Business entities in Saudi Arabia in 2023
The Saudi company law recognizes five types of business entities: i) the establishment; ii) the limited liability company; iii) the joint stock company (corporation); iv) the partnership and; v) the branch of a foreign company.
To be shareholders, foreigners must obtain a foreign capital investment license from the Ministry of Investment (MISA). It is expensive and time consuming to secure MISA license.
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 MISA licensing requirements or ii) sign an agency agreement with a local partner.
The Establishment
- The Saudi Arabia establishment is the equivalent of a sole proprietorship;
- This business form only requires one owner and can only be registered by Saudi and GCC nationals. The owner of an establishment is personally responsible for its debts;
- Although not mandatory as per the law, Healy Consultants Group recommends to include at least SAR10,000 (US$2,670).
The Saudi Arabia limited liability company - LLC (شركة ذات مسؤولية محدودة)
- Together with the Establishment, the Saudi Arabia limited liability company (LLC) is the most commonly used type of business entity by local and GCC investors as it only requires one director and one shareholder and can be set up within 2 months. The paid up share capital requirement is SAR100,000 (US$26,670);
- This type of entity is also a common choice by foreign investors looking to serve the Saudi Arabia market. That said, registering an LLC for non-Saudi/GCC nationals in KSA is challenging and time consuming as it requires the approval of MISA. Refer to the MISA license webpage for more information regarding the same.
The Saudi Arabia agency agreement - (اتفاقية وكالة)
- The commercial agency agreement is not a legal entity but the quickest and cheapest way to penetrate the Saudi market;
- The commercial agency agreement allows foreign investors to conduct business in Saudi Arabia through a local agent (also called commercial agent). And therefore without the need to secure a MISA foreign investment license;
- The commercial agency agreement must be registered with the Ministry of Commerce and Industry. The commercial agent appointed is then responsible for representing, promoting and selling of goods and services on behalf of our Client and under terms and conditions listed in the agency agreement;
- Healy Consultants Group advises our Clients to i) fully understand the risks associated with this strategy and ii) proceed with a Commercial Agency agreement as a temporary solution to “test the waters” in KSA. Refer to the agency agreement webpage for more information regarding the same;
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;
- The GCC company must be 100% owned by GCC nationals. No foreigners allowed;
- The branch must appoint a legal representative resident in Saudi Arabia to carry out the branch’s management and administration.
Table of comparison between the most common business entities in Saudi Arabia
Table of comparison of other types of entities in Saudi Arabia
Summary Public limited company LLP Technical and Scientific Office Temporary Commercial Registration GCC owned Branch office Also known as شركة شراكة محدودة المكتب الفني والعلمي السجل التجاري المؤقت أجنبية فرع لشركة Best use of company? To secure public funding Professional services Technical support, marketing & research Awarded government contracts Specific projects How soon can you invoice Clients/sign sales contracts? 9 months 9 months Cannot 5 months 2 months How soon can you hire staff? 9 months 9 months 5 months 5 months 3 months How soon can you sign a lease agreement? 5 months 5 months 5 months 3 months 1 month How long to supply company registration / tax numbers? 9 months 9 months 5 months 5 months 2 months How long to supply corporate bank account numbers? 10 months 10 months 6 months 6 months 3 months Corporate tax rate on annual net profits? 20% 20% 0% 20% 20% Limited liability entity? Yes Yes No No No Government grants available? Yes Yes No Yes Yes Government approval required for foreign owners? Yes Yes Yes Yes Yes Resident director/partner/manager/ legal representative required? Yes Yes Yes Yes Yes Minimum paid up share capital? US$134,000 At MISA's discretion none none US$134,000 Can bid for Government contracts? Yes Yes No No Yes Corporate bank account location? Emirates NDB J.P. Morgan Gulf international Bank Alinma Bank Emirates NDB Can secure trade finance? Yes Yes No Yes No VAT payable on sales to local customers? None None None None None Average total business set up engagement costs? US$76,390 US$76,390 US$67,040 US$49,280 US$76,390 Average total engagement period? 10 months 10 months 6 months 4 months 3 months Accounting and tax considerations Public limited company LLP Representative office Temporary Commercial Registration GCC Branch office Statutory corporate tax payable? 20% 20% 0% 20% 0% Annual Zakat rate payable by GCC residents only? 2.5% 2.5% 2.5% 2.5% 2.5% Legally tax exempt if properly structured? No No No No No Group HQ tax incentives? Yes, if KSA/GCC owned Yes, if KSA/GCC owned No No Yes Must file an annual tax return? Yes Yes Yes Yes Yes Must file annual financial statements? Yes Yes Yes Yes Yes Must appoint an auditor? Yes Yes No No No Access to double taxation treaties? Yes Yes No Yes Yes Withholding tax on payments to foreign shareholders? 5%-20% 5%-20% 5%-20% 5%-20% 5%-20% Company registration Public limited company LLP Representative office Temporary Commercial Registration GCC Branch office Resident director/partner/manager/ legal representative required? Yes Yes Yes Yes Yes Minimum number of shareholders/partners? 2 2 Parent company Parent company GCC Parent company Maximum shareholding for foreigners? 100% At MISA's discretion 100% 100% 100% Can be wholly foreign owned? Yes No Yes Yes Yes Sponsorship by a local citizen required? No At MISA's discretion No No No Minimum statutory paid up share capital? US$134,000 At MISA's discretion none none US$26,670 Security deposit to be kept with Government? No No No No No Shelf companies available? Yes No No No No Time to incorporate a new entity? 9 months 9 months 5 months 5 months 2 months Can easily convert to a PLC? Yes No No No No Public register of shareholders and directors? Yes Yes Yes Yes Yes Can have preference shareholders? Yes Yes No No No Business considerations Public limited company LLP Representative office Temporary Commercial Registration GCC Branch office Good entity for trademark registration? Yes Yes No No Yes Can secure an import and export license? Yes No No No Yes Our Client needs to travel to Saudi Arabia for business set up? No Temporary physical office solutions available? Yes You need a local resident as bank signatory? Yes The entity will likely be regulated by? MISA and Ministry of Commerce and Investment Minimum number of directors/managers? 1 Monthly VAT reporting to the Government? No Must sign an office lease agreement during incorporation? Yes Shareholders & directors documents to be attested/translated? Yes Each foreign director needs a personal income tax number? No Foreign director needs a residence visa? No Foreign bank signatories need a residence visa? Yes Maximum number of staff allowed? No maximum number for any entity Expatriate to local staff ratio? 2 - 1 Can secure residence visa for business owner? Yes Other useful information What will be included in my customer sales invoice? Click link This country has signed free trade agreements? Yes This country is a member of WIPO/TRIPS? Yes This country is a member of the ICSID? Yes Average custom duties suffered? 5% Government foreign investment approval required? Yes Average monthly office rental? (US$ per sq m) 35 Minimum statutory monthly US$ salary? 800 Average monthly US$ salary for local skilled employees? 1,580 US$ deposit interest rate? (1 year average) 2.89% Overseas remittance currency controls? None Banking considerations Multi-currency bank accounts available? Yes Corporate visa debit cards available? Yes Quality of e-banking platform? Satisfactory Crowd funding available in this country? Yes
