Saudi Arabia (KSA) is a lucrative market for foreign investors who want to establish a presence in the Middle East. However, how to setup a company in Saudi Arabia can be challenging if you are not familiar with its regulations. For this reason, most investors hire business formation support for their needs.
In this article, we will guide you through the steps and requirements for setting up a business in Saudi Arabia. Also, will give you some tips and necessary information about how trading in the KSA works.
Understanding the Business Landscape in Saudi Arabia
Before you setup a franchise in Saudi Arabia, you need to understand the business landscape in the country and how to create it. The country has a diverse economy that offers opportunities in various sectors. Such as oil and gas, petrochemicals, construction, tourism, healthcare, and education. However, there are also some challenges and risks that you need to consider. For example, cultural differences, bureaucracy, language barriers, and political instability are factors you should think about.
One of the most important aspects of doing business in Saudi Arabia is to respect the local culture and customs. Before learning how to setup a company in Saudi Arabia remember this is an Islamic kingdom that follows Sharia law. Therefore, the nation has strict social norms, rules, and regulations. For example, you need to dress modestly, avoid alcohol and pork, observe prayer times, and avoid public displays of affection. You also need to be aware of gender segregation in public places and workplaces. Finally, and important above all, remember to avoid any actions that might offend or disrespect the local people.
Another key factor to consider is the legal system and regulations in Saudi Arabia. The country has a complex and evolving legal framework that governs foreign investment and business activities. You need to comply with various laws and regulations. Such as the Foreign Investment Law, Companies Law, Labor Law, Tax Law, and the Anti-Money Laundering Law. You also need to obtain various licenses and permits from different authorities before knowing how to set up a company in Saudi. For example, the Ministry of Commerce and Investment, the Ministry of Labor and Social Development, and the General Authority of Zakat and Tax. And finally, the Saudi Arabian General Investment Authority (SAGIA).
Types of Business Entities in Saudi Arabia
The next step is to decide on the type of business entity that suits your needs and objectives. There are several types of business entities that you can choose from in Saudi Arabia, such as:
- Limited Liability Company (LLC)
This is the most common type of business entity for foreign investors. An LLC requires a minimum capital of SAR 500,000 (about USD 133,000) and can have up to 50 shareholders. An LLC can engage in most types of commercial activities, except for some restricted sectors. Such as banking, insurance, media, and telecommunications.
- Joint Stock Company (JSC)
This is a type of business entity that can issue shares to the public and raise capital from investors. A JSC usually requires a minimum capital of SAR 5 million and can have an unlimited number of shareholders. A JSC can engage in any type of commercial activity, including those that are restricted to LLCs.
- Branch Office
This is a type of business entity that allows a foreign company to operate in Saudi Arabia without creating a separate legal entity. To open a branch in Saudi Arabia requires a minimum capital of SAR 500,000 (about USD 133,000). Also, you can only engage in activities that are related to its parent company.
- Representative Office
This is a type of business entity that allows a foreign company to conduct market research and promote its products or services in Saudi Arabia without engaging in any commercial activity. A representative office does not require any capital and cannot generate any income or revenue.
Step-by-Step Company Formation Process
Once you have chosen your type of business entity, you need to follow these steps to set up your company in Saudi Arabia:
- Obtain a SAGIA license: This is a mandatory license that you need to obtain from SAGIA before you can start any business activity in Saudi Arabia. You need to submit an online application through SAGIA’s website and provide various documents. For example, your business plan, financial statements, articles of association, passport copies, etc. The SAGIA license usually takes around 10 working days to process.
- Register your company name: If you wonder how to register a business in Saudi Arabia, you need SAGIA’s website as well. You must choose a unique and suitable name for your company and check its availability with SAGIA. The name registration usually takes about one working day to complete.
- Open a bank account: This is what you need to do after obtaining your SAGIA license and registering your company name. You need to open a bank account with a local bank in Saudi Arabia and deposit your initial capital. The bank account opening usually takes about five working days to complete.
More documents you need before knowing how to setup your company in Saudi Arabia
- Register with the Ministry of Commerce and Investment: This is a step that you need to do after you have opened your bank account and deposited your initial capital. When you are thinking about how to register a business in Saudi Arabia you must do it with the Ministry of Commerce and Investment (MOCI). This is something you do through its online portal called Meras. You need to provide various documents. Such as your SAGIA license, company name certificate, bank account certificate, articles of association, etc. The MOCI registration usually takes about five working days to complete.
- Obtain other licenses and permits: This is a step that you need to do after you have registered your company with MOCI. You shall obtain other licenses and permits from different authorities, depending on the type and nature of your business activity. For example, you may need to obtain:
- A municipal license from the local municipality.
- Commercial registration from the Chamber of Commerce and Industry.
- Tax registration from the General Authority of Zakat and Tax.
- A labor registration from the Ministry of Labor and Social Development, among other documents.
The duration and requirements of obtaining these licenses and permits may vary depending on your business activity.
Legal and Regulatory Requirements
After you have set up your company in Saudi Arabia, you need to comply with various legal and regulatory requirements on an ongoing basis. Some of these requirements are:
- Accounting and auditing: You need to maintain proper accounting records and prepare annual financial statements for your company. You also need to appoint an external auditor who is licensed by the Saudi Organization for Certified Public Accountants (SOCPA) to audit your financial statements and submit them to the relevant authorities.
- Taxation: You need to pay taxes on your income and profits in Saudi Arabia. The corporate income tax rate is 20% for foreign companies and 0% for Saudi companies. However, there are some exceptions and incentives for certain sectors and activities. You also need to pay zakat, which is a religious tax that applies to Saudi companies and individuals. The zakat rate is 2.5% of the net worth of the company or individual.
- Labor law: You need to comply with the labor law and regulations in Saudi Arabia, which cover various aspects. It protects over working hours, holidays, leaves, termination, social security, etc. You also need to adhere to the Saudization policy. This is a government initiative that aims to increase the employment of Saudi nationals in the private sector. The Saudization policy requires you to hire a certain percentage of Saudi nationals in your workforce. But it also depends on your industry and activity.
- Intellectual property rights: You need to protect your intellectual property rights in KSA, such as trademarks, patents, copyrights, etc. If you wonder how to get a trade license in Saudia Arabia you need to register your intellectual property rights with the relevant authorities. The competent organisms to do so are the Ministry of Commerce and Investment, the Saudi Authority for Intellectual Property (SAIP), etc.
Choosing the Right Location and Office Space
The most important decision you will make when setting up a business in Saudi Arabia is where to locate it. The location of your office can affect your operational costs, accessibility, visibility, and reputation. Therefore, you should consider factors such as:
- Type of business activity you will conduct and the legal requirements for it.
- Proximity to your target market, customers, suppliers, and competitors.
- Availability and cost of utilities, infrastructure, and transportation.
- Security and safety of the area and the building.
- Cultural and social norms of the region and the community.
You can choose from various types of office spaces in Saudi Arabia, for example:
- Serviced offices: These are fully furnished and equipped offices that you can rent on a short-term or long-term basis. They offer flexibility, convenience, and professional services.
- Co-working spaces: These are shared workspaces that you can use on a pay-as-you-go or membership basis. They offer a collaborative and creative environment, networking opportunities, and access to amenities.
- Virtual offices: These are online platforms that provide you with a business address, phone number, mail handling, and others. Virtual Offices offer a low-cost and easy way to establish a presence in Saudi Arabia.
- Commercial offices: These are conventional offices that you can lease or buy for your exclusive use. They offer more control, privacy, and customization.
Visa and Immigration Procedures
If you are a foreign investor or employee who wants to work in Saudi Arabia, you need to obtain a visa and a residence permit (iqama) from the Saudi authorities. There are different types of visas you can apply for before knowing how to set up a business in Saudi Arabia. For example:
- Investor visa: This is a type of visa that allows you to enter Saudi Arabia for investment purposes. You need to have a valid SAGIA license and an invitation letter from SAGIA to apply for an investor visa.
- Business visit visa: This is a type of visa that allows you to enter KSA for business purposes. Such as attending meetings, conferences, exhibitions, etc. You need to have an invitation letter from a Saudi company or organization to apply for this visa.
- Work visa: This is a type of visa that allows you to work in Saudi Arabia for a specific employer. You need to have an employment contract and a sponsorship letter from your employer to apply for this one.
- Residence permit (iqama): This is a document that allows you to live and work in Saudi Arabia legally. You need to have a valid work visa and undergo medical tests and biometric verification to obtain this document. You certainly need an iqama before starting to set up a business in Saudi Arabia.
Taxation and Financial Considerations
After you setup a company in Saudi Arabia, you need to be aware of the tax system and the financial regulations that apply to your business. Here are some key points to consider:
- Saudi Arabia has no personal income tax. However, it imposes a 20% corporate income tax on foreign-owned companies and a 2.5% Zakat (religious tax) on Saudi-owned companies.
- KSA has a value-added tax (VAT) of 15% that applies to most goods and services, except for some exemptions and zero-rated items.
- The Arab kingdom has a withholding tax of 5% to 20% on payments made to non-residents. For example, dividends, royalties, interest, technical services, and management fees.
- The Muslim nation has signed double taxation treaties with more than 50 countries. This is done in order avoid double taxation and promote cross-border trade and investment.
- Saudi Arabia has a strict anti-money laundering and counter-terrorism financing regime. This means that the nation requires businesses to comply with certain reporting and other diligence obligations.
Benefits of Company Formation in Saudi Arabia
If you wonder how to setup company in Saudi Arabia, you should know that the country offers many benefits for foreign investors. Some of the advantages are:
- Saudi Arabia has a large and growing population of more than 34 million people. It also has a high purchasing power and a young demographic.
- The kingdom has a strategic location that connects Asia, Africa, and Europe. This provides access to the Gulf Cooperation Council (GCC) market of more than 50 million consumers.
- Saudi Arabia has a stable and business-friendly environment. The country supports foreign investment and offers incentives. Such as free zones, industrial cities, special economic zones, and public-private partnerships.
- KSA has a rich natural resource base that includes oil, gas, minerals, and renewable energy sources. As well as a diversified economy that covers sectors such as manufacturing, tourism, healthcare, education, and technology.
- Saudi Arabia has a vision 2030 plan that aims to transform the country into a global hub for innovation and entrepreneurship. Therefore, the goal is to create new opportunities for foreign investors in different sectors.
Challenges and Solutions for Foreign Investors
Despite the business benefits in Saudi Arabia, there are some challenges that foreign investors may face when entering the market. Some of the common issues are:
- Saudi Arabia has a complex legal system that is based on Islamic law (Sharia). This requires compliance with various laws and regulations at the national and local levels.
- The nation has a cultural and linguistic barrier. This may pose difficulties for foreign investors who are not familiar with the customs and norms of Saudi society.
- Saudi Arabia has a labor market that is dominated by expatriates and faces shortages of skilled workers in some sectors. Foreign investors may also need to comply with certain Saudization requirements that mandate hiring a certain percentage of Saudi nationals.
- KSA has a competitive market that is dominated by large local players and faces increasing competition from regional and global rivals.
To overcome these challenges, foreign investors need to adopt some strategies such as:
- Seeking professional advice from experts can help navigate the legal, regulatory, and financial aspects of company formation in the nation.
- Conducting thorough market research and feasibility studies to understand the needs, preferences, and trends of Saudi consumers. Therefore, they can identify the gaps and opportunities in the market.
- Building strong relationships with local partners. That’s how investors can gain access to networks, resources, and insights into the Saudi market and culture.
- Investing in human capital development and training programs. This could be done to attract, retain, and empower the local workforce and enhance their skills and productivity.
- Leveraging the competitive advantages and unique selling points of their products or services to differentiate themselves from the competitors and create value for the customers.
Conclusion: Building a Successful Business in Saudi Arabia
Saudi Arabia is an attractive destination for foreign investors who want to establish or expand their presence in the Middle East. The country offers many distinctive, business and financial benefits. Such as, a large and affluent market, a strategic location, a supportive business environment, a rich natural resource base, etc.
However, foreign investors also need to be aware of the challenges of how to set up a company in Saudi. Such as the complex legal system, the cultural and linguistic barrier, the labor market issues, and the competitive market. Foreign investors can overcome these challenges and build a successful business in Saudi Arabia through:
- Seeking professional advice.
- Conducting market research.
- Building local partnerships.
- Investing in human capital development.
- Leveraging their competitive advantages.
Before actually applying how to setup a company in Saudi Arabia, it is important to highlight that it can be a rewarding venture. You only have to follow the right steps and the legal requirements and then start setting up your business in the region.