Essentially an oil-based economy, Saudi Arabia enjoys a great global reputation as a business-friendly nation. The country is a member of several international institutions including WTO, G20, GCC, OPEC etc. and offers huge investment opportunities. Construction, real estate, healthcare and life sciences, education, energy, chemicals, IT and Industrial Manufacturing are the most sought after non-oil business sectors for company registration in Saudi Arabia.
Saudi Arabia recently made significant improvement in all its global business indices rankings and as per the latest “ease of doing business” report of the World Bank advanced 30 places to 62nd from its 92nd ranking in 2018.
The World Bank reported the Kingdom as one of the greatest reformers in economic and social aspects propelled by the Saudi Vision 2030 which introduced many regulatory and policy reforms to simplify doing business in Saudi Arabia and attract foreign investment in the country.
The Kingdom has been a staunch advocate of technological innovation to bring improvement in many diverse areas such as education, health care and desalination and power distribution. King Abdulaziz City for Science and Technology (KACST)) as well as the already planned USD 500 billion high-tech mega-city will also help in fuelling the country’s economic growth.
The following business structures are available in Saudi Arabia as per the company regulations
- Branches of a foreign company most commonly incorporated by foreign investors.
- Joint Stock Company.
- Joint ventures.
- Representative Office (Technical and Scientific Office, TSO).
- Limited Liability Companies also preferred by most foreign investors.
- Limited partnership.
- General partnership.
To open a company branch office in Saudi Arabia, or to set up an LLC, the waiting time is usually three to six months before you get the commercial registration from the Saudi Arabia Ministry of Commerce and Industry. The steps involved are as under
- Obtaining an investment license from the Saudi Arabian General Investment Authority (SAGIA).
- Notarizing the articles of association.
- Opening a local bank account and making the initial deposit.
- Registering with the Customs department.
- Registering with the Ministry of Labor.
- Register with the Mudad Business Portal to facilitate admin and finance procedures for your business entity.
- Reserving the company name and submitting AOA, articles of association and other mandatory documents.
- Making payment for company registration.
- Registering with the General Organization for Social Insurance (GOSI).
- Registering with the Chamber of Commerce.
- Obtaining a municipality license.
- Registering with the electronic Qiwa HR portal.
All documents needed for submission must be translated into the Arabic language for filing with the regulatory bodies.
All non-Saudi nationals as per the foreign investment act are allowed to make investments in the Kingdom and can become stakeholders in minority, majority or 100 per cent foreign-owned ventures. However, there are sectors where foreign investment is not allowed as per the “negative list” issued by the government.
The sectors not included on the negative list should be treated as open to foreign investments. Saudi foreign investment act allows equal opportunities to non-Saudi firms. Expropriation of foreign-owned assets is only permitted as an exception under Saudi laws. The Kingdom permits buying property and allows businesses to sponsor their employees.
Specifically designed to attract foreign investment, Saudi Arabia extends the following incentives to the foreign investors
- Export credit financing.
- Subsidized power, water and natural gas.
- Financial incentives for R&D projects that enable economic growth.
- Loan facilities for industrial investments both in public and private sectors.
- For foreign investors investing in some underdeveloped provinces including Jazan, Najran, Al-Baha, Al-Jouf, Ha’il and Northern territory, the government allows 10-year tax concessions.
- Customs duty waiver on some specific materials, machinery and equipment.
- Employment-related support by Human Resources Development Fund (HRDF).
- No major restrictions by the Saudi Arabia Monetary Authority (SAMA) on the inward or outward movement of funds by companies.
- An LLC can be incorporated by one shareholder instead of a minimum of two mandated earlier.
- Reduction in minimum share capital requirement for JSCs to SR500,000 from SR2,000,000).
- Reduction in the minimum number of shareholders for JSCs to two from five.
- Reduction in yearly statutory reserve requirements for LLC shareholders to 30 per cent from 50 per cent earlier.
A resident corporation is taxed on income generated in Saudi Arabia and considered resident when registered as per the regulations for companies in Saudi Arabia or its head office in the country.
Any non-resident carrying out income generation activities through a permanent entity is taxed on income accrued to it.
Only non-Saudi investors are liable for income tax and GCC nationals are treated as Saudi citizens for tax purposes. Non-Saudi taxpayer’s share of a resident company or a Non-resident’s income from a permanent establishment in Saudi Arabia attracts 20 per cent corporate income tax and Zakat at a flat 2.5 per cent rate.
A company in Saudi Arabia having both Saudi and foreign shareholders is liable for corporate income tax based on the portion of taxable income from the non-Saudi operation, while only religious tax Zakat is applied to Saudi business activities. Saudi Arabia doesn’t provide any foreign tax relief to foreign companies.
Withholding tax is levied while distributing dividends to the non-residents including non-resident GCC shareholders and at a 5 per cent rate.
Capital gains are subject to Zakat and the government doesn’t levy any tax on capital duty, stamp duty and real estate duty.
There is no withholding tax on payments made to non-residents for the import of goods.
The Ministry of Investment of Saudi Arabia (MISA) has several branches in Riyadh, Jeddah, Dammam, Medina, and Jubail to serve the investors and address their issues.
Many industrial sites are built to attract foreign investors in Riyadh, Jeddah, Dammam, Qaseem, Al-Ahsa and Mecca offering subsidiary companies tax exemptions for 5 years with subsidized electricity, water, fuel etc.
Due to the covid pandemic, the Saudi government deferred income tax and zakat filing for 3 including the postponement of filing of withholding tax returns for the months. of March, April and May for 3 months. The government is also planning additional tax and financial incentives to mitigate the adverse effects of the pandemic.