When forming a business in the kingdom, keep the following elements in mind:
Business factors like:
- The type of business and the industry
- Nationality of the headquarters or individual(s) in question, as well as
- Existing commercial agreements or ties
Commercial Agents -
- While you can sell directly to the private sector from outside Saudi Arabia, according to Startup Overseas, it is recommended that you use a Saudi agent or distributor. Saudi law prohibits an alien company from acting as a commission agency. Wholesale, retail, and distribution trading and distribution require a minimum foreign investment of 20 million SR and a 25% local partner.
The country appears to be receptive to international investment in general, and the former monarch attempted to modernize the country through social and economic programs, according to the CIA World Factbook. These include encouraging foreign investment, strengthening the importance of the private sector in the economy, and improving employment and social possibilities for women.
In Saudi Arabia, foreign enterprises can choose from three different types of company formations. Each of these company structures has its own set of benefits and drawbacks, as well as different business scopes, registration processes, and minimum capital needs. In most cases, these requirements are determined by a company's level of commitment to Saudi Arabia and the anticipated economic activity.
For international enterprises entering Saudi Arabia, the limited liability corporation (LLC) is the most frequent type of company and vehicle of investment.
- An LLC must have between 2 and 50 shareholders and be managed and represented by one or more managers, with a minimum capital investment of SR 500,000. Although shareholders frequently provide for a Board of Directors and other management structures in the Memorandum of Association, there is no Board of Directors. If the number of partners exceeds twenty, the corporation must form a "Board of Controllers." Because there are no regulatory restrictions on the percentage of foreign ownership, a Saudi partner is not required.
- An auditor is also required for the LLC.
- A shareholder might be a natural person or a corporation. Shareholders are normally only liable for the firm's obligations up to the value of their separate shares in the company.
Pros & Cons
- The most frequent structure is a limited liability company (LLC), which is particularly popular for embarking into joint ventures with Saudi partners.
- A limited liability corporation, in particular, may engage in the complete spectrum of activities that fall within the firm's approved objects, as well as conduct projects in both the public and private sectors. Any industrial project is more likely to qualify for financing from the Saudi Industrial Development Fund at advantageous rates. Employees of a limited liability firm can also be sponsored for residency.
- On the other side, initial funding might be relatively high, and the acceptance of the company's aims can also be a constraint. These objects are subject to SAGIA approval. As a result, while the objects must be wide enough to allow the corporation to engage in the activities, SAGIA is unlikely to approve them if they are too broad.
- Furthermore, the dissolution process can be time-consuming and costly if one or more partners refuses to comply.
Notes & Procedures
Before registering a business, you must first reserve a name that has been approved.
- At the Ministry of Commerce and Industry, a name can be reserved. The name reservation is valid for two months and can be completed entirely online through the Ministry of Commerce and Industry's website.
The first step in establishing a Saudi firm with foreign owners is to get an investment license. This can be accomplished by submitting an investment license application to the Saudi Arabian General Investment Authority (SAGIA). Submission of the following documents is required:
- Each applicant must sign a standard license application form that includes an authenticated certification that they have read and understood the Foreign Investment Regulation and its Implementing Rules.
- A resolution from the applicant's board of directors to form a limited liability company (LLC) in Saudi Arabia that has been authenticated.
- A copy of the applicant's certificate of incorporation and articles of association that has been authenticated.
- A certified copy of the applicant's balance sheet for the two years prior to the application year.
- Four passport-size images, as well as a complete copy of the company's prospective manager's passport, including the empty pages.
- Four passport-size photographs of each person specified in the applicant's articles of association, as well as complete copies of the passport, including the empty pages.
The corporation must produce draft documents (articles of association) after acquiring the investment license, which can then be presented to the Unified Center (UC) for approval:
- Confirmation of the company name reservation
- Cover letter/summary of the AOA Articles of Association (AOA), in accordance with the UC's standard template. The AOA must also be submitted on a CD as a soft copy (in practice)
- Cards of identification (e.g. passports)
- Application for a SAGIA investment license
The corporation or authorized representative must execute and legalize the articles of association before a notary public once the draft articles of association have been accepted. Typically, the following documents are required:
- The shareholders' or their representatives' signatures on the original articles of association, as approved by the Ministry of Commerce and Industry Directorate of Companies.
- a copy of each shareholder's certificate of incorporation and articles of association
- An validated power of attorney allowing each shareholder's representative to sign the articles of incorporation.
- A copy of the investment license issued by SAGIA.
- a duplicate of each of the two witnesses' identification cards
Following the approval and legalization of the business paperwork, the company must publish the company name as well as a summary of the Articles of Association in the official gazette.
A bank account can be opened after the preceding steps have been completed. Shareholders can now transfer their share capital and receive proof that it has been placed. The certificate must be obtained before the final procedure at the Unified Center.
Although this is required before completing registration in the Commercial Registry, it is unlikely that having an office address ‘registered' or 'approved' is a prerequisite. As a result, aside from organizing lease agreements, there are no formal procedures for opening an office.
Obtaining a business registration certificate is the final step in the registration procedure. The final registration can be filed to the Commercial Registry at the Ministry of Commerce and Industry once all of the above-mentioned paperwork has been resolved and the office and bank account have been established. This can be done at the Unified Center by submitting the required paperwork, just as the steps above. The following documents must be provided to the Unified Center in general:
- A board resolution signed by the shareholders that appoints their respective board members.
- The articles of association must be notarized twice.
- Two copies of the fee receipt for the summary of the articles of association to be published in the Official Gazette or a commercial journal, as appropriate.
- The bank certificate confirming the capital payment.
- A copy of the investment license issued by SAGIA.
- A copy of the lease for the office.
Become a member of the Chamber of Commerce.
The company must register with the Department of Zakat and Income Tax to get a file number and a certificate of business start-up (DZIT). The Zakat component is a religious wealth tax levied on taxable income and certain assets. Zakat is complicated to calculate, however the effective rate is 2.5 percent of a company's entire capital resources. To register and obtain a financial number, the following documents are required:
- A completed official registration form (available at DZIT offices or on the website)
- If available, a copy of the main office's and subsidiaries' commercial registration certificates.
- Association Articles
- A document of the permit for investment.
- Copies of any other permits that are required.
- A Saudi company's capital deposit certificate at a bank.
- For Saudis, a copy of their identity card; for non-Saudis, a copy of their passport and resident permission.
- Authorization to deal with DZIT on behalf of the taxpayer that has been notarized (if applicable).
The employer must open a file with the General Organization for Social Insurance to register for social security insurance (GOSI). The employer and employee will be registered with the organization's two divisions, the Pension Fund and the Industrial and Illness Fund, as a result of this activity (Occupational Hazards Fund).