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Saudi Arabia, also known as the Kingdom of Saudi Arabia (KSA) ranks among the first twenty world economies and the largest in the Middle East and Arabian peninsula. It is mostly an oil-based economy with almost 16% of world petroleum and 5% of natural gas reserves and the largest exporter of petroleum. Over the years, the Saudi Government has taken many business-friendly social and economic initiatives for attracting foreign investments, and many investors and business owners across the globe are getting attracted to company formation in Saudi Arabia.
The Saudi Government has embraced several reforms in attracting foreign investment, empowering women, increasing employment and social opportunities and expanding the role of private sectors and MSMEs in its economy to reduce its dependence on oil exports. Economic Policy reforms in recent times have greatly facilitated doing business in Saudi Arabia and transformed it into a diversified economy.
Best known for its huge oil industry, Saudi Arabia is the largest free-market economy in the Middle East and North Africa (MENA) with an approximate 25% share of total Arab GDP. The geographic location provides easy access to many export markets including Europe, Asia and Africa. Domestic consumption driven by a young and wealthy community is increasing steadily and continuously expanding local demand and accelerating the rate of company formation in Saudi Arabia.
KSA with the highest level of safe and secure business climate and political stability offers low energy cost and 100% foreign ownership in retail and wholesale sectors as a large privatization programme. Massive policy reforms have been recently undertaken by the nation claiming a rank amongst the top ten business climate improvers in 2019 as per World Bank Group’s Doing Business 2020 report.
World Bank Regional Director of the Gulf Cooperation Council (GCC) and MENA, Issam Abousleiman said, “Saudi Arabia’s impressive reforms in doing business this year show its commitment to fulfilling the main pillar of its National Vision 2030: a thriving economy.” He also highlighted, ” Easing the business climate for local entrepreneurs to thrive as well as foreign investors to work in the Kingdom shows a forward path to creating more jobs for Saudi youth and women, and creating sustainable, inclusive growth.”
Major reforms done in areas as per World Bank study 2020 to attract more foreign investments and doing business in Saudi Arabia are
- A one-stop system simplifying and easing business startups
- Protection of minority investors
- Simple and easier Enforcement of contracts
- Easier availability of credits through new insolvency law and secured transactions law
- Online platform for construction permits
- Cross border trading and investments
- Easy resolution of insolvency and financial restructuring
- Streamlining availability of power
High standards of living and a young society are boosting the domestic demand and various business sectors are offering immense success and growth possibilities in the KSA now. Following are some lucrative sectors for doing business in Saudi Arabia.
- Tourism and Hospitality
- Steel Manufacturing
- Engineering and Technology
- Real Estate
- Lubricants, Glass and Plastics
- Healthcare and Pharmaceutical
- Financial services
- Media and Entertainment
Saudi Arabia, one of the largest emerging economies in the MENA and the MEASA regions offer many different corporate vehicles to its prospective business owners and investors. An understanding of the right corporate entity is important before an investment decision is made.
Company formation in Saudi Arabia and operations of the corporate entities come under the New Companies Regulations (NCR) act came into existence on 2nd May 2016.
The five forms of companies available for both local and foreign businesses in Saudi Arabia are
- 1. Limited Liability Company (LLC)
It is the most commonly formed company in Saudi Arabia. It allows minimum liability for owner’s against company debt. An LLC company is not permitted more than 50 shareholders.
- 2. Joint Stock Company (JSC)
It consists of capital that is divided into shares of equal value.
- 3. Single Member Limited Liability Company (SMLLC)
It is a limited liability company and can have a sole owner who owns all the shares of the company. There are many benefits of owning an SMLLC and one can’t own more than one such company.
- 4. Limited Partnership Company (LLP)
It is a partnership company in which some or all partners have limited liability with elements of partnerships and corporations.
- 5. Joint Ventures
Besides, special business forms are available to foreign companies for doing business in Saudi Arabia.
- Branch Office
- Representative Office
With Policy Reforms underway, Saudi Arabia is relentlessly pursuing its privatization initiatives and striving to make the company set up process easier and more convenient. One can expect to complete company registration in Saudi Arabia and carry out business activities within a period of six to nine months.
During this process, due diligence is done on the optimum business type, paid-up capital and license requirement. Following are list items to be considered during this phase
- The name of Business/ Company
- The Type of Business Entity; LLC, JSC, Branch Offices or other types
- Organizing Documents such as Business License, Certificate of Incorporation, Board Resolution, Power of Attorneys etc.
Once everything has been planned and reviewed, the company registration in Saudi Arabia can be started with simultaneously working on different steps to optimize the time duration. The steps involved are
It is a government program mainly for foreign company registration in Saudi Arabia and managed by Saudi Business Centre for facilitating procedures and providing services for business operations to speed up the business setup process. Companies can register with a municipality under MERAS and a physical office will be required for registration. The complete registration has to be submitted to the Saudi Arabia Ministry of Commerce and Industry (MOCI)
The Certificate of Registration (CR) is normally issued in 6 weeks and the company does tax registration. Under MERAS, companies can notarize the Articles of Association online, register with the Ministry of Labor and Social Development (MLSD) the General Organization for Social Insurance (GOSI) and the General Authority of Zakat & Tax (GAZT) including registration with Wasel.
Company seal needed for contractual agreements, shareholders and management resolutions, Government documents, Official letters and notices must bear the CR number and Company name.
Within 30 days of registration of CR, all business entities seeking company registration in Saudi Arabia need to submit the certificate of membership obtained from the Chamber of Commerce and Industries (CCI).
A local bank account required to be opened within 90 days of issuance of Commercial Certificate.
Once the company is incorporated, the following activities need to be initiated for completion of the entire process of company formation in Saudi Arabia.
- Saudi Employment Visas
- Conversion of Bank Account to a corporate bank account
Saudi Arabia has implemented two types of free zones to attract foreign investments in economic and industrial activities. While industrial free zones are dedicated mostly for manufacturing industries, the economic free zones were launched for basic economic activities such as Agriculture, Healthcare, Education, Logistics, Science and Research etc.
The industrial cities were built during the 1980s and subsequently transformed into great economic hubs. Economic cities were established at the start of this century and are still being developed. Both the industrial and economic free zones allow 100% foreign ownership besides offering tax exemptions and low tax rates.
Free zones development plan mainly emphasized the need to diversify the country’s economy and reduce its reliance on oil and gas through the utilization of non-oil resources.
Presently, Saudi Arabia, has 28 industrial cities administered and maintained by Saudi Industrial Property Authority and offering custom duty exemption on raw material and equipment, easy availability of loans up to 75% of the capital, extended repayment period of loans up to 20 years and low land lease. Two most famous industrial cities are Yanbu and Jubail and major petrochemicals, fertilizers, steel, iron and chemical manufacturing facilities are located here.
Tax incentives are yet to be implemented in the economic cities which would include custom duty exemptions on raw materials and machinery, lower tax on training and salary cost and overall tax exemptions on some specific business units. Famous economic cities are Jazan economic city, Knowledge economic city and Prince Abdulaziz Bin Mousaed Economic city.
No personal income tax is levied on employees earnings however, companies are taxed based on the company type and business set up.
All registered companies come under the jurisdiction of corporate tax including companies and branches owned by foreign investors. The applicable tax rate is 20% for non-listed companies.
Tax is imposed based on net profits. Incomes earned through interest are also taxed for non- Saudi and non-GCC nationals. The Saudi and GCC nationals, however, need to pay a 2% religious tax called Zakat tax.
Withholding taxes are levied on entities who make payments to foreigners e.g rent and management fees. Withholding tax rates are imposed at different tax rates and 20% for management fees, 15% for royalties, and 5% for rent, airline tickets & freight and international telecommunications services.
100% Foreign investment is allowed in the service sector. Trading and retail business are mostly prohibited from foreign investors. Following is a list of prohibited activities that include but not limited to
- Defence and military equipment manufacturing including uniforms and related devices
- Security Services and Investigation Agencies
- Brokerage companies in Real Estate
- Drilling and Exploration of Oil and Gas
- Fishery Business
- Real Estate Investment in Medinah and Makkah
- Printing and Publication Business
Though there is no statutory minimum capital requirement, normally SAGIA requires foreign LLCs to have SAR 500,000 capital minimum. Based on activities, the minimum paid-up capital requirements are
- 100% Foreign Commercial: SAR 30 million with a commitment for at least SAR 200 million investment in the first five years.
- Commercial with 25% Saudi Partner: SAR 7 million and a minimum SAR 20 million contribution from the foreign investor
- Service & Property Investment, Real Estate SAR 30 million.
- Trading SAR 20 million
- Service Transport: SAR 500, 000
- Agriculture: SAR 25 million
- Contracting: SAR 500,000
The covid pandemic has brought new sets of challenges to the world economy and Saudi Arabia is no exception. In all probability, the FDI inflow is going to contract and especially when most of the investments are in primary manufacturing, the worst affected sector due to supply chain disruptions. However, international monetary organizations and the world bank expect a V-shaped much faster rate of recovery for Saudi Arabia and the other Middle East countries. Recent UAE Israel diplomatic peace accord will result in regional political stability and a faster post covid recovery.
Attracting more and better FDI is critical in the reconstruction of the post covid economy in Saudi Arabia. In response to covid, Saudi Arabia announced a set of support packages to support the private business community.
In March, the Saudi Government approved $ 18.6 billion in fiscal initiatives to combat this crisis. Besides, additional measures have been taken including funding for lending, loan guarantee program, extending working capital finance, waiver of minimum deposit balance, waiver of fees and other charges, deferred payment programs, tax payment deferrals and tax rate reduction etc.
The KSA in its 3rd and last leg of Covid Pandemic with no curfew in cities and all commercial activities coming back to normal. It can be inferred almost with certainty that post covid FDI scenario will be encouraging for Saudi Arabia and more numbers of private players will be attracted for new.
IMC has the experience and expertise to advice customers on the suitable company type taking in to account the laws of the land and the unique customer’s needs. We have the experience having handled different industries and geographies across the world. We understand finance and the legal framework required to handle a company’s operations. We will advise on the percentage of shareholding allowed for foreigners, and the rights which go with that percentage and other such business matters. IMC has been operating in GCC for over 10 years. With a partnership in Saudi Arabia, IMC is closer to the customer with a better understanding of the Saudi ArabiaCompanyLaws and Practices.
The Saudi Arabian General Investment Authority (SAGIA) is the foreign investment company registration license provider for the Kingdom.
100% foreign investment allowed in service sector. However, trading and retail activities is reserved for Saudi National and Saudi owned entity only.
- Service Company taxed @20%
- Saudi Owned Local companies taxed @2%
SAGIA may prescribe additional requirements
- Industrial: SAR 1m ($0.27m)
- Services: NA but recommended to maintain $0.13m
- Agriculture: SAR 25m ($6.67m)
- Real estate: SAR 30m ($8m)
- Trading: SAR 20m ($5.33m)
There is no personal income tax on income earned by individual and employees. However, there are three type of taxes levied on the Companies based on the shareholding structures:
Where a company is owned by both Saudi and non-Saudi interests, the portion of taxable income attributable to the non-Saudi interest is subject to Corporate tax, and the Saudi share goes into the basis on which Zakat is assessed.
Basis for Corporate Taxation:
- Tax is on the net adjusted profits
- The share of profits attributable to interests owned by non-Saudi / non-GCC nationals is subject to income tax.
- The share of profits attributable to interests owned by Saudi / GCC nationals is subject to Zakat (religious levy).
Withholding tax rates
|Royalty or proceeds||15%|
|Payments for airline tickets, air or maritime freight||5%|
|Payments for international telecommunications services||5%|
|Type||Limited Liability Company (WLL)|
|Under Saudi Law, Foreigners Can own||100% (in certain activities) subject of FSI approval and manufacturing / trading requires local national participation|
|Share Capital||SR 500,000|
|Memorandum & Article of Association||Yes|
|Can the Entity hire Expatriate in Saudi||Yes|
|Type||Limited Liability Company (WLL)|
|Saudi Resident Secretary Required||Yes|
|Statutory Audit Required||Yes|
|How Long to open corporate Bank Account?||4 Days|
|Timeframe for Incorporation||6 Months|
|Annual Return||Must be Filed|
|Annual Tax||Must be filed|
|Access to Saudi Double Tax Treaties||Yes|
Having decided on the type and structure, we can assist in every step of the way starting from drafting the incorporation documents, listing out the documents required to be filed, documents to be notarized and other formalities. We can advise on the licenses required for specific industries. If a local attorney or a CPA need to be hired, we will handle this. We will coordinate filing the applications, getting the name approved and all the steps required. We can also assist in opening the bank account for the company.