Saudi Arabia and its business relationship with other GCC countries

As the largest economy and most populated member of the Gulf Co-operation Council (GCC), Saudi Arabia wields significant geopolitical and economic influence in the region. Some key points to note with Saudi-GCC business relationships include:

  1. GCC nationals are treated as Saudi citizens in Saudi law, with several business advantages:
    • A GCC or Saudi national can set up a company and open a bank account in Saudi Arabia within three months, and require an initial capital of US$35,040. Foreigners setting up a company in the Kingdom face longer lead times and higher capital requirements than locals;
    • Several sectors in Saudi Arabia are not open to foreign (non-GCC) investment. GCC nationals can set up a company in Saudi Arabia in any line of business;
    • GCC national-owned companies are not subject to Saudi Arabia’s 20% corporate income tax rate. They pay only a 2.5% zakat tax. That said, a 5% VAT is imposed on all goods and services, regardless of the nationality of ownership of the company.
  2. All companies, including foreign-invested companies, in Saudi Arabia can access the GCC common market. Benefits include:
    • Duty-free imports on most GCC-originated goods entering Saudi Arabia;
    • Foreigners with residency in any GCC state receive a visa-on-arrival in any other GCC state except in Saudi Arabia.
  3. Despite the common GCC market, there remains no free movement of labour between GCC states for expatriate workers;
  4. All GCC countries restrict the level of foreign ownership and control in local businesses. This is a challenge for foreign investors considering setting up companies or investing in the region;
  5. GCC laws protect local entrepreneurs over foreigners, especially in Saudi Arabia. That said, foreign investors with good connections and influence (also known locally as wasta) are well placed to take advantage of business opportunities;
  6. Saudi Arabia, the UAE and Bahrain currently have no diplomatic relations with Qatar. In practical terms, this means business people from these three countries face difficulties making/receiving funds transfers to/from Qatar, while cross-border travel between the three countries and Qatar is currently prohibited;
  7. Saudi Arabia has signed a Double Tax Treaty only with the UAE. This agreement provides:
    • Exemption from withholding tax on interest;
    • Reduced withholding tax of 10% on royalty payments;
    • A maximum of 5% withholding tax on dividends.
  8. Saudi Arabia and Bahrain enjoy particularly strong economic links:
    • Saudi Arabia has been key benefactor to Bahrain and its investments have been key to the country’s development. Riyadh therefore holds considerable sway over local political and economic decisions in Bahrain;
    • Bahrain is ranked as the best place for expatriates to live in the GCC. Expatriates with a Saudi residence and employment visa (also known as an iqama) often choose to live in Bahrain, and commute to Saudi Arabia’s Eastern Province via the King Fahd Causeway. No separate employment visa required in Bahrain for Saudi iqama holders;
    • Manama (Bahrain) is only 40 minutes away by car from Al Khobar or 55 minutes away from Dammam.
  9. The Saudi-Oman border trades 2.1 million tonnes of goods annually. A new road link between the two countries is expected to facilitate trade, tourism and investments;
  10. Unfortunately, land links between the GCC states suffer from bottlenecks due to insufficient infrastructure. It can take days for a truck to complete customs formalities and cross the UAE-Saudi Arabia border. The causeway linking Bahrain and Saudi Arabia suffers similar customs delays;
  11. A new railway network connecting the six GCC states should alleviate the problems in 10. above. However, this major transport project continues to experience significant delays, and there is no indication when a fully integrated rail network will connect Gulf population and trade centres;
  12. Saudi Arabia, Kuwait and the UAE are the GCC’s major oil suppliers. However, these countries, plus Bahrain, Oman and Qatar, are all in the midst of new economic development plans. These plans seek to i) diversify state revenues away from oil and gas ii) attract investments in sectors such as real estate, tourism, consumer goods iii) develop the regulatory environment to stimulate the growth of areas such as finance (including Islamic finance and FinTech) iv) open new economic sectors to foreign investment v) create jobs for locals.

Contact us

For additional information on our business registration services in Saudi Arabia, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi
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