Saudi Arabia company registration

For over a decade, Healy Consultants efficiently and effectively assists our Clients with Saudi Arabia business setup:

Advantages of Saudi Arabia company registration

  1. 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% of the total cost of the project, including pre-operating costs, investment in fixed assets, and working capital. However, a 50% loan requires Saudi participation which is not less than 50%. 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 welcomes 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 are 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.
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Disadvantages of Saudi Arabia company registration

  1. 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;
  2. A Saudi company suffers corporation tax of 20%. Capital gains are taxed at 20%;
  3. 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% Saudi-owned companies may import goods. Importers must be licensed by the Ministry of Commerce;
  4. 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;
  5. 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;
  6. 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.
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Wholly foreign owned entities

    Saudi Arabia office buildings

  1. For most business sectors, foreign entrepreneurs interested in Saudi Arabia business setup can undertake Saudi Arabian company registration and can wholly own a local limited liability company (LLC) without Saudi shareholder involvement. Entrepreneurs pursuing Saudi Arabia company incorporation must obtain a foreign capital investment license from the Saudi Arabian General Investment Authority (SAGIA);
  2. A Saudi Arabia company formation of an LLC must appoint a minimum of one director and two shareholders;
  3. While foreign companies prefer to establish a wholly owned subsidiary, and 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.
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Different Saudi Arabia entities


Comparison of different business entities in Saudi Arabia:

 
LLC
Branch
Rep office
Can legally trade in Saudi Arabia and issue invoicesYesYesNo
Can open a bank account in Saudi ArabiaYesYesYes
Enjoys limited liability in Saudi ArabiaYesNoNo
Minimum number of shareholders required2Parent CompanyParent Company
Minimum number of directors required100
Saudi Arabia resident director requiredNoNoNo
Saudi Arabia company secretary requiredYesYesYes
Annual audit requiredYesYesNo
Submit annual tax returnYesYesYes
Corporate directors allowedYesYesNo
Saudi Arabia tax payable (depends on industry sector)20%20%N/A
Legal tax exemption if properly structuredYesYesYes
Office premises mandatoryYesYesYes
Allowed to hire staffYesYesYes
Draft Invoice

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10 steps to incorporation in Saudi Arabia

  1. Prior to Saudi Arabia company setup, our Client i) settles Healy Consultants’ Saudi Arabia company formation fees, ii) signs and returns our client Saudi Arabia company formation engagement letter and iii) 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 Saudi Arabia business setup engagement completion, optimising transparency, and setting Client expectations for Saudi Arabia company incorporation;
  3. Healy Consultants reserves company name with the Unified Center and prepares company deeds of establishment and articles of association. The exact Saudi Arabia company formation corporate structure is agreed with our Client;
  4. Our Client supplies Healy Consultants with a lease agreement for their office premises following Saudi Arabia business setup. If this is not possible, Healy Consultants will supply virtual office services for 6 months until our Client finds their preferred business address following Saudi Arabia business setup;
  5. Healy Consultants assists our Client open a corporate bank account with a Saudi bank to support Saudi Arabia business setup. Our Client deposits the paid up share capital of US$26,665 and supplies Healy Consultants with a certificate of deposit and bank statement;
  6. To support Saudi Arabia company incorporation, Healy Consultants then i) pays the Chamber of Commerce fee ii) notaries 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 Arabia company incorporation of the 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. To support Saudi Arabia company formation, Healy Consultants will obtain work visas from the General Department of Passports, Ministry of Interior and the Ministry of Labor following Saudi Arabia company registration;
  10. Following Saudi Arabia company incorporation 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.
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Accounting and tax considerations

    Saudi Arabia corporate tax

  1. 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.

Fees


Saudi Arabia company incorporation costs in Year 1 amount to US$18,650 and annual company costs in Year 2 and thereafter amount to US$350. The average fee per Saudi Arabia company formation engagement is outlined in the table below. These fees include Saudi Arabia company incorporation, opening corporate bank accounts, and all government fees:

 
LLC
Branch
Rep office
Average engagement costsUS$30,150US$30,150US$30,150
Draft invoice

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Timelines


The average Saudi Arabia company incorporation engagement period is 10 weeks as outlined below:

saudi arabia company registration timeline

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Compliance considerations


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$26,665. A Saudi Arabia business setup of 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 Arabia company formation of an LLC is required to transfer 10% of net profits each year to a legal reserve until such reserve reaches a level of 50% 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, and 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;
  10. The process of deregistering a company is dictated by the Government. This process will take a minimum of 6 months. Healy Consultants fee to project manage company de-registration is US$1450. During this 6 months period it is mandatory to maintain a resident company secretary and a legal registered office.

Saudi Arabia employment visas

  • 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;
  • 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;
  • 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;
  • 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.
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Corporate banking options

  • 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;
  • Healy Consultants assists our Client open a Saudi corporate bank account. Our Client deposits the paid up share capital of US$26,665 and supplies Healy Consultants with a certificate of deposit and bank statement;
  • 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.
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Appointing Saudi Arabia agents or distributors


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:

  • 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;
  • 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;
  • 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;
  • Whilst English is widely spoken in business and government circles, all correspondence with the government authorities is conducted in Arabic;
  • 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;
  • 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;
  • 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.
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Success tips when doing business in Saudi Arabia

  1. 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 pursuing Saudi Arabia business setup 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. Saudi Arabia legal matter

  6. 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% of the workforce must be Saudi unless the business relates to construction, cleaning, or operational work, in which case the requirement is 10%;
  7. Because Saudi Arabian companies are not as well-versed with international trade, we encourage our Clients to consistently use and sign contracts of service;
  8. 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;
  9. 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;
  10. Saudi customers will invariably focus on price, no matter how hard you sell the benefits. Price drives most Arab business negotiations;
  11. 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.
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Did you know about Saudi Arabia?

  1. 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.
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Useful links

External readings

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The following are some of the most frequently asked questions about Saudi Arabia company formation:

How long does it take to incorporate a Saudi Arabia company?

Setting up a company in Saudi Arabia is less time consuming thanks to changes to the registration process. To illustrate this, Saudi Arabia has jumped from 76th to 13th place in the World Bank’s Doing Business Survey in the past 4 years. The entire process of incorporation will take approximately one month.

What are the main advantages of establishing a Saudi company?

A Saudi company is able to obtain government licenses, open corporate bank accounts and hire expatriate staff, bid on local contracts, issue sales invoices, and purchase goods and services from local suppliers. Saudi Arabia also has the largest financial market in the Middle East, low cost energy, facilities, and business services.

How many directors/shareholders are required for a Saudi company?

A minimum of two directors and shareholders are required and a maximum of 50 shareholders are allowed.

Does the director have to be resident in the Kingdom?

No. There is no residency requirement.

Are there any nationality requirements for the shareholders of a Saudi company?

No. Unlike the legislation of other GCC states, Saudi law does not restrict the level of foreign participation allowed in Saudi LLCs. Companies which are owned by foreigners may also be registered in the Commercial Register. An LLC may have one or more managers and there is no requirement for the managers to be Saudi nationals either.

Is a Saudi company subject to an annual audit?

In accordance with Saudi Arabian company law, a Saudi LLC is required to submit an annual tax return and financial statement.

Is a Saudi company legally required to have a physical office in the Kingdom?

Yes. showing a tenancy agreement is a legal part of the company incorporation process. However, some clients are uncomfortable with or unable to find office premises at this early stage of an engagement. Consequently, Healy Consultants offers the use of our Saudi Arabia office premises to fulfill this requirement.

Am I required to visit Saudi Arabia to set up a company?

No. Healy Consultants can legally set up a company without you needing to travel to the Kingdom. However if you wish, business visas are available for prospective entrepreneurs.

What are the minimum capital requirements for a Saudi Arabia company?

The minimum capital requirement for formation of a limited liability company (LLC) in Saudi Arabia varies depending on the business sector of the company. For example, a company involved in agriculture requires SR25,000,000 (approximately US$6.67 million), while a contracting company requires SR500,000 (approximately US$133,000).

Does this capital have to be paid up prior to incorporation?

Yes. It will be deposited into an ESCROW bank account. The bank will issue a certificate confirming the deposit, and this certificate is one of the documents required for company incorporation. The certificate should also include an undertaking from the bank to retain the amount until after full commercial registration.


Contact us

For additional information on Saudi Arabia company formation, you can email us at email@healyconsultants.com or phone us at (+65) 6735 0120. Address: P. O. Box 4732 Al-Khobar 31952, Kingdom of Saudi Arabia.