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Top 10 things to know when setting up in Saudi Arabia

Updated: Aug 27, 2021

In Episode 8 of our Saudi Market Entry Series, Alex Nicholls, AstroLabs’ Business Development Lead discusses the top 10 things you should know when expanding your business to the Kingdom.

Saudi Arabia offers plenty of opportunities for new businesses to scale and create new markets in various promising sectors across different industries. However, the end-to-end process of setting up a company doesn’t come without its own challenges. The goal of this episode is not to deter you from expanding to the region, but to educate you about what to expect so you can be better prepared.

Here’s the recap of the session – Top 10 things you should know when setting up in KSA.

1. Setting up a company in KSA is complicated

Here are some of the factors that make the company setup process quite complicated in KSA.

· Dealing with lots of different ministries

· Constant change of Rules and Regulations

· Need for an on-the-ground team

· Delays and incurring extra costs for incorrect data or applications

2. You do not need a Saudi Arabian partner for many activities

The Ministry of Investment of Saudi Arabia (MISA) allows for 100% foreign ownership for many activities, except for a few activities that require partial Saudi ownership. Some activities are prohibited from any foreign ownership.

3. Documents required for setup

These are the documents you should get attested by the Ministry of Foreign Affairs and Saudi Embassy in the country of the parent company for the setup process.

1. Audited financial statement for the last fiscal year

2. Trade license (or equivalent)

3. Notarized Power of Attorney (PoA) from a public notary

4. Memorandum of Association (MoA)

5. Articles of Association (AoA) (In some cases you may be asked to produce the AoA)

4. Multiple company types to consider

These are the 4 company types you can form in the Kingdom

1. Branch - Liability falls on the parent company

2. Limited Liability Company LLC - Liability falls on the Saudi entity

3. Joint Stock Company - Some activities require this type of formation

4. Technical Scientific Service Office – Limited operations in Saudi Arabia

5. Saudization exists in KSA

Saudization is the Saudi government’s policy to increase employment of Saudi nationals across the country. These are the important factors to know about Saudization.

1. Saudi companies are required to hire Saudi nationals on a quota basis

2. A Saudi national must be hired in the first year within the incorporation of the company

3. The Saudization is based on Nitaqat system, which has 5 ranges to classify your Saudi entity based on how well the company is meeting the Saudization quota set by the system.

You can read about Saudization in detail in the recap of the previous episode of our Saudi Market Entry Series – Saudization in the Kingdom.

6. A GM is needed for the KSA entity

The General Manager (GM) will be mentioned on the MISA license and the Commercial Registration so you cannot have a company in the Kingdom without a GM. The GM does not necessarily have to be a GCC national unless your company is 100% GCC owned.

7. There is Corporate Tax in KSA

There are 3 kinds of Corporate Tax in KSA—Income Tax and Zakat, VAT, and Withholding Tax.

· Income Tax and Zakat – These are annually charged on the tax adjusted profit or net assets of a business at the end of a financial year. The Income Tax rate is 20% and is applicable only for companies with non-GCC shareholders while the Zakat rate is 2.5% and is applicable only for companies with GCC shareholders.

· Value Added Tax – VAT is an indirect tax imposed on all goods and services that are bought and sold by businesses. The standard tax rate for VAT is 15% of the value of the good or service.

· Withholding Tax – Withholding Tax is imposed on any payments made by a KSA entity to another entity outside KSA. The tax rates vary between 5%-20% based on the nature of the transaction and the relationship with the non-resident entity.

We have done an episode each on Corporate Tax and Withholding Taxes in KSA. Do check them out to know more about corporate taxation in the Kingdom.

8. Rules, systems, and regulations are constantly changing

It can get a bit challenging to keep up with the changing rules and regulations in KSA which leads to plenty of outdated or misleading information doing the rounds on the internet. Most of the false information includes the following. When you read about any of the subjects below, make sure you read from reliable sources and that the information is the updated one.

· Minimum capital requirements for setting up a foreign owned company

· New Ministry systems such as Mudad and Qiwa

· Required documents for company setup as well as bank account opening

· Nitaqat and Saudization

· The ISIC sheet

9. The setup process takes time

The company setup process in KSA approximately takes around 3 months. Here, we have presented different stages of the setup process along with the timelines.

You can read more about the 16-step setup process here.

10. Renewal fees and cost

The following are the renewal costs that you’ll have to bear at the end of the first year after the establishment of your Saudi entity. The table also lists the current government fees wherever applicable.

The idea behind this episode was to create transparency with respect to the processes, documentation, costs, timeframes, and more, so you could take well-educated and planned approach when expanding your business to the Kingdom of Saudi Arabia. The nation has a lot to offer. The opportunities it presents to global businesses outweigh the complications in processes and investment of time in the setup process.

We do hope all this information has been useful to you. If you have any further questions with respect to anything we discussed above or any other topic, feel free to write to us at [email protected].

You can check the recaps of all the previous episodes of our Saudi Market Entry series here. We’d love to know your thoughts and feedback in the comments section below.

Don't forget to register for our upcoming episodes of the Saudi Market Entry Series:

· Understanding the Fintech Ecosystem in Saudi Arabia featuring Fintech Saudi – 20th April 2021

· Top Tips on relocating to Saudi Arabia featuring Intouch Relocations – 27th April 2021

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