For over a decade, Healy Consultants efficiently and effectively assists our Clients set up businesses in Saudi Arabia. If you are a foreign investor contemplating investment or doing business in Saudi Arabia, the following information will assist your Firm determine the optimum corporate solution to fulfill your Middle East business objectives:
For most business sectors, foreign entrepreneurs can undertake Saudi Arabian company registration and can wholly own a local limited liability company (llc) without Saudi shareholder involvement. Entrepreneurs must obtain a foreign capital investment license from the Saudi Arabian General Investment Authority (SAGIA);
2.
A Saudi LLC must appoint i) a minimum of one director and two shareholders and ii) a minimum issued share capital of US$267,000;
3.
While foreign companies prefer to establish a wholly owned subsidiary, there are advantages to having a local Saudi shareholder. Advantages include i) introduction to business network ii) ability to obtain interest-free Government loans iii) preference in the allotment of government contracts iv) navigation through Government bureaucracy;
Foreign companies are allowed to bid for government contracts and operate in the Kingdom without a Saudi agent or partner;
2.
The Saudi Industrial Development Fund makes interest-free loans to industrial companies of up to 50 percent of the total cost of the project, including pre-operating costs, investment in fixed assets and working capital. However, a 50 percent loan requires Saudi participation which is not less than 50 percent. If Saudi participation is lower, the loan is reduced proportionally;
3.
To reduce the Kingdom’s dependence on the export of crude oil as the major source of income, the Saudi Government welcome foreign company registration providing i) labor-saving equipment and services ii) staff training services iii) all areas of health, personnel, and services iv) food industries utilizing locally abundant agricultural products v) metals manufacturing vi) vehicle manufacturing and vii) solar technologies;
4.
The Kingdom remains by far the largest Arab market, and is one of the world's main trading nations in terms of goods and services. Saudi Arabia still depends on imports for most of its manufactured items, and many of its food stuffs. Consequently, local residents are hungry for international products and services and willing to spend on quality;
5.
Foreign companies enjoy exemption from customs duties on the import of machinery, equipment, tools and spare parts for industrial projects.
Company registration in Saudi Arabia requires a minimum of US$267,000 paid up share capital for a Limited Liability Company (LLC);
2.
One of the biggest business challenges is Government red tape, bureaucracy and corruption. When there is ambiguity about Saudi law, it gives rise to corruption and unnecessary delays in executing deals in the country;
3.
A Saudi company suffers corporation tax of 20%. Capital gains are taxed at 20%.
4.
Foreign companies cannot import goods for resale and direct commercial marketing within the Kingdom to Saudi nationals. A Saudi agent or distributor must be appointed. Only Saudi nationals and 100 percent Saudi-owned companies may import goods. Importers must be licensed by the Ministry of Commerce;
5.
Saudi Arabian business practices and laws still favor Saudi citizens. Saudi litigants have an advantage over foreign parties in almost any investment dispute because of their first-hand knowledge of Saudi law and culture. The dispute settlement process favors local parties in a dispute;
6.
Disputes with Saudi partners causes serious problems for foreign investors. Saudi partners have blocked foreigners’ access to exit visas, forcing them to remain in Saudi Arabia against their will. In cases of alleged fraud, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or adjudication of the case. Courts can impose precautionary restraint on personal property pending the adjudication of a commercial dispute;
7.
The Government tenders in procurements favor i) Saudi Arabians ii) companies with Saudi nationals at least 51% of the capital iii) products of Saudi Arabian origin;
Healy Consultants will efficiently and effectively project-manage our Clients engagement, providing detailed email status updates every second day:
1.
Prior to Saudi Arabia company setup, our client a) settles Healy Consultants' fees, b) signs and returns our Client Engagement Letter and c) provide us all the required due diligence documents;
2.
Healy Consultants drafts a detailed Saudi Arabia company setup engagement project, mapping out by week each step to engagement completion, optimising transparency and setting Client expectations;
3.
Healy Consultants reserves company name with the Unified Center and prepares company deeds of establishment and articles of association. The exact corporate structure is agreed with our Client;
4.
Our Client supplies Healy Consultants with a lease agreement for their office premises. If this is not possible, Healy Consultants will supply virtual office services for 6 months until our Client finds their preferred business address;
5.
Healy Consultants assists our client open a corporate bank account with a Saudi bank. Our Client deposits the paid up share capital of US$267,000 and supplies Healy Consultants with a certificate of deposit and bank statement;
6.
Healy Consultants then i) pays the Chamber of Commerce fee ii) notarises all company documents and iii) registers our Client for social security insurance with the General Organization of Social Insurance (GOSI) iv) registers with the Department of Zakat for an annual religious wealth tax;
7.
The license application is submitted to the Investors Service Center in SAGIA. The latter is required to evaluate the investment request and give its decision within 30 days.
8.
Subsequently, Healy Consultants assists our Client register the Saudi LLC with the Company Registry Office and receive a Company Registration Certificate from the Ministry of Commerce. Thereafter, we submit an announcement in the Official Gazette;
9.
Healy Consultants will obtain work visas from the General Department of Passports, Ministry of Interior and the Ministry of Labor;
10.
Following engagement completion, Healy Consultants couriers a full company kit to our client, including original Saudi Arabia corporate documents, unopened bank correspondence and a client feedback survey;
Non-Saudi citizens must obtain a visa to enter, and must obtain a permit to reside in, the Kingdom of Saudi Arabia. Visas or permits and must be obtained in advance of arrival. A visitor visa must be sponsored by a Saudi resident company or resident individual. The sponsors invitation letter will include i) a visa number and ii) confirmation a visa is obtained for the visitor and iii) the permission to issue that visa has been sent to the relevant Saudi embassy.
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Companies are required to register their employee’s contracts with the Ministry of Interior before a residency permit can be issued. Each company is permitted a certain quota of residency visas. Residency visas are valid for up to two years. Employees cannot work for anyone other than their sponsoring employer and sponsorship cannot be transferred until the employee has worked for their original sponsor for at least two years;
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All expatriate employees require an employment visa and must be sponsored by an employer to arrange one. To obtain an employment visa, the employee must i) submit to a medical examination ii) show copies of employment contract and iii) provide academic or professional qualifications and iv) provide an employer sponsor ship letter. Within two weeks, the foreign employee will be issued a visa number, permitting him to collect a visitor visa, which will be converted to a residence visa upon arrival in Saudi;
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Employees leaving Saudi (for a holiday or business trip) require their employer/sponsor to acquire an exit/re-entry visa. If an employee is leaving the country and not returning, he will be issued an exit-only visa;
Healy Consultants will assist our Client engineer the optimum Saudi corporate structure. There are several ways of doing business in Saudi Arabia, the most common being formation of a LLC. Comparison of different business entities in Saudi Arabia:
LLC
Branch
Rep Office
Can legally trade in Saudi Arabia and issue invoices
Yes
Yes
No
Can open a bank account in Saudi Arabie
Yes
Yes
Yes
Enjoys limited liability in Saudi Arabia
Yes
No
No
Minimum number of shareholders required
2
Parent company
Parent company
Minimum number of directors required
1
0
0
Saudi Arabia resident director required
No
No
No
Saudi Arabia company secretary required
Yes
Yes
Yes
Annual audit required
Yes
Yes
No
Submit annual tax return
Yes
Yes
Yes
Corporate directors allowed
Yes
Yes
No
Saudi Arabia tax payable (depends on industry sector)
20%
20%
N/A
Legal tax exemption if properly structured
Yes
Yes
Yes
Office premises mandatory
Yes
Yes
Yes
Allowed to hire staff
Yes
Yes
Yes
Limited liability company
This is the most common entity used to conduct business in Saudi Arabia. As always, the company is a separate legal entity or 'person'. In particular, a company is separate from its owners, shareholders and the persons who run it, the directors. The minimum paid up share capital for a Saudi LLC is US$267,000;
While the Saudi Government prefer approving company applications with Saudi partners, SAGIA still approve wholly foreign owned limited liability companies.
Foreign Branch
This is not an appealing, popular option for our Clients. A foreign company can establish a branch in Saudi Arabia following approval from SAGIA. A branch may undertake projects in both the public and private sector and promote and solicit Saudi Arabian business. It should be noted that branches are licensed to engage in substantive, income-producing work.
The capital requirements are the same as that of a limited liability company. The foreign parent company must deposit an amount equivalent to the capital required by SAGIA with a local bank;
Representative office
This is not an appealing, popular option for our Clients. While a Saudi representative office can also be 100% foreign-owned and controlled, it is not permitted to make direct sales in Saudi. Such an office will only engage in activities which will not amount to conducting Saudi Arabian business, for example market research. Therefore a local Saudi agent or distributor must be appointed to sell goods and provide services;
Saudi law allows representative offices only in the form of Technical and Scientific Offices (TSOs). While fully owned by the parent company and issuing its own visas and residence permits, such offices only give technical support to the parent company’s Saudi Arabian agent or distributor, to conduct market surveys, and to undertake product research;
Only foreign pharmaceutical companies are legally required to establish a TSO. Non-pharmaceutical companies form TSOs at the discretion of SAGIA and the Ministry of Commerce and Industry, provided that, in the opinion of those authorities, the products of the company are sufficiently complex to justify establishing the TSO.
Joint ventures
The Saudi Arabian Government prefers foreign companies to form a joint venture with a Saudi partner. Joint ventures are established in the form of a LLC;
Foreign companies require Saudi shareholders if conducting the following business i) catering to military sectors ii) oil exploration, drilling and production iii) security and detective services iv) recruitment and employment services v) printing and publishing vi) radio and Television broadcasting vii) production, selling and renting of computer software viii) land transportation services;
Sole Proprietorships
Foreigners are allowed to invest in Saudi Arabia as sole traders, in their personal name. A minimum capital of us$37,000 is required for this formula and the sole proprietorship is the sponsor of its owner;
Joint Stock Companies
If our Client plans to offer shares to the general public to raise capital, we recommend forming a joint stock company. This entity is a Saudi LLC with a minimum of five (5) shareholders and no maximum limit of shareholders. Examples of businesses include banking ventures and projects involving the exploitation of natural resources. The minimum paid up share capital for a joint stock company is also US$267,000;
Partnerships
This entity structure is popular with accountants, architects, consulting engineers and lawyers. A limited partnership consists of at least one general partner who is liable for the debts of the partnership and at least one partner who is liable only to the extent of his capital contribution; or
Partnership limited by shares: at least one general partner and four limited partners, the interests of the limited partners consist of negotiable shares of equal value;
Temporary commercial registration
This is granted to foreign entities who sign contract agreements with a government or semi-government department to execute small, specific projects. A temporary commercial registration (tcr) is limited to one contract and lasts until contract completion. A tcr eliminates the need to incorporate a Saudi entity. However, Saudi customers will deduct withholding tax on behalf of the Government;
A tcr does not allow a foreign company to establish an actual presence in the Kingdom for the purposes of promoting business, or even simply monitoring and surveying market conditions and business opportunities. The company must therefore rely on business opportunities brought to its attention by third parties or identified by its in-Kingdom personnel.
Doing business in Saudi without a local company
To minimize company registration costs in Saudi Arabia, our Clients sometimes implement the following strategies:
1. Through a local agent or distributor, a foreign company is allowed sell its goods and services directly to Saudi Arabian customers;
2. Foreign companies can also sell their franchise to a Saudi commercial agent or distributor, eliminating the need to hire local staff and incorporate a local company. Examples include Hertz, Baskin Robbins, and Pizza Hut. There are more than 300 foreign companies that have founded franchises in Saudi Arabia;
The average fee per Saudi Arabia engagement amounts to US$30,150, which includes company incorporation, corporate bank account opening and all Government fees. Refer to draft invoice embedded in the icon below:
Healy Consultants Compliance Department guides our Client through legal and tax obligations.
1.
The minimum amount of paid up capital to be invested in a foreign-owned company is US$267,000. An LLC must have at least two shareholders and one director;
2.
The company directors are appointed, replaced and dismissed by the shareholders. The identities of shareholders and directors are on the public register;
3.
A Saudi llc is required to transfer 10% of net profits each year to a legal reserve until such reserve reaches a level of 50 percent of the paid-up share capital;
4.
Every company must lodge an annual return in which a director or secretary of the company confirms relevant details of the company for the public register including names and addresses of all directors, address of principal place of business and details of shareholders and their shareholdings;
5.
All business activities conducted in Saudi Arabia receive government approvals and permits and licenses. There is an obligation to register particular products with the Government, including food, medical equipment, cosmetics, medicine;
6.
The paramount body of law in the Kingdom of Saudi Arabia is the Shari’ah. Other sources of Saudi Arabian law are derived from enacted legislation including Royal Orders, Royal Decrees, Council of Ministers Resolutions. The Shari’ah courts have jurisdiction over all civil claims, all family law, real property matters and the majority of criminal matters.
7.
In 2004, the Kingdom of Saudi Arabia acceded to the Paris Convention for Protection of Industrial Property including trademarks, patents and copyright;
8.
Social insurance in the Kingdom is administered by the General Organization for Social Insurance. Employers are required to make contribution at the rate of 9% of salary (including benefits in kind) for Saudi employees who are required to contribute same percentage of their salary in respect of social insurance. In addition, employers are required to contribute 2% of the basic salary of both Saudi and non-Saudi employees to cover the job hazards risk;
9.
The Saudi Trade Names Law protects registered trade names in the Kingdom of Saudi Arabia by requiring every business operating in the Kingdom to register its trade name with the Commercial Register at the Ministry of Commerce and Industry and proscribing any other business or individual from using registered trade names. Only Arabic or “Arabized” trade names may be registered, except for companies with foreign shareholders whose names are registered outside of the Kingdom of Saudi Arabia.
Where possible, Healy Consultants bank account opening team will liaise with the bank to prevent our Client having to travel for an account opening interview;
2.
Healy Consultants assists our client open a Saudi corporate bank account. Our Client deposits the paid up share capital of US$267,000 and supplies Healy Consultants with a certificate of deposit and bank statement;
3.
There are no exchange control regulations governing the repatriation of funds, profits or capital after corporate dissolution. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, and returns on intellectual property or imported inputs.
Saudi companies are taxed at a flat company tax rate of 20% on domestic income only. In contrast, individuals are tax exempt;
2.
Annual audited financial statements and corporate tax return is submitted to the Department of Zakat and Income Tax within 4 months of account year end. All tax declarations and correspondence with the DZIT must be in the Arabic language;
3.
Resident companies and individuals settle their tax liabilities either by monthly payments, third party withholdings, or a combination of both;
4.
Saudi customers are required to withhold tax at a rate of 15% from payments to foreign companies. The payer is required to i) pay the tax withheld to the Department of Zakat and Income Tax within 10 days after the end of the month ii) to issue a certificate to the payee stating the amount of payment and the tax withheld;
5.
Dividend distributions by Saudi companies to foreign shareholders suffer withholding tax of 5%;
6.
Head office expenses are disallowed as a tax deduction if they are indirect general and administration costs, royalties, commissions, and financial costs charged by a head office located abroad to wholly owned subsidiaries in Saudi Arabia;
7.
Customs duties are still imposed on importation of many goods. Most items are subject to a 5% tariff. However, imported goods that are identical or similar to those produced locally are charged a duty of up to 12% in order to protect local industries;
8.
All goods imported into the Kingdom require customs clearance which may only be obtained upon payment of the applicable customs duty. If an importer fails to settle the duty, the customs authorities are empowered to sell the goods to recover the due amount.
Foreign companies seeking sales of goods and services to the Saudi Arabian Government are encouraged to appoint a reputable agent or distributor with experience in that business sector. Healy Consultants assists our Clients find a suitable match:
1.
Foreign companies can hire a Saudi commercial agent or distributor to trade its products and sell its services. Practically, it is difficult to function in Saudi Arabia without a Saudi partner to help handle i) Government bureaucracy including issuing exit and re-entry visas or ii) helping our Client navigate through the upper echelons of a Saudi Ministry;
2.
Saudis prefer to do business with someone only when they have been properly introduced and have met face-to-face. To help dispel reluctance on the Saudi side, an introduction by a “go-between” typically serves to vouch for the reliability of both parties;
3.
Government agencies play an important role in all sectors in the country. All businesses deal with government agencies on a regular basis, who always have the final say in any matter. Saudi agents will help foreign companies with Government bureaucracy;
4.
Whilst English is widely spoken in business and government circles, all correspondence with the government authorities is conducted in Arabic.
5.
Before contracting a Saudi Arabia agent or distributor, Healy Consultants recommends i) visit the Kingdom for a face to face meeting with the agent ii) obtained detailed due diligence from the agent before finalising any contractual agreements iii) engage a local lawyer or accountant to critically review legal agreements.
6.
The legal agency contract is covered by the Kingdom’s commercial agency law. The Ministry of Commerce and Industry has published standard forms of agency and distributorship contracts. The Saudi agent or distributor must register the contract with the Ministry of Commerce and Industry, failure could result in fines and other penalties, the foreign company may be barred from participating in public sector tenders;
7.
Disputes with Saudi agents and distributors causes serious problems for foreign investors. It is important our foreign investors take steps to protect themselves including i) completing thorough due diligence of the proposed Saudi agent ii) retaining legal counsel to review and approve a well-drafted agency agreement;
Healy Consultants provides our Clients with i) nominee Saudi shareholders and ii) nominee agents and distributors;
2.
Before the Government approves company registration, our Client must sign an office premises lease agreement. Some of our Clients require a Saudi virtual office for six months until a full time business office is found;
3.
Entrepreneurs completing business formation in Saudi Arabia can benefit from Saudi Arabia's numerous Intellectual Property laws. Healy Consultants will assist our Clients with trademark and patent registration. Registering your brand, trademark and designs is particularly important in Saudi Arabia.
4.
Healy Consultants offers a comprehensive range of Saudi Arabia research services including i) industrial or business analysis ii) economic and political overview iii) competitor analysis iv) customer analysis v) regulation analysis vi) market entry strategies vii) business partner matching
Saudi Arabia is the largest Arab state in Western Asia by land area (approximately 2,250,000 km2 (870,000 sq mi), constituting the bulk of the Arabian Peninsula) and the second-largest in the Arab world (after Algeria).
2.
Saudi Arabia has the world's second largest oil reserves which are concentrated largely in the Eastern Province. Oil accounts for more than 95% of exports and 70% of government revenue, although the share of the non-oil economy has been growing recently.
3.
The Kingdom of Saudi Arabia was founded by Abdul-Aziz bin Saud in 1932, although the conquests which eventually led to the creation of the Kingdom began in 1902 when he captured Riyadh, the ancestral home of his family, the House of Saud, referred to in Arabic as Al Saud.
4.
The Saudi Arabian government has been an absolute monarchy since its inception, and it describes itself as being Islamic.
5.
Saudi Arabia's geography is dominated by the Arabian Desert and associated semi-desert and shrubland. It is, in fact, a number of linked deserts and includes the 647,500 km2 Rub' al Khali ("Empty Quarter") in the southern part of the country, the world's largest contiguous sand desert. There are virtually no rivers or lakes in the country.
6.
The official language of Saudi Arabia is Arabic. The three main regional variants spoken by Saudis are Hejazi Arabic (about 6 million speakers), Nejdi Arabic (about 8 million speakers) and Persian Gulf (about 1.5 million speakers). The large expatriate communities also speak their own languages, the most numerous being Malayalam (1 million), Tagalog (700,000), Urdu (380,000), and Egyptian Arabic (300,000).
7.
Saudi Arabia, and specifically the Hejaz, as the cradle of Islam, has many of the most significant historic Muslim sites including the two holiest sites of Mecca and Medina.
8.
One of the King's titles is Custodian of the Two Holy Mosques, the two mosques being Masjid al-Haram in Mecca, which contains Islam's most sacred place, the Kaaba, and Al-Masjid al-Nabawi in Medina which contains Muhammad's tomb.
9.
The population of Saudi Arabia as of July 2010 is estimated to be 25,731,776 including 5,576,076 non-nationals. In 1950, Saudi Arabia had a population of 3 million. The ethnic composition of Saudi nationals is 90% Arab and 10% Afro-Arab. Until the 1960s, a majority of the population was nomadic; but presently more than 95% of the population is settled, due to rapid economic and urban growth.
The week commences on Saturday and extends through Thursday, Friday being the day of rest. Government offices are closed on Thursdays and Fridays;
2.
The Labour Law expressly prohibits the mingling of men and women in the workplace. Medical expenses related to pregnancy and delivery must be paid by the employer;
3.
Saudis are hospitable and place a great deal of emphasis on an outward expression of politeness and quiet demeanour. Arabs rarely say a direct ‘no’ to a proposition, so you must listen and observe carefully. If the response is ‘Leave it with me’ or ‘I’ll think about it’, there’s a good chance that the project will go nowhere;
4.
All government business in Saudi Arabia is conducted according to the Islamic calendar. Because the Islamic year is eleven days shorter than the Western calendar, foreign entrepreneurs are sometimes confused. For example, a one month visa is valid for an Islamic month, not a Western one. If you stay for a Western month, there is a distinct possibility you will have lapsed the visa by a day or two;
5.
The Government has a strategic goal to increase the proportion of Saudi employees in both the public and private sectors. This policy is known as “Saudization” and is effected by requiring companies to employ a certain percentage of Saudi citizens. Generally, 30 per cent of the workforce must be Saudi unless the business relates to construction, cleaning or operational work, in which case the requirement is 10 per cent;
6.
Because Saudi Arabian companies are not as well-versed with international trade, we encourage our Clients to consistently use and sign contracts of service;
7.
Your joint venture partner or Saudi Arabia shareholder must not merely be a nominee for the sake of meeting the rules of foreign company incorporation. You should choose a partner that actually brings a lot to the table, including local knowledge your business would need in Saudi Arabia;;
8.
Foreign companies should be aware i) Saudi statistics and market data are usually imprecise ii) transactions tend to take longer than expected iii) more frequent and longer market visits are required, at least initially iv) complex business procedures are common;
9.
Saudi customers will invariably focus on price, no matter how hard you sell the benefits. Price drives most Arab business negotiations.
10.
Each major business centre in Saudi Arabia has a Chamber of Commerce. Their powerful membership embraces the local business community. Chamber functions provide useful networking opportunities for companies new to the market.
Contact Us
For more information on Saudi Arabia company formation, contact email@healyconsultants.com or telephone us at (+65) 6735 0120.
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