How to set up a business in Saudi Arabia

Updated 2022-02-24 06:35

Saudi Arabia is one of the fastest business climate improvers, according to the annual World Bank's group report — Doing business Report 2020. The reforms ongoing in the country, both at the business and the social levels are favorable for the investors to come.

As the world's biggest oil exporter, Saudi Arabia has been involved in international business relations for decades. However, the country has since expanded its industrial portfolio to include power, telecommunication, healthcare, tourism, hospitality — and more.

Today, the country's strong focus on diversifying its economy and attracting foreign investment has only strengthened. The Saudi Vision 2030 development plan prioritizes the opening of small and medium businesses, foreign investment in non-traditional business sectors, and the integration of the Saudi economy into the global business world. In 2017, Saudi Crown Prince Mohammed bin Salman launched the annual Future Investment Initiative dubbed Davos in the Desert to promote these ideas.

The country's growing commitment to “openness” makes it a promising environment for entrepreneurs and investors looking for new markets and opportunities.

The economy of Saudi Arabia

While the petrochemical industry, followed by construction, is traditionally the country's profitable primary sources, new spheres are developing. Following the boost of tourism and entertainment since September 2019, the Kingdom is welcoming visitors, issuing tourists visas for the first time and removing archaic public regulations. Businesses in fields like hospitality, events, advertisement and tour operators are busier than ever.

Good to know:

In 2019, 1,131 new international companies were set up in Saudi Arabia, according to the Investment Highlights Winter 2020 report.

Reforms in Saudi Arabia

It has been recently announced that business projects related to renewable energy will receive loans as support through the government program Mutjadeda.

Positive reforms have been made for minor investors, ranking the Kingdom third globally on this indicator, along with New Zealand and Singapore - the two easiest places in the world for doing business.

To tackle the high unemployment rate among the youth, Saudi Arabia is supporting companies and individuals of both local and foreign origin through a well established entrepreneurial ecosystem.

Women in Saudi Arabia, who have been deprived of many opportunities so far, now enjoy equal rights to men in terms of opening bank accounts, setting up companies, operating financially, etc.

Opening a company in Saudi Arabia as an expat

Foreigners wishing to set up a business in Saudi Arabia are quite likely to be supported by related authorities provided they comply with existing regulations. Unlike before, companies without a local partner can now obtain a license for doing business in Saudi Arabia and remain 100% foreign-owned — depending on the industry. For instance, service-related businesses can be 100% foreign-owned while companies involved in trading activity have a 25% local ownership requirement.

So, how do you start a company in Saudi Arabia? There are quite a few steps to the process.

The first step would be to obtain a foreign investment license from the Saudi Arabia General Investment Authority — SAGIA. With it, you will be able to invest in the country legally. However, if you want to open a company or operate a foreign branch, you will also need to obtain a commercial registration certificate from the Ministry of Commerce and Investment.

Note that SAGIA recognizes the following company types:

  • Limited liability company (a company where each shareholder's financial liability is limited to the value of shares they hold and does not affect their personal assets).
  • Joint-stock company (a type of business in which shares of a company's stock can be bought and sold by shareholders).
  • And foreign company branch — a company fully owned by its parent company.

Visit the Saudi Arabia General Investment Authority (SAGIA) website for more information on registering a company in Saudi Arabia.

Your next step would be to obtain the documents of the Memorandum of Association via the Ministry of Commerce.

Next, you will need to obtain the Issuance of Commercial Registration. If you are opening a new company, you will need to provide the Memorandum of Association. Your company will also be required to appoint a General Director. If you are opening a branch of a foreign company, you will need to provide the Commercial Registration of the parent company and a document from the board of directors explaining the reason for opening the branch.

Visit the Ministry of Commerce official website for more information on related proceedings.

You will then complete the registration process at the General Authority of Zakat and Tax, Saudi Ministry of Labour and Social Development and the General Organization for Social Insurance.

Finally, you will need to finalize the proceedings at the Ministry of Investment.

Business culture in Saudi Arabia

While the business culture in Saudi Arabia is adjusting to the opening economy, it is still primarily guided by conservative values and strict hierarchy. Being aware of the unspoken rules that guide the country's business interactions is essential for successful networking.

The first thing to be aware of when it comes to local business culture is that Saudi Arabia is a deeply hierarchical society — and you will find this hierarchy observed in the workplace, during business negotiations, in meetings and more. Major decisions are typically made behind closed doors — and by the select few. Getting more of the team included in strategy and decision making is not customary here and brainstorming sessions are a very rare practice.

Another thing to keep in mind is that many businesses in Saudi Arabia are family-run. This often makes negotiations a family affair. Plus, large companies also find innovation to be a much slower process governed by corporate complications and bureaucratic delays.

When working in Saudi Arabia, be prepared to attend a lot of business meetings. These are often rather informal, taking place over lunch or coffee, with hotel lobbies and restaurants being popular business meeting venues. Note that initial business meetings are often used as an opportunity to get to know each other and build trust. Thus, be prepared to delay business matters till the next meeting.

During business meetings and negotiations, carefully listen to the other party. Do not interrupt your business partner or openly disagree with them. If there are sensitive issues to discuss, it's best to do it in the most neutral way possible to avoid placing any blame.

For more information on the overall code of conduct during meetings, negotiations, and day-to-day activities, read our mini-guide on Etiquette in Saudi Arabia.

Labour conditions in Saudi Arabia

The minimum wage for expats in Saudi Arabia is SAR 2,500, while for Saudi nationals, it is SAR 5,300. Given the ongoing Saudisation process, employers are obliged to hire locals — the number depending on the business category.

The legal working week in Saudi Arabia consists of 48 hours, that is 8 hours a day for 5 days - from Sunday to Thursday, even though some businesses are starting on Saturday, with only one day off, or operating 6 hours daily. All business units, as well as the public sector and governmental bodies, etc., have to comply with the five times daily prayer breaks. Since January 2020, any business can work 24/7 in return of an annual tax. However, that does not concern the prayer time yet.

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

Business networking in Saudi Arabia

Meeting the right people can be a complicated task in Saudi Arabia. As only the top executives in a company tend to have decision making power, getting your foot through the door may be a long and challenging undertaking. This is why pre-existing connections can be very useful when doing business in Saudi Arabia, and you shouldn't hesitate to ask your contacts to help introduce you to decision-makers in your industry.

With that, as the business environment in the country is becoming more and more open, new opportunities for networking and socializing are appearing. This includes professional exhibitions and conferences, business meet-ups, trade forums and more. Professional events like these in your field can be a great way to expand your local and international network. Business associations like the Saudi British Joint Business Council or the American Business Association in the Eastern Province are great places to get started.

Online networking is also something to look into. While most socializing is done offline, professional networking platforms like Linkedin are starting to gain popularity.

Women in business in Saudi Arabia

Merely a decade ago, the role of women in the workplace was very restricted in Saudi Arabia. However, things are now changing. As part of the Saudi Vision 2030 under Crown Prince Mohammed bin Salman, women are encouraged to take up more initiatives in the workplace as well as the country's economy in general.

As of 2020, close to one in four Saudi employees were female — and by 2030, this number is set to increase by at least 30%.

In the business world, Saudi women currently account for close to 40% of all registered entrepreneurs.

While the role of women in the country's economy is growing, there are still lots of challenges to overcome, including a considerable pay gap, with women making over 50% less than men in the same positions.

Conducting business in Saudi Arabia as a foreign woman can still be quite a challenge. Just several years ago, women couldn't travel to the country unaccompanied by men, and most restaurants and coffee shops would have segregated entrances for men and women. These restrictions are now being lifted — but attitudes will be taking longer to change. When doing business in Saudi Arabia as a woman, you may find it more comfortable to travel with a male partner, making day-to-day interactions substantially easier. When introduced to local business associates, do your best to establish your rank and hierarchy instantly. This can be done by emphasizing your job title and professional qualifications.

Building lasting business relationships will also be harder for businesswomen than businessmen in Saudi Arabia. For example, women won't be able to invite their male business partners for lunch meetings (unless as part of a larger group) and socializing outside of the office will also be problematic.

Complications of doing business in Saudi Arabia

Modern Saudi Arabia offers a promising environment for new and innovative business projects. With that, navigating the country's business culture will definitely require some patience and adjustments.

Unfortunately, issues like corruption and nepotism are still part of the local business world. According to GAN Integrity, foreign companies doing business in Saudi Arabia “face a moderate to high risk of corruption”. Other complications include the abuse of power, the practice of using middlemen (called “wasta”), the overlap of politics and business and more.

In 2017, Saudi Arabia launched a major crackdown on corruption, which affected a number of high-profile figures. Today, the Combating Bribery Law and the Civil Service Law criminalizes most forms of corruption (including active and passive bribery, abuse of functions and more). However, the enforcement of these functions remains selective.

Useful links:

Ministry of Commerce and Investment

General authority of Zakat and Tax

We do our best to provide accurate and up to date information. However, if you have noticed any inaccuracies in this article, please let us know in the comments section below.