Geophysical services specialist set up Saudi joint venture
Our Client Charlie is a specialist geophysical services outfit based in Aberdeen, Scotland. The company provides onshore 3D seismic acquisition services to clients around the world. Up to 2006, our Client had concentrated his focus on seismic acquisition projects in Nigeria. However, a combination of political instability in that country (including potential physical danger to field geophysicists), and excellent opportunities elsewhere led him to reevaluate his operational strategy.
Saudi Arabia has embarked on a major initiative to increase natural gas production, and several large-value contracts have been put out to tender by the government for exploration in remote areas of the Kingdom, such as the Rub Al Khali (Empty Quarter). Our Client believed his company had the capabilities to successfully bid for a government contract in Saudi Arabia, but believed that the best way to achieve this would be to set up a Saudi joint venture company, using one of his close industry contacts as the joint venture partner. It was at this point that our Client approached Healy Consultants to find out how we could help him set up a joint venture operation in Saudi Arabia.
After outlining by telephone to our Client the advantages and disadvantages of setting up a Saudi joint venture, we sent him by email our standard client engagement letter for his signature. We had warned Charlie that the process to incorporate a Saudi company was time consuming and expensive, because of Saudi bureaucracy and the need to translate all documents from English to Arabic, but he felt that this would be the best strategy for his company.
The first step Healy Consultants’ Jeddah-based Incorporation Team took was to visit the Saudi General Investment Authority (SAGIA) in Riyadh, with the aim of obtaining foreign investment approval for the company. To apply for an investment license, Healy Consultants submitted to SAGIA two copies of the Articles of Association containing the following information:
- Names and descriptions of the applicants
- Name of the company, location, and main line of business
- Projected annual revenues
- Land area, foreign and local manpower, and infrastructure requirements
- Capital structure
At the same time, our Incorporation Team had approached the Ministry of Commerce & Industry in Jeddah to obtain submit the company’s Articles of Association and obtain approval for the company name, which was achieved within five days. Following this Healy Consultants’ Jeddah staff arranged to have the company name published in the Official Gazette, as required by Saudi law. This process required payment of SR700 (US$185), but proved took two weeks because of the long backlog.
After getting our Clients’ company name printed in the Official Gazette, it was necessary to get all shareholders to sign the Articles of Association and have them notarized. The challenge of this step was that Charlie was based in Aberdeen, while the Saudi shareholder was traveling extensively in North America at the time. Healy Consultants’ Incorporation staff first couriered the documents to Aberdeen, where Charlie arranged to sign them in front of a notary public, and then returned them to our Jeddah office within one week. The next step was to courier them to the Saudi shareholder at his hotel in Houston, Texas. The notarized documents were finally returned to our Jeddah office a further 10 days later. Our Incorporation Team then submitted a summary of the Articles of Association for publication in the Official Gazette, along with a fee of SR17,000 (US$4,530).
The next phase of the engagement was to apply for the company’s membership of the Chamber of Commerce in Jeddah. Although the application process was relatively quick (an application form was completed and submitted along with the SAGIA foreign investment approval letter), approval took almost two weeks.
The next step was to place the company’s initial deposit into a Saudi bank account. Fortunately, this step was swift, our Banking Team visiting a branch of Al Rajhi Bank in Jeddah, completing a bank account application form and depositing the initial capital of SR500,000 (US$133,000) on our Client’s behalf. However, because of the large sum of money involved, we had recommended Charlie visit Jeddah, where our staff accompanied him to the bank, which issued a certificate as proof of payment of capital.
The next immediate stage of the process was to obtain a Commercial Registration Certificate for the company from the Ministry of Commerce & Industry in Jeddah. This involved submitting the original approval letter from SAGIA, the proof of payment of capital, the notarized articles of association, and proof of publication of the articles in the Official Gazette. Other documents included shareholders’ resolutions appointing a resident manager and specifying his powers, passport copies, a copy of the lease agreement for the company’s offices (this was arranged by Charlie’s joint venture partner), and a certificate of membership of the Chamber of Commerce and Industry. Upon payment of a registration fee of SR6,000 (US$1,600), a five-year Certificate of Registration (CR) was obtained within 18 working days.
Accounting and tax support
The next step was for our Accounting Team to visit the Department of Zakat and Income Tax (DZIT) at Saudi Arabian tax authority in Jeddah to obtain a file number and a Certificate of Commencement of Business (CCB), a process that required the completion of an application form. One week after submission we received the CCB number from the DZIT. Having acquired the relevant licenses, Healy Consultants visited National Commercial Bank in Jeddah to open a corporate bank account on behalf of the company. Since Charlie was back in Scotland, he was unable to visit the bank in person. However, our Banking Team accompanies his Saudi partner to the bank, submitting the necessary corporate documents, as well as information about the shareholders and directors, to the bank.
In the meantime, our staff in Jeddah continued to tie up the other loose ends in the engagement, including having the company accounting books stamped at the Chamber of Commerce in Jeddah. Finally, the incorporation process came to a close when Healy Consultants registered our Client’s new company with the Labor and Recruitment Offices in Jeddah, a mandatory step if a Saudi company wishes to employ expatriate staff (although Healy Consultants is experienced at obtaining Iqama (residence) visas for foreigners, the Saudi joint venture partner arranged the visas on this occasion).
Two weeks after submitting the bank account application to National Commercial Bank, Healy Consultants received account opening approval, notification for which we passed to Charlie. This was followed two weeks later by internet login and password details in a sealed envelope, which we kept securely in our Jeddah office until the Saudi partner picked it up. In a separate package two days later, we also received ATM cards for the bank signatories, which were also collected from our Jeddah office.
Although the main phases of the Saudi engagement are complete, our Client has expressed interest in assistance with opening a second office in Al Khobar in the Eastern Province of Saudi Arabia, and obtaining visas for expatriate staff who would be employed there.
Manpower recruitment firm opened Saudi company
Fronted by a huge oil export industry, Saudi Arabia is building a series of economic cities in a bid to diversify the Kingdom’s economy. Construction work has already begun on the first of six such cities, King Abdullah Economic City, a US$26.6 billion project which represents a major opportunity for foreign investors seeking government tenders and contracts.
Our Client Mr Jim Parker runs an Australia-based business which specializes in supplying skilled manpower to major industrial projects in Australia. However, despite a boom in the construction industry in Australia, a rising minimum wage in Australia has impacted his company’s margins, forcing Mr Parker to seek a long-term strategy to diversify his revenue sources.
With this in mind, Mr. Parker began evaluating the possibilities of setting up a business in Saudi Arabia. He had provided skilled engineers for a refinery upgrade in the Kingdom before, and believed his company had the capabilities to meet the needs of the mega-projects being developed there.
Frustrated with the lack of information on business setup in Saudi Arabia in general, Mr. Parker enlisted the help of Healy Consultants in October 2006 to find out how we could help him. His objectives were clear – to set up a company, preferably which allowed 100% foreign ownership or through a joint venture – which would allow him to bid for major projects in the country and import skilled labor freely.
Our staff were quick to point out to Mr Parker the challenges of setting up a business in the Kingdom, including the advantages, sources of potential delay and confusion, as well as a likely time frame. For example, at the time of the engagement start, Saudi Arabia would be in the Holy Month of Ramadan, a time when businesses and government departments often work shorter hours. However, despite this, Mr. Parker was sure that he wanted to proceed with the engagement, and we proceeded thus.
To enable our team to provide a detailed cost breakdown for the engagement, we asked Mr Parker to confirm the type of company he planned to set up, as well as the corporate structure (any requirements for nominee directors or shareholders). In addition, we asked him to elaborate on the range of additional corporate services he required, such as bank account opening, assistance with relocation and obtaining visas, or staff recruitment in the Kingdom.
Mr. Parker provided our Singapore office with the required corporate structure information and due diligence documents when he stopped over in Singapore on his way to Saudi Arabia to meet a potential joint venture partner. He also provided us with a signed client engagement letter. Healy Consultants prepared a detailed engagement plan for Mr Parker, with the objective of minimizing any unexpected surprises and creating a smooth path from initial contact to company incorporation. Brief research had made it clear that 100% ownership of the company would not be possible for Mr Parker, and that he would need to establish a joint venture (JV) with a Saudi partner. During the course of his work in the Kingdom in the past, Mr Parker had worked closely with a Saudi company which was responsible for organizing work permits for the Australian engineers, and during a visit to Riyadh Mr Parker had discussed possible JV terms with the company.
Since both the Saudi JV partner and Mr Parker were meeting, our Jeddah officer flew to Riyadh to meet them and discuss ways to draft a JV agreement which would be acceptable to both parties. This process took three days, when a mutually-acceptable JV agreement – setting out the nature of the relationship and the capabilities and assets each side could commit to the JV – was presented to both parties for signature.
The next week, our Healy Consultants prepared the documents to send to the Saudi General Investment Authority (SAGIA), with a view to obtaining foreign investment approval for the JV. Healy Consultants’ staff drafted two copies of the intended company’s Articles of Association, names and descriptions of the applicants, proposed name of the company, location and main line of business, and the projected annual revenues, as well as a copy of the JV agreement.
A key challenge at this point was that all documents to be submitted to SAGIA must be in Arabic, and this added considerable time (an additional two weeks) and expense to this phase of the engagement. Upon submission of documents, SAGIA issued a foreign investment approval letter within three weeks, slightly slower than usual and likely because of shorter Ramadan hours in government departments.
The next stage was for Healy Consultants to obtain approval for the company name at the Ministry of Commerce and Industry in Jeddah. This was completed within seven days by submitting the draft Articles of Association to the Ministry.
Following this, Healy Consultants couriered the Articles of Association to Perth, Western Australia, for Mr Parker’s signature and return to us. Upon receipt, our staff then arranged for the documents to be signed by the Saudi JV partner, who is based in Riyadh.
Accounting and tax support
With the required shareholders’ signatures, the notarized documents were submitted for publication in the Official Gazette, along with a fee of SR17,000 (US$4,530). The next step in the engagement involved registering the company for membership in the Chamber of Commerce in Jeddah. This involved completing an application form, which would need to be signed by both the Saudi JV partner and Mr Parker, as well as the SAGIA foreign investment approval letter. Membership approval was granted in 10 days, slower than in our usual experience. It remained for Healy Consultants to obtain a Commercial Registration Certificate for the company. To do this, our Jeddah Incorporation Team first had to pay in the minimum required capital of SR500,000 (US$133,000) at a branch of the Al Rajhi Bank in Jeddah, which was then able to issue a certificate of proof of payment of capital.
Healy Consultants was in possession of the following documents:
- Approval letter from SAGIA
- Notarized Article of Association
- Proof of publication in the Official Gazette
- Certificate of membership with the Chamber of Commerce in Jeddah
- Passport copies of JV partners
- Certificate as proof of payment of initial capital
- Copy of the lease agreement regarding the company’s office – this was to be the JV partner’s office in Al Khobar in the Eastern Province of Saudi Arabia
With these documents, along with the registration fee of SR6,000 (US$1,600), Healy Consultants approached the Ministry of Commerce & Industry in Jeddah in person to obtain the Commercial Registration Certificate. Within three weeks, a five-year Certificate of Registration (CR) was issued. Healy Consultants then submitted an application form to the Department of Zakat and Income Tax (DZIT) at the Saudi Arabian Tax Authority in Jeddah, which issued a file number and Certificate of Commencement of Business (CCB) in 10 working days.
The next step in the engagement was for Healy Consultants to arrange to have the Chamber of Commerce in Jeddah stamp the company accounting books, as well as register the company at the Labor and Recruitment Offices in Jeddah. Both of these tasks took one day to complete.
The JV company was now successfully set up in the Saudi JV partner’s regional office facilities in Al Khobar, close to potential clients and major oilfields and refinery and petrochemical facilities. However, Mr Parker now wanted our assistance to obtain Saudi work and residence permits for himself and two other Australian management staff.
The first step was for Healy Consultants to apply for an employment permit via the new JV company. An application form (in Arabic) was completed for the three staff, and this was submitted to the Ministry of Labor in Riyadh for processing. The application was accompanied by a declaration that the foreign employees were critical to the operations of the JV, as well as educational certificates for all applicants.
Two weeks later, we were informed that the Ministry of Labor had approved the Employment Permit applications for two-years, and that they had forwarded them to the Ministry of Interior, which is responsible for approving Residence Permits (Iqama).
At this stage, Healy Consultants was able to approach the Saudi embassy in Canberra (Australia) to apply for a visa for the three applicants. The application required Healy Consultants to submit:
- A completed application form
- Certified and notarized copy of the educational degrees with official transcripts
- A copy of a signed employment contract
- A letter of invitation certified by the Saudi Chamber of Commerce (organized by Healy Consultants in Saudi Arabia)
- A police certificate (organized by Healy Consultants in Australia)
- A medical report on each applicant – obtained by the applicants in Australia
- Three passport-size photographs
- Application fee
Once the visa had been issued, our Client was free to travel to Saudi Arabia to oversee the operation of the JV, which to date has been working well.