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Setting up a business in Saudi Arabia

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Do you intend to set up a business in Saudi Arabia? Here are some tips to guide you through related formalities.

Saudi Arabia may seem to be an intimidating country in terms of expatriation. However, foreigners wishing to set up a business there are quite likely to be supported by related authorities provided they comply with existing regulations. In fact, year after year, foreigners from across the globe have managed to set up their business there not only to showcase and share their skills and know-how but also to create jobs for locals and expatriates, thus participating actively to the local economy.

Despite the country's stiff appearance, the Saudi Arabian General Investment Authority has managed to turn the country into an ideal destination for business and entrepreneurship thanks to simplified measures and many associated benefits such as the lowest average tariff rate in the Middle East and North Africa (MENA). Moreover, local authorities have reduced the port handling fee by 50% in 2008 so as to further encourage entrepreneurship.

Note that Saudi Arabia has been listed as the MENA region's best country to do business by the World Bank. In fact, the country has remained faithful to private companies' liberal political traditions. In other words, foreign investment laws allow foreigners to hold 100% ownership of their projects, even when it comes to real estate.

Finally regarding competitiveness, Saudi Arabia's fiscal environment includes low taxes and numerous incentives. For years, many foreign investors have benefited from its financial freedom. In addition, the stability of the Saudi currency, indexed to the US dollar, gives no restriction whatsoever in terms of foreign exchange or profit repatriation for foreigners.

Types of companies

Like in most countries, setting up a company in Saudi Arabia involves various legal procedures. The following is some information on the different types of companies that exist in Saudi Arabia.

The Sharikat Tawsiyah Bel-ashom (Ashom) is a limited shares partnership. This type of company requires a minimum of two and a maximum of fifty partners. Moreover, at least one of the partners’ liability will be unlimited. Other partners' liability will be equal to the amount of their contribution to the capital. Note that a minimum capital amounting to one million Riyals, that is around 210,632 euros, is required.

The Sharikat Al-Mossahamah (SAM) is a public limited company which requires a minimum of five partners and a minimum capital of 10 million Riyals, that is around 2,080,200 euros. Partners' liability will depend on their amount of contribution to the capital.

The exclusive property is a single partner company which requires no minimum capital, especially due to the fact that the individual entrepreneur will have to guarantee his personal assets in case of debts.

The Sharikat Tadhamou is a general partnership company which requires a minimum of two partners, both having unlimited liabilities. A minimum capital of 500,000 Riyals, that is around 105,000 euros (500,000 riyals), is required.

The Sharikat Zat Massouliyyah Mahdoodah (SMM) is a private limited company which requires at least five partners with a minimum capital of 1,053,160 euros. Each partner's liability will be equal to their amount of contribution in the capital.

Economy

Saudi Arabia's economy is mainly based on the exploitation of oil which is owned by the government. The petroleum market represents about 75% of the country's total budget, 45% of its Gross Domestic Product (GDP) and 90% of its export revenue. As regards the private sector, it makes a 40% contribution to the country's GDP. Note that the services and petroleum fields employ some 6 million foreign workers to date.

Saudi authorities have greatly been encouraging the private sector for a few years, especially in the fields of information and communications technology, natural gas exploration and petrochemicals, etc. The country seeks to further liberalize its trade policy as it is now a member of the World Trade Organization (WTO). Therefore, trade and foreign investment should benefit from greater transparency and freedom.

The Saudi government is also trying to reform the development of the national economy so as to attract more foreign investment. In fact, foreign investors can now own up to 100% of their companies, at least in some sectors.

Finally, the authorities decided to privatize the electricity and state telecommunications companies so as to give more opportunities to foreign investors and encourage competition among these on the local market.

Procedures

The first step will be to check if the name you have chosen for your company is available on the Company Names website. If it is the case, you can start by a booking by printing an AOA standard document which you will have to send to the Unified Center for formalization. This process is free of charge. You can also proceed through the Saudi Ministry of Trade and Industry website. Documents to be produced are:

  • the AOA printed company name booking
  • an electronic copy of the AOA document
  • written confirmation regarding the booking
  • your identity card
  • the application form.

Registration fees apply. These amount to 1,200 Riyals for registration purposes and about 650 Riyals for the publication of the AOA. Fees can be settled at the Unified Center itself.

You will then have to get the company's statutes authenticated before a public notary. The Unified Center can provide you with a notary so as to make sure that your request is complete.

The following step will be to open a bank account in the company's name. You can choose any Saudi bank.

Once you are done with these, you will have to submit all notarized documents to the Unified Center once again so that all details regarding your company are entered into its database. You will also have to pay 2,100 Riyals to the Saudi Chamber of Commerce through the Unified Center.

Another important step is to register all your future employees to the GOSI so that they can be eligible to the National Pension Fund and to the Industrial and Health Fund. Note that you will make an 11% contribution for each employee while the latter will be making a 9% contribution.

Finally, you will have to register your company with the Zakat Department (religious tax). The Zakat tax is calculated according to taxable income and some assets.

Labor conditions

There is no legal minimum wage in Saudi Arabia. The average salary amounts to some 2,500 riyals, that is around US$ 650 US. If you are asked to work during week-ends, you will be eligible to double daily wages. In case of over time, the hourly wage is increased by 50%.

The legal working week in Saudi Arabia consists of 48 hours, that is 8 hours a day during 6 days. However, Friday is generally not considered as a working day in the country.

During the Ramadan month, employees are expected at their workplace for only 6 hours a day. These do not include their lunch, rest and prayer times.

Finally, workers having completed a whole year in service are eligible to a 20 days paid leave. Once you have completed five years of employment, you will be entitled to a 30 days paid leave.

 Useful links:

Ministry of Commerce and Industry www.mci.gov.sa
Saudi Arabia General Investment Authority www.sagia.gov.sa
Department of Zakat dzit.gov.sa

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