Since 2003, Healy Consultants Group assists our multi-national Clients’ with i) Saudi Arabian company registration ii) business licensing iii) multi-currency corporate bank account opening iv) employment visa solutions and staff recruitment strategies v) office rental solutions.

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Advantages and disadvantages of Saudi Arabia companies

1. Multi-national companies establish their Middle Eastern Regional Headquarters (RHQ) in Saudi Arabia because:
   • They enjoy zero tax on qualifying income and zero tax on dividend payments to overseas shareholders. MNCs establishing their RHQs in Saudi Arabia benefit from a 30-year tax exemption package
   • Exemption from Saudization recruitment requirements and an ability to issue an unlimited number of visas for expatriate employees, plus work permits for their dependents.
   • Only RHQ companies can bid for government-issued contracts and access investment from the Public Investment Fund. This offers a significant advantage to our multi-national Clients’ who have this license from Saudi Arabian company registration.
   • Following RHQ company registration, the top three executives of the RHQ can enjoy premium residency free of charge.
2. To minimize Saudi Arabian taxes, multi-national companies consider the following strategies:
   • Companies registered in Saudi Arabian Special Economic Zones (SEZ) enjoy a lower corporate tax of 5% for up to 20 years. Other benefits include i) zero withholding tax on overseas dividend payments and ii) zero customs duty and iii) zero VAT on goods exchanged within the zone. The SEZ include King Abdullah Economic City (KAEC) and Ras Al-Khair and Jazan SEC and Cloud Computing in King Abdulaziz City for Science and Technology (KACT).
   • The Special Integrated Logistics Zone (SILZ) in Riyadh international airport offers multiple tax benefits including i) 50 years of zero corporation tax including VAT and i) suspension of customs and import restrictions and i) no restrictions on capital repatriation including zero withholding tax on overseas dividends. The SILZ is intended to support a wide range of activities, including warehousing and fulfilment, inventory management and maintenance and repairs.
   • The government has granted 10-year corporation tax exemptions to six underdeveloped provinces in the Kingdom including i) Ha’il and ii) Jazan and iii) Najran and iv) Al-Baha and v) Al-Jouf and vi) Northern territory.
   • Multi-national Clients’ can enjoy an exemption from customs duties on machinery and raw materials imported for approved projects, provided that they are not available in the local market. Such exemptions should be applied for prior to their importation.
   • KSA grants duty free imports to most national goods originating from i) other GCC member states and ii) member countries of the Greater Arab Free Trade Agreement (GAFTA) and iii) Singapore and iv) member countries of the European Free Trade Association (EFTA).
   • Other than withholding taxes, there is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.
3. The Saudi Industrial Development Fund (SIDF) supports multi-national Clients’ by providing medium and long-term loans for i) new factories and ii) for projects to expand and upgrade and modernize existing manufacturing facilities. Depending on the project’s location, SIDF offers loans of 50 to 75 percent of a project’s value. For example, overseas companies setting up manufacturing facilities in developed areas can receive a 15-year loan for up to 50 percent of a project’s value. Foreign investors in the Kingdom’s undeveloped areas can receive a 20-year loan for up to 75 percent of the project’s value. After Saudi Arabian company registration, the SIDF also offers consultancy services for local industrial projects in the administrative, financial, technical, and marketing fields.
4. The Saudi Arabian Government is inviting multi-national companies to supply their products and services in the following business sectors:
   • The 2020 mining law allowed foreign companies to enter the Saudi mining sector. Since then, the SAG has issued hundreds of exploration licenses to foreign companies. The Kingdom’s untapped domestic mineral wealth is estimated at $2.5 trillion.
   • To accelerate decarbonisation, the Saudi government is lowering the entry barriers for foreign players in the renewable sector. Companies can access loans through the Mutjadeda program; while the Renewable Energy Project Development Office offers a range of subsidies. The Government seeks to reach 130GW of renewable capacity by 2030. Development of the 300MW Sakaka solar plant and 400MW Dumat Al Jandal wind farm will be crucial in achieving this goal.
   • Country-wide digital transformation is a major part of Vision 2030. The state is aggressively rolling out fibre optic, 4G and 5G coverage, while data centres are in big demand. Riyadh is fast becoming a tech hub. Multi-national Clients’ can tap into a USD 200 million fund and a range of incubators and accelerators. A special entrepreneurial licence also exempts startup founders from an annual SAR60,000 levy on investors. In addition, the country’s young population, high smartphone penetration, and fast internet speed create a favourable environment for e-commerce growth.
   • Saudi Arabia’s healthcare privatization program provides lucrative opportunities for foreign investment. Through public-private partnerships (PPP), the Government is expanding the private sector’s role in the healthcare sector. The government’s goal of extending a unified digital medical records system to 100% of the population should encourage foreign telemedicine and e-health providers to enter the market. Over the coming years, Saudi Arabia plans to invest $65 billion to overhaul their healthcare infrastructure.
   • Saudi Arabia is forward leaning on the development of financial technology and innovation, with the exception of cryptocurrency. There are currently i) four licensed digital banks in the Kingdom (STC Bank, Saudi Digital Bank, Vision Bank, and D360) and ii) 27 licensed payment companies and iii) 83 finance companies ranging from buy now, pay later to debt-based crowdfunding. SAMA launched its regulatory sandbox which allows multi-national Clients’ seeking to carry on a Fintech business to do so by first testing their solutions in a controlled environment.

1. Doing business in Saudi Arabia can be difficult. Common challenges experienced by multi-national clients include:
   • In some industry sectors, foreign ownership is limited and local sponsorship will be required during Saudi Arabian company registration. For example, foreign entities must still have a Saudi partner to supply professional services including i) accounting and auditing and ii) architecture and iii) civil planning and iv) healthcare and v) veterinary services. Furthermore, a foreigner can only be appointed as bank signatory to a Saudi Arabian corporate bank account after employment visa approval (Iqama). Likewise, each MISA LLC must appoint a General Manager who is either i) a Saudi national or ii) an expatriate with a local work permit.
   • Before being allowed to import, foreign companies must first source a significant portion of their goods and services locally. This can be challenging for companies that rely on international supply chains.
   • Saudi Arabian business practices and laws still favour Saudi citizens. Because of their first-hand knowledge of Saudi law and culture and language, Saudi litigants have an advantage over foreign parties in almost every investment dispute. Disputes with Saudi partners causes serious problems for foreign investors. For example, 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.
   • Saudi Arabian business practices and laws still favour 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 favours local parties in a dispute.
   • 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.
   • Contract law in Saudi Arabia is primarily based on Sharia (Islamic law), specifically following the Hanbali school of Islamic jurisprudence. The Saudi Center for Commercial Arbitration (SCCA) offers dispute resolution services in line with international standards. Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially supersede any foreign judgments or legal precedents. Even after a decision is reached in a dispute, effective enforcement of the judgment can be lengthy. KSA does not acknowledge the doctrine of precedent and in the event that various sources of law do not provide an answer, judges will apply their discretionary authority to render a decision. The lack of precedent has resulted in different judgments being awarded in similar cases.
   • Government departments and banks in Saudi Arabia are often slow and inefficient. When doing business in Saudi Arabia, prepare for significant delays in obtaining necessary approvals and licenses. All documents to be presented to any KSA governmental authority must be translated into Arabic.
   • Starting a business in Saudi Arabia can be difficult and expensive. Foreign investors must budget for significant start-up costs including i) a minimum paid-up share capital of US$ 133,000 and ii) high business license fees and iii) high office rentals costs and iv) local employee wages. The company registration process in KSA is still lengthy, due in part to the need to notarise and legalise documents coming from overseas and translate them into Arabic. For example, the Saudi Government frequently requests documents to be attested by the Saudi Embassy in the country of origin of our Client. This is both a costly and time-consuming exercise and complicates the company registration process. Examples of documents include i) passports copies of directors and ii) parent company certificate of incorporation and M&A$ and iv) power of attorney issued by the parent company.
   • Foreign investor concerns remain regarding intellectual property rights enforcement and regulatory data protection. In 2022, Saudi Arabia was removed from the U.S. Trade Representative’s Priority Watch List re concerns over i) the lack of IP enforcement procedures and ii) lack of enforcement against counterfeit and pirated goods and iii) online pirated content.
   • Saudi Arabia’s regulatory framework is fast evolving, especially with Vision 2030. Consequently, our clients need to navigate complex regulations, which are not always clear nor consistently enforced. For example, there is often limited transparency in government procedures pertaining to financial transactions, project developments, and public tender processes. Likewise, there is limited access to public information around tax requirements and companies can expect to find variations between tax codes and their implementation. Tax appeals must be filed in Arabic and the application process for Double Taxation Treaty provisions is particularly hard to navigate.
2. One of the most crucial challenges of doing business in Saudi Arabia is talent acquisition and human resource management. Multi-national companies will find it difficult to manage employees because:
   • The Saudi Arabian Government is adopting progressively stricter quotas for hiring Saudi nationals. The percentage of Saudi nationals should be no less than 75% per company, unless special permission is received from the Saudi Arabian Ministry of Human Resources and Social Development (MHRSD). The MHRSD will grant permission in cases where companies can show a lack of Saudi workers with the relevant technical expertise or qualifications. Multi-national Clients’ encounter difficulties in sourcing quality candidates with the required skills and experience.
   • The process of obtaining work visas for expatriates can be lengthy and complicated, further impacting staff productivity. The processing time for a work visa is approximately two to three months. Before contracting a foreign employee, companies must obtain MHRSD approval in the form of a ‘block visa’ (or quota).
   • Understanding labour laws is crucial to stay compliant with Saudi employee requirements. Terminating a fixed-term employment contract prior to its expiry may result in compensating the Saudi Arabian employee for the remaining term of the contract. Labor disputes are handled by dedicated Labor Courts.
3. Saudi Arabia’s economy remains highly dependent on oil and could be significantly impacted by a sustained material reduction in the price of oil. If this happens, multi-national Clients’ investment projects will be at risk.

Detailed business activity questionnaire

Aidan Healy
Chairman
Healy Consultants

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