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Company Formation in Saudi Arabia

Overview :

One of the most devout and insular countries in the Middle East, Saudi Arabia has emerged from being an underdeveloped desert kingdom to become one of the wealthiest nations in the region. Saudi Arabia has an oil-based economy with strong government controls over major economic activities. It possesses about one-fifth of the world’s proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in OPEC. As part of its effort to attract foreign investment, Saudi Arabia acceded to the WTO in December 2005 after many years of negotiations. The government has begun establishing six “economic cities” in different regions of the country to promote foreign investment.


Advantages of Incorporating Business in Saudi Arabia
  • The Kingdom of Saudi Arabia is the largest of all the Gulf States.
  • According to the World Bank, Saudi Arabia was rated 13th out of 183 countries in terms of general ease of doing business.
  • Among Arab countries, the Kingdom is the easiest place to register property, get credit, and start a business.
  • Its Foreign Investment Law allows 100% foreign ownership of projects and real estate.
  • With extremely low taxes and excellent incentives, Saudi Arabia is ranked 8th in the world for “fiscal freedom.”
  • Earnings from Saudi-based operations are highly secure due to the Kingdom’s very stable currency.
  • Saudi Arabia’s economy is exceptionally open to trade, with the lowest average weighted tariff rate in the entire MENA region.
Tax Regime :

Saudi Arabia residents are not subject to income tax. Only non residents pay personal income tax in Saudi Arabia, which is the same as companies. Saudi individuals or nationals of GCC states who conduct business in the Kingdom of Saudi Arabia in commercial goods are subject to an Islamic Tax called ‘Zakat’. Only business income earned by individuals is taxable. There is no tax on employment income. Business and professional income is taxed in the same way and under the same rules as corporate profits. Individuals not carrying on a business or professional activity are not taxed on interest and dividend income.


Types of entities

Foreigners wishing to conduct business in Saudi Arabia may do so in one of the following ways :


Limited Liability Company (LLC) :

This is the most common form for entering into joint ventures with Saudi partners; however, a Saudi partner is not required since there are no legal limitations on the percentage of foreign ownership. The minimum capital investment required to establish an LLC is SR 500,000.


Partnerships :

Foreign companies seeking to do business in the Kingdom may enter into a limited partnership.  The limited partnership, or “sharikat tawsiya baseetah”, is a separate business entity comprised of several individuals or companies, including general (at least one) and limited partners.


Joint Stock Corporation :

A Joint Stock Corporation is an entity with at least five shareholders holding transferable shares.   The minimum capital requirements are SR 2 million for a private JSC and SR 10 million for a public JSC.  Liability of shareholders is limited to the par value of each shareholder’s share capital.


Branch Offices :

Foreign companies may register a wholly foreign-owned Saudi branch office, provided that they obtain the requisite license.  The branch office may engage in any government contract or private sector work within the scope of its license.  Branch offices are subject to the requirements of the Government Tenders Regulations, where applicable.


Sponsorship and Temporary Commercial Registration :

As an alternative to forming one of the above entities, foreign contractors have in the past performed isolated private sector projects under the sponsorship of their Saudi customer and, in contracts with the Saudi government; the foreign contractor may perform its obligation under a temporary commercial registration.


Time Required

It usually takes 21 days to set up a business in Saudi Arabia.