarters in the Kingdom.
Investment Minister Khalid Al-Falih, in a November interview with Bloomberg, stated that the number of licenses issued to companies for the establishment of their regional headquarters surpassed the Kingdom’s target of 160 by the year end. Over 200 international firms from various sectors, including energy, technology, health care, and hospitality, have now set up bases in Riyadh, he added.
Noted firms that relocated to the Kingdom include Northern Trust, Bechtel, and Pepsico from the US, and IHG Hotels and Resorts, PwC, and Deloitte from the UK.
From Jan. 1 onward, the Investment Ministry, in collaboration with the Ministry of Finance and the General Authority for Foreign Trade, will create a list of companies without headquarters in the Kingdom. This list, to be updated regularly, will be accessible on the unified electronic portal for government procurement. As a result, such companies will only be considered for government projects under exceptional circumstances.
The ministry also announced a zero income tax policy in December 2023 for foreign entities relocating their regional headquarters, effective from the license issuance date. This incentive incorporates no levy on corporate profits for 30 years.
According to the investment minister, the tax exemptions will provide these firms with increased stability and strengthen their ability to plan for the future and expand their business within the region.
“The tax incentive gives multinational companies operating in the region yet another reason to make Saudi Arabia home to their regional headquarters, on top of other benefits such as relaxed Saudization requirements and work permits for the spouses of RHQ executives,” the minister stated, as reported by the Kingdom’s official news agency.