Company incorporation in Saudi Arabia

The nation benefits from a pivotal geographical position at the juncture of key trading routes that span three continents. It also boasts the largest (by market capitalization) and most liquid stock market in the Middle East and North Africa. This document outlines the necessary procedures for incorporating a business in Saudi Arabia.

Benefits of establishing a business in Saudi Arabia

Beyond the strategic advantages offered by the Kingdom’s location and its accessibility to Africa, Asia, and Europe, substantial governmental efforts are directed towards fostering business development. Notably, the Vision 2030 initiative seeks to enhance the investment landscape, boost foreign capital inflow, and promote increased engagement from both domestic and international private sectors in the economy. The initiative outlines significant business incentives and opportunities to draw foreign investment to Saudi Arabia, with a goal to elevate the private sector's contribution to GDP from 40% to 65%.

Key advantages of initiating an investment project in Saudi Arabia:

• Permits 100% foreign ownership.
• Offers structural flexibility, allowing non-residents to serve as directors, general managers, or founders.
• Provides the liberty to fully repatriate capital and profits.
• Features a favorable taxation landscape, including tax incentives for businesses registered in the Kingdom’s less developed provinces.
• Enjoys a minimal income tax and offers benefits related to VAT and customs duties.
• A swiftly expanding fintech sector. International financial authorities frequently recognize the Kingdom as a prime destination for fintech, offering extensive opportunities and potential.

This report provides a comprehensive overview of the key steps and benefits associated with setting up a company in Saudi Arabia, underscoring the nation’s welcoming business environment and strategic importance.

Company structures

In Saudi Arabia, the formation of a foreign enterprise can proceed through various corporate structures:

• LLC: this structure is the most favored for foreign entities in the Saudi market.
• SPLLC: under this format, a single owner possesses all company assets.
• LLP: in this model, general partners manage the business operations, while silent partners contribute financially without engaging in management or bearing personal liability for the company's financial obligations.
• Joint Ventures: this arrangement involves multiple parties combining resources to execute a specific project.
• JSC.
• Additional entities for foreign investors include a branch office or a representative office.

Establishing an LLC requires only one director and one founder and does not necessitate a board of directors. However, it is common practice during registration in Saudi Arabia to establish a board as specified in the Memorandum of Association. If an LLC has over 20 members, forming a supervisory board becomes mandatory. Founders can be individuals or corporations. An auditor must be appointed to oversee the financial administration.

This legal entity faces no restrictions on foreign ownership, although many investors opt for LLCs to establish joint ventures with Saudi partners. No specific authorized capital is mandated for LLCs. The liability of the founders extends only to the value of their shareholdings in the company. Registering an LLC is a comprehensive process, requiring a foreign investment license from the Kingdom’s General Investment Authority.

JSC must be initiated by at least two founders and managed by a minimum of three directors, who need not be Saudi residents. An appointed auditor is tasked with the annual disclosure of financial statements. The minimum authorized capital to set up a JSC is SAR 500K, which the Ministry of Trade and Industry may permit to be contributed in phases.

Foreign corporations can establish a branch in Saudi Arabia, limited to conducting commercial activities under the parent company’s license. A legal representative must be appointed within the Kingdom, and the Ministry of Trade and Industry issues a registration certificate. The parent company bears full responsibility for the branch’s operations.

Saudi legislation permits the formation of representative offices, which are restricted in their operational scope. These offices cannot undertake commercial activities or generate revenue but are allowed to offer technical support and conduct product-related market and technical research.

Required documentation for business establishment in Saudi Arabia

To initiate the business registration process in Saudi Arabia, the following documents are typically needed (note that this list is not exhaustive):

• Commercial registration (CR) or business license: issued by MoCI, this document legitimizes the company’s commercial activities within Saudi Arabia.
• Foundational documents must be approved by MoCI and signed in the presence of a notary to establish the company’s legal framework.
• Certificate of position: documents the roles held within the company.
• Financial statement: for foreign companies entering the Saudi market, an audited financial statement from the most recent fiscal year is required.
• Passport copies: include those of the directors, the appointed general director, and the founders.

Taxation of enterprises in Saudi Arabia

In Saudi Arabia, the CIT rate stands at 20% for all taxable entities. Additionally, a religious levy, known as Zakat, is imposed on Saudi and Gulf country nationals, as well as companies entirely owned by residents of these regions. The Zakat rate is fixed at 2.5%.

Revenue payments made by a domestic entity or a permanent establishment of a foreign entity to an external party from sources within the Kingdom are subject to withholding tax. The withholding tax rates are as follows:

• Rental income: 5%
• Dividends, interest, and royalties: 15%

For operations involving natural gas, the taxation structure is progressive based on the IRR:

• An IRR of 8% or below incurs a 30% tax.
• The tax rate escalates incrementally to a maximum of 85% for an IRR of 20% or higher.

The tax rates applicable to oil production companies vary based on capital investment:

• > 100 billion: 50%
• 80 to 100 billion: 65%
• 60 to 80 billion: 75%
• < 60 billion: 85%

Additionally, the Kingdom enforces a VAT on all goods and services at a standard rate of 15%, albeit with certain exemptions. This indirect tax is part of the broader fiscal framework aiming to diversify the economy away from oil dependence.

Saudi Arabia presents a diverse array of prospects for international business establishments, particularly under the ambitious Vision 2030 initiative, which aims to augment trade volumes and expand market access for foreign investors. Nonetheless, navigating the regulatory landscape for foreign investments in Saudi Arabia can be intricate, involving detailed legal and administrative protocols. It is advisable to seek professional guidance when considering market entry into the Kingdom.

Our firm’s specialists are equipped to offer counsel on investment regulations within Saudi Arabia and facilitate the preparation of essential founding documents required for business registration. Additionally, we can represent clients throughout the governmental approval processes and provide holistic support in initiating investment projects in the region.