RIYADH: Goldman Sachs Group Inc. has become the first Wall Street bank to establish its regional headquarters in Saudi Arabia. The New York-based investment bank has reportedly received a license from the Kingdom's Ministry of Investment, according to Bloomberg. This step marks a significant moment as Goldman Sachs is the first major Wall Street bank to comply with Saudi Arabia's new legal requirements for foreign firms operating in the kingdom.

According to the recently approved laws, companies seeking state contracts in Saudi Arabia must have a regional headquarters in the kingdom, employing at least 15 staff members. The regulations aim to reduce economic leakage—in other words, government spending that benefits firms without a substantive presence in Saudi Arabia. In response to this requirement, over 180 international companies now have regional offices in the Kingdom, far exceeding the original goal of 160 by the end of 2023.

Saudi Arabia offers lucrative tax incentives to foreign companies establishing their regional headquarters within its borders. These benefits include a 30-year exemption from corporate income tax and waiver of other income tax obligations for foreign entities making the kingdom their new operational base. These incentives play a critical role in Crown Prince Mohammed bin Salman's strategy to diversify the economy and reduce its reliance on oil revenues by attracting international investment.

While Goldman Sachs has already established its presence with offices in Doha, Riyadh, and Dubai, this latest move underscores the bank's commitment to expanding its operations in the Gulf region. However, the specifics concerning how many employees will permanently relocate to Riyadh and what portion of Goldman's overall Middle Eastern operations will be anchored in Saudi Arabia remain unclear.

The establishment of a regional headquarters in Riyadh is part of a broader trend. In 2021, Saudi authorities introduced new regulations compelling foreign firms to establish a significant presence in the kingdom to qualify for state contracts. These regulations took full effect this year, intensifying the race among multinational companies to establish their offices in Saudi Arabia. The kingdom has successfully attracted over 400 global companies to secure regional HQ licenses, reflecting its aggressive plans to deepen its financial market presence.

However, banks have shown greater hesitation compared to other firms like those in the manufacturing and technology sectors. Despite increased hiring efforts by financial institutions such as JPMorgan Chase, Deutsche Bank, and HSBC, bankers have voiced concerns over the lack of regulatory clarity. Financial services in Saudi Arabia are currently regulated by the Saudi central bank and the Capital Markets Authority, unlike the more independent regulatory environments found in Abu Dhabi and Dubai.

Saudi Arabia has made considerable social and economic reforms under Crown Prince Mohammed bin Salman. The kingdom has loosened restrictions around gender mixing, enabled women to drive, and ramped up public entertainment options. However, challenges remain, such as limited housing, schooling, entertainment, and a ban on alcohol, which continue to make foreign executives hesitant to relocate.

Despite these hurdles, Saudi Arabia aims to position itself as a leading financial hub in the Middle East, rivaling established centers like Dubai and Abu Dhabi. The kingdom is investing heavily in its Vision 2030, a strategic framework aimed at reducing dependency on oil by investing in sectors such as clean energy, entertainment, sports, and tourism.