RIYADH - Saudi Arabia's deadline for foreign firms to establish their regional headquarters in the kingdom or lose out on hundreds of billions of dollars in government contracts went into effect on Monday as did several exceptions to the rule. The exceptions include contracts below 1 million riyals ($266,681), contracts executed outside of the kingdom, deals with companies that are the sole providers of their service or commodity, and emergencies that can only be addressed by a foreign company without regional headquarters, the state gazette Um Al-Qurra reported previously.

Companies without regional headquarters can still compete for government tenders, but government agencies will only be able to approve them if they are technically superior and 25% cheaper than the next best offer, or if there are no competing offers.

The Saudi cabinet announced its approval of contracting regulations last week, but did not release details at the time.

It did not specify what how many contracts below 1 million riyals a foreign firm could sign with the same government agency.

Foreign companies had rushed to prepare for the deadline as they complained of unclear tax and jurisdiction regulations. Tax incentives, including a 30-year exemption for corporate income tax, were announced than less than a month ahead of the deadline.

In November, Saudi investment minister Khalid Al-Falih said that 180 companies had agreed to establish their regional headquarters in Riyadh.

As the world begins to move away from oil, Gulf states have been vying for influence and foreign capital. The ultimatum puts Riyadh in competition with its neighbour the United Arab Emirates, the traditional financial hub of the region, and is part of efforts by Crown Prince Mohammed bin Salman to wean the economy off oil and draw foreign business into the kingdom.

($1 = 3.7498 riyals)

(Reporting by Pesha Magid; editing by Jason Neely)