The second episode of our Saudi Market Entry Series, which we launched earlier this month, discussed at length the 16-Step company setup process in KSA. In case you missed the first episode of the series which explored how Corporate Taxes work in Saudi Arabia, you can find a quick recap here.
We launched this series to educate our clients about everything related to setting up and launching their business in KSA, and we’ve received some amazing feedback from them over the past week. We’d like to thank you all for attending the sessions and contributing to its effectiveness by asking important and relevant questions, and urge you to continue doing so.
On to the recap!
Episode 2 - Understanding the company setup process in KSA
Airdate: February 23rd, 2021.
Prerequisites to launching your company in Saudi Arabia
Before we discuss the processes and steps involved, let’s understand the eligibility criteria and documents required to establish your company as a legal entity in KSA.
Eligibility criteria
Your new entity in Saudi Arabia must be owned by a parent company and cannot be a sole establishment or one-person LLC
Your company should be in good financial health without having incurred heavy losses
Documents needed
Audited financial statement for the last fiscal year
Trade license (or equivalent)
Notarized Power of Attorney (PoA) from a public notary
Memorandum of Association
Important points to note:
Each of the above documents must be attested by the Ministry of Foreign Affairs and Saudi Embassy in the country of the parent company.
AstroLabs provides a PoA template that includes the names of two of our colleagues from AstroLabs, Riyadh in addition to naming the assigned General Manager (GM) of your Saudi entity. We recommend our clients do this because it limits a GM’s visit to the Kingdom to one time as opposed to two, during the entire setup process. This one-time visit generally happens around Week 9 or 10 into the process while all other stages are taken care of by the AstroLabs operations team in the field.
The time taken to get these attested documents ready varies drastically from country to country, which is an important factor when deciding the parent company of your KSA entity.
16-Step company setup process in KSA
We’ve divided the end-to-end company setup process in Saudi Arabia into 3 stages encompassing 16 major steps. While we list down the 16 steps here, there are close to 40-50 steps that happen behind the scenes within these steps.
Stage 1 – Foundations of the legal entity
Stage 1 involves making your company a legal entity in the Kingdom. It typically takes a month to complete this stage provided there are no major bottlenecks due to unforeseen or unavoidable delays.
This stage entails the following steps:
Step 1 – Apply for MISA License
The MISA Investor license gives you 100% foreign ownership of your entity and the ability to operate anywhere in the Kingdom. The type of license will depend on the economic activity of your business in KSA based on the International Standard Industrial Classification (ISIC).
The cost of a MISA license for the first year is SAR 12,000 including the service fee. From the second year onward, the renewal fee for one MISA license is SAR 62,000. In case your activities fall under two license categories, your renewal fee gets multiplied by two, and so on.
Step 2 – Name reservation
The new Saudi entity’s name must be in Arabic and must comply with local naming regulations which currently stipulate that MISA entities must be named using the foreign entity’s name, followed by “for” and the approved business activity.
Step 3 – Draft the local Articles of Association (AoA)
The drafted AoA of the local company is sent to the Ministry of Commerce for review, and upon their approval, it will be attested to serve as the main foundation of the legal entity in Saudi Arabia and the prerequisite to issuing the Commercial Registration. The person signing on the AoA must be authorized by the parent company through a Power of Attorney (PoA). Adding our colleagues’ names in the PoA will allow us to take care of this step for you without the presence of the GM.
Step 4 – Issuance of Commercial Registration (CR)
This serves as the main document showing the registration number of the company, the dates, and the General Manager. The CR will also list the activities of the local company, which must fall under the same license type. This is your company’s most important document and is equivalent to a Trade License and Certificate of Incorporation in other countries. The CR also needs to be renewed annually and its annual renewal fee is SAR 1,200.
Step 5 – Registration with the Chamber of Commerce (CoC)
The Chamber of Commerce (CoC) is a key platform that all local companies use heavily. Many of the government processes and papers require attestation from the Company’s Chamber of Commerce. Almost all of the Chamber of Commerce processes can be done online after the activation of the account. The CoC needs to be renewed annually for a fee of SAR 2,100.
Stage 2 – Authorization to hire staff
For your legal entity to be authorized to hire people, there are certain steps that must be taken, such as registration with the Ministry of Labor (MoL), and the General Organization of Social Insurance (GOSI). This stage would also allow your General Manager (GM) to have a one-time GM visa issued, allowing them to travel to KSA.
Step 6 – Activate Chamber of Commerce (CoC) account
Almost all of the Chamber of Commerce processes can be done online after the activation of the account. The Chamber of Commerce account will be activated if it is signed by an authorized signatory who has a PoA from the parent company.
Step 7 – Register with The Ministry of Labor
Registering with the Ministry of Labor (MoL) is required in order to be able to issue work permits and visas. Once the MoL account is activated, companies can see the Saudization quota needed to be fulfilled.
Step 8 – Register with General Organization for Social Issuance (GOSI)
As a foreign company established in Saudi Arabia, you must comply with Saudization law as this is monitored by the General Organization for Social Insurance (GOSI) on a monthly basis. Generally, if you have 5 employees or less, you are only required to hire one Saudi national. Once you exceed 5 employees, you will have to follow the Saudization Nitaqat system based on your company size and industry.
After getting your General Manager’s visa, and converting it to a residency (Iqama), you will not be able to hire any more non-Saudis before hiring at least 1 Saudi at any position the business sees fit.
The employer must contribute 12% of the Saudi employee’s salary to GOSI and the employee contributes 10%.
Step 9 – Get a national address
You are required to register and maintain a physical office address to open a company in Saudi Arabia. Companies that choose to work with us to set up their business in the Kingdom can use AstroLabs’ national address and co-working space in Riyadh as their national address. Our co-working space can work as a soft-landing space for your newly setup company. We offer access to this space and its complimentary use as your national address for the first several months. Should you choose to continue staying with us, this becomes chargeable.
Step 10 – Issue GM Visa
The GM working visa is issued for one-time entry to KSA and which then can be transferred to a re-entry visa and residence permit (Iqama). The documents needed for the GM’s visa differ from country to country.
For example, the following is the list of documents you need if your GM is a UAE Resident.
Step 11 – Registration with General Authority of Zakat and Tax (GAZT)
As covered in last week’s episode, MISA entities are subject to taxation in Saudi Arabia which includes:
20% tax on net profit for the portion of the company owned by non-Saudi entities
15% VAT
5-20% Withholding Tax on dividends/interest paid to a non-resident or remittances of profits abroad
Zakat and VAT registration must be processed by a registered Certified Public Accountant.
Stage 3 – Acquiring residency of GM and opening a bank account
This is the final stage of the process that will allow your General Manager to become a resident of Saudi Arabia. This usually happens around the 3rd month of the setup process. The GM can then start the process of opening a bank account for the company
Step 12 – GM Visits KSA
The GM must visit KSA to utilize their one-time entry and complete their medical assessment after which their visa will be transferred to a residence permit (Iqama).
Step 13 – Convert GM Visa to residency (Iqama)
At this stage, the GM working visa which allows for a one-time entry to KSA, will be transferred to an Iqama (residence permit). The local employer applies and secures the work permit and Iqama so that the employee can legally work and live in KSA. The employer is considered the local sponsor.
An Iqama is issued to expatriates who arrive in KSA with a work visa. The term of employment is limited to the amount of time listed on the work permit. This is currently set at one year for work at private companies, but there is an option to renew the permit after one year.
The Iqama card is the essential ID for expats working in Saudi Arabia. It is also known as a Muqeem card and is the most important document you will have in the Kingdom. Without it, you will not be able to live or work in KSA.
Step 14 – Register with Muqeem portal
Once you have your Muqeem card, the company will add you to their Muqeem portal, which enables re-entry visas to be issued and the renewal of residence permits.
Step 15 – Add GM to the Company’s books
The GM must be added to the company’s books and register with Absher. Absher is the official eServices mobile application which allows citizens and residents in Saudi Arabia to use a variety of governmental services. The Absher portal will manage the GM’s personal files and services, such as driving license, passports, rent etc.
Step 16 – Initiate bank account opening process
This is the final step of the process. After gathering all the required documents, the process of opening a bank account is initiated. Each bank is different in terms of speed and customer service. Standard requirements from banks include:
AoA of the parent company
A document authorizing the GM to open and manage the bank account (if not mentioned already as an authority in the AoA of the local company)
The AoA of the local company
ID copy of the GM
Some banks require an in-person visit to the local company’s office
Some standard forms and applications from the bank
Some additional points for you to remember
Having a MISA license and the Commercial Registration makes your Saudi entity eligible to bid for tenders and government contracts as long as the activity code for your company aligns with that of tender.
The GM is recommended to be present in Saudi Arabia for 2 weeks to complete the following steps:
the GM re-entry Visa
the Iqama
Medical in the Kingdom
the Activating Chamber of Commerce
the Activating of Ministry of Labor
the Opening of a bank account
These steps take place usually around week 9 or 10 of the process.
Client Dashboard – AstroLabs
AstroLabs has built a client dashboard to make the company setup process in KSA as smooth and as transparent as possible. This dashboard allows users to track progress and see where they are in the setup process.
The end-to-end company setup process in KSA can take up to 3 months and it will be helpful for our clients if they know what’s happening behind the scenes at any point in time during the process.
The green ticks in the screenshot above show you the steps completed. You can also see the comments added by your Personal Account Manager which will help you plan your schedule and prepare for next steps.
On the dashboard, you’ll have download access to all the company-related documents that we’ve obtained for you including your MISA license, Commercial Registration, and more.
That brings us to the end of the company setup process in Saudi Arabia. If you have any questions, please feel free to write to us at [email protected]. We’d be happy to help you with any queries you may have regarding any step of the process.
In next week’s episode, our Head of Talent, Danielle Blizzard, will discuss Recruitment and Talent Acquisition in Saudi Arabia. Having a best-in-class team is one of the most crucial factors in building a successful company and we’ll walk you through exactly how to do that. To register, just click here. We can’t wait to see you there!