Business entities in Saudi Arabia
The Saudi company law recognizes four types of business entities: the limited liability company, the joint stock company (corporation), the partnership and the branch of a foreign company. To be shareholders, foreigners must however obtain a foreign capital investment license from the Saudi Arabian General Investment Authority (SAGIA), which in practice is seldom granted by this licensing authority. Consequently, we recommend our Clients to action the following alternatives: i) register a branch of a company incorporated in one of the countries members of the Gulf Cooperation Council, which are exempt from licensing requirements or ii) sign an agency agreement with a local partner.
The Saudi Arabia limited liability company – LLC (شركة ذات مسؤولية محدودة)
- The Saudi Arabia limited liability company (LLC) is the most commonly used type of business entity by local investors. An LLC must appoint at least 1 director and 1 shareholder who can be of any nationality upon approval of a foreign capital investment license by SAGIA. The minimum paid-up share capital required to complete the incorporation process is theoretically US$1. However, SAGIA often implements higher capital requirements, depending on the activities to be undertaken. In addition, there are different capital requirements for companies engaged in manufacturing, trading, real estate, agricultural or industrial projects;
- All LLCs must appoint a statutory auditor and the annual accounts must be audited and submitted annually.
The Saudi Arabia agency agreement company – (اتفاقية وكالة)
- We recommend our Clients who are not from the Gulf Cooperation Council countries to appoint commercial agent rather than form a company in KSA. Such strategy will allow them to legally avoid the need for an investment license. The commercial agent must be registered by the Ministry of Commerce and Industry and must sign a contract with our Client’s company. We will assist our Clients with all procedures involved;
- The commercial agent appointed is then responsible for representation, promotion and selling of goods and services under terms and conditions required by the parent company. However, this strategy is not optimal for our Clients willing to relocate to Saudi Arabia, as the commercial agent will only be allowed to hire Saudi nationals.
The Saudi Arabia joint stock company – JSC (شركة)
- The Saudi joint stock company must appoint a minimum of 2 shareholders and 3 directors, whom can be of any nationality (same conditions apply for investment by foreigners in JSCs and LLCs). The minimum share capital required is US$134,000 (SAR500,000). Subject to the approval of the Ministry of Commerce and Industry, the share capital subscribed for in cash may be paid up in stages, provided that the amount payable per cash share upon subscription is not less than one quarter of its par value;
- The Saudi Arabia joint stock company must appoint an auditor and must submit audited financial reports annually.
The Saudi Arabia limited partnership (شراكة محدودة)
A Saudi Arabia limited partnership requires only one director and two partners of any nationality and residency for the registration process. Amongst partners, there must be one general/managing partner and one limited partner. There is no minimum capital for the registration of a limited partnership.
The Saudi Arabia GCC branch company (فرع لشركة أجنبية)
- A 100% foreign owned Saudi Arabia branch office can only be established by an existing GCC company. This entity requires the appointment of one shareholder and one director of GCC nationality;
- The branch must appoint a legal representative resident in Saudi Arabia to carry out the branch’s management and administration.
Table of comparison between Saudi Arabia entities
|LLC||Agency||Joint stock Company||Limited Partnership||GCC branch Office|
|Also known as:||شركة ذات مسؤولية محدودة||اتفاقية وكالة||شركة||شراكة محدودة||فرع لشركة أجنبية|
|How long to set the company up?||6 months||2 months||6 months||6 months||3 months|
|How long to open company bank account?||4 weeks||3 weeks||4 weeks||3 weeks||3 weeks|
|Wholly foreign owned?||No||No||No||No||Yes|
|Minimum paid - up share capital?||SAGIA’s Discretion||N/A||US$134,000||N/A||N/A|
|File annual tax return?||Yes||Yes||Yes||Yes||Yes|
|Tax registration certificate required?||Yes||Yes||Yes||Yes||Yes|
|Recommended corporate bank account?||BNP Paribas||SAAB||Deutsche Bank||Emirates NBD||J.P. Morgan|
|Does our Client need to travel?||No||No||No||No||No|
|Resident director/manager required?||No||Yes||No||No||No|
|National shareholder/partner required?||No||Yes||No||No||No|
|Minimum directors allowed?||1||1||3||1||1|
|Passive local nominee shareholder?||51%||N/A||51%||51%||N/A|
|Tax identification code needed?||Yes||Yes||Yes||Yes||Yes|
|Saudi resident representative required?||No||Yes||No||Yes||No|
|Corporate shareholders allowed?||Yes||Yes||Yes||Yes||Yes|
|Corporate director(s) allowed?||Yes||Yes||Yes||Yes||No|
|Statutory audit required?||Yes||Yes||Yes||Yes||No|
|Saudi Arabia corporate tax rate?||20%||20%||20%||20%||20%|
|Zakat rate payable annually?||2.50%||2.50%||2.50%||2.50%||2.50%|
|Annual financial statements required?||Yes||Yes||Yes||Yes||Yes|
|Public register of shareholders and directors?||Yes||N/A||Yes||Yes||Yes|
|Regulated by?||SAGIA||Ministry of Commerce||SAGIA||SAGIA||SAGIA|
|Allowed to issue sales invoices?||Yes||Yes||Yes||Yes||Yes|
|Allowed to sign contracts?||Yes||Yes||Yes||Yes||Yes|
|Allowed to import and export goods?||Yes||Yes||Yes||Yes||Yes|
|Allowed to hire staff?||Yes||Yes (locals)||Yes||Yes||Yes|
|Can rent an office space in Saudi Arabia?||Yes||Yes||Yes||Yes||Yes|
|Can buy Saudi Arabia property?||Yes||No||Yes||Yes||Yes|
|Total Saudi Arabia business setup costs in yr. 1?||US$75,190||US$14,200||US$54,380||US$54,380||US$54,380|
|Subsequent annual costs (incl. accounting and tax fee)?||US$18,840||N/A||US$15,350||US$15,350||US$15,350|
|Sample engagement invoice?|
Frequently asked questions
Is Saudi Arabia company setup easier for GCC nationals?Yes. GCC nationals find it easier to setup a Saudi Arabia LLC and GCC companies can setup a branch in Saudi Arabia. Saudi Arabia company setup is more challenging for Clients from outside the GCC.