Setting up business in Saudi

pkmusd wrote:

Hi,

Is there someone, who knows about setting up business in Saudi?
As an legal structure for a small company which is partnership of Saudi and Non-Saudi?

Regards

There are three ways you can do this:
- one as a foreign investment company through sagia
- one as a branch or franchise of your firm outside KSA, for this you need a Saudi national
- in partnership with a Saudi national

All of the above has its advantages and disadvantages.

Its was not legal at any time for a business between a Saudi & non Saudi since under the eyes of the govt the business is and will always be belonging to the Saudi and not the non Saudi partner.

HRGuru wrote:

pkmusd wrote:

Hi,

Is there someone, who knows about setting up business in Saudi?
As an legal structure for a small company which is partnership of Saudi and Non-Saudi?

Regards

There are three ways you can do this:
- one as a foreign investment company through sagia
- one as a branch or franchise of your firm outside KSA, for this you need a Saudi national
- in partnership with a Saudi national

All of the above has its advantages and disadvantages.

Its was not legal at any time for a business between a Saudi & non Saudi since under the eyes of the govt the business is and will always be belonging to the Saudi and not the non Saudi partner.

Hi thanks for the quick info.

Yes, I understand partnership with a Saudi is meant to be a risky thing, but that's how it operates in KSA.

For 100% foreign investment, SAGIA gives tough time and takes long time to issue license of even reject, the idea behind this is to motivate people to work with Saudi.

If anyone else has useful piece of information, please share as I was unable to find relevant thread earlier disusing this.

My 2 cents (though too late): The way, @HRGuru described it, couldn't have been better.

Best of luck!

Just b'z that how its operated in KSA does not make it right / legal , but as you said this is whats widely practiced. But this is going to change with the new rules put in place.

Foreign Investment : This is the best possible way you have but a costly and time consuming one. The rejections are usually due to lack of funds or choosing of a business area that is not allowed for foreigners to do.

Good luck in getting more information.

HRGuru wrote:

Just b'z that how its operated in KSA does not make it right / legal , but as you said this is whats widely practiced. But this is going to change with the new rules put in place.

Foreign Investment : This is the best possible way you have but a costly and time consuming one. The rejections are usually due to lack of funds or choosing of a business area that is not allowed for foreigners to do.

Good luck in getting more information.

Thanks, HRGuru and TLL.

Yes foreign investments are rejected considering the facts as you listed above, unless they are coming in from US/UK/EU region.
Thus it makes difficult for one to choose that. Not sure, why expat who wants to do business has to take a difficult path of choosing a good sponsor and then operating.

pkmusd wrote:

HRGuru wrote:

Just b'z that how its operated in KSA does not make it right / legal , but as you said this is whats widely practiced. But this is going to change with the new rules put in place.

Foreign Investment : This is the best possible way you have but a costly and time consuming one. The rejections are usually due to lack of funds or choosing of a business area that is not allowed for foreigners to do.

Good luck in getting more information.

Thanks, HRGuru and TLL.

Yes foreign investments are rejected considering the facts as you listed above, unless they are coming in from US/UK/EU region.
Thus it makes difficult for one to choose that. Not sure, why expat who wants to do business has to take a difficult path of choosing a good sponsor and then operating.

Foreign investments are not blocked based on nationality or country of origin, rather based on industry type. For eg: Under Education sector you have limitations as to the type of business you can open, so goes with Medical Sector as well.

While choosing a local sponsor seems attractive the risk is that he can potentially take over the business and leave you cut & dry and there wont be anything you can do about it.

@ Pkmsud!

SAGIA is not that much tough. Should you follow the basics right and are legally an eligible candidate, your chances for rejection is not higher unless one makes a human error in documentation process.

presidconsult wrote:

@ Pkmsud!

SAGIA is not that much tough. Should you follow the basics right and are legally an eligible candidate, your chances for rejection is not higher unless one makes a human error in documentation process.

Do you know or anyone else knows of a consultancy firm who can help establishing it. Its a small trading establishment venture dealing in selling imported products not related to the field of medicine/engineering/defense.

For me, I haven't heard good about SAGIA from a few people, who experienced the problems..

pkmusd wrote:

presidconsult wrote:

@ Pkmsud!

SAGIA is not that much tough. Should you follow the basics right and are legally an eligible candidate, your chances for rejection is not higher unless one makes a human error in documentation process.

Do you know or anyone else knows of a consultancy firm who can help establishing it. Its a small trading establishment venture dealing in selling imported products not related to the field of medicine/engineering/defense.

For me, I haven't heard good about SAGIA from a few people, who experienced the problems..

Most general service offices can assist you with commercial / company registration process, of course for a fee. But beware as far as I know trading & contracting licenses are only for Saudi Nationals for SMB products / services.

HRGuru wrote:

pkmusd wrote:

presidconsult wrote:

@ Pkmsud!

SAGIA is not that much tough. Should you follow the basics right and are legally an eligible candidate, your chances for rejection is not higher unless one makes a human error in documentation process.

Do you know or anyone else knows of a consultancy firm who can help establishing it. Its a small trading establishment venture dealing in selling imported products not related to the field of medicine/engineering/defense.

For me, I haven't heard good about SAGIA from a few people, who experienced the problems..

Most general service offices can assist you with commercial / company registration process, of course for a fee. But beware as far as I know trading & contracting licenses are only for Saudi Nationals for SMB products / services.

SMB products?

Small medium businesses , products and services. Anything with paid up capital as mentioned in CR of less that SR.1 million.

pkmusd wrote:

HRGuru wrote:

pkmusd wrote:

Do you know or anyone else knows of a consultancy firm who can help establishing it. Its a small trading establishment venture dealing in selling imported products not related to the field of medicine/engineering/defense.

For me, I haven't heard good about SAGIA from a few people, who experienced the problems..

Most general service offices can assist you with commercial / company registration process, of course for a fee. But beware as far as I know trading & contracting licenses are only for Saudi Nationals for SMB products / services.

SMB products?

Thanks for letting me know of this. As I am looking for a small-sized trading venture of importing products from US and selling here.

As per what I read above, such trading business cannot be setup as a 100% foreign entity.

Yes you are right. Foreigners are not allowed to set up trading firms of small sizes, its only allowed for Saudi's. If the business is big or in industrial scale, then you can.

HRGuru wrote:

Yes you are right. Foreigners are not allowed to set up trading firms of small sizes, its only allowed for Saudi's. If the business is big or in industrial scale, then you can.

Okay, that means I have to go for option of partnering with a Saudi.

Careful with that, make sure you find some one whose interest is in business and not a part time venture.  Under the new law, Saudi's has to own and if he owns a business he should be registered under that business only and if he is working some place he cannot be an owner and an employee at some place else at the same time. His ID should be only with the business.

HRGuru wrote:

Careful with that, make sure you find some one whose interest is in business and not a part time venture.  Under the new law, Saudi's has to own and if he owns a business he should be registered under that business only and if he is working some place he cannot be an owner and an employee at some place else at the same time. His ID should be only with the business.

Please put some light on the aspect of somone managing a local's business without being under his sponsorship.

HRGuru wrote:

Careful with that, make sure you find some one whose interest is in business and not a part time venture.  Under the new law, Saudi's has to own and if he owns a business he should be registered under that business only and if he is working some place he cannot be an owner and an employee at some place else at the same time. His ID should be only with the business.

Looks like this thread is going to be informative for others who are interested in entrepreneurial venture.

HRGuru, do you have any reference link, which states the law you just mentioned that Saudi has to be solely working on his business and cannot work and do business at the same time?

TheLegendLeads wrote:

HRGuru wrote:

Careful with that, make sure you find some one whose interest is in business and not a part time venture.  Under the new law, Saudi's has to own and if he owns a business he should be registered under that business only and if he is working some place he cannot be an owner and an employee at some place else at the same time. His ID should be only with the business.

Please put some light on the aspect of somone managing a local's business without being under his sponsorship.

Can you elaborate? Didn't get you?

By the way, from a credible source I have come to know that a SME policy is under process of development by Chambers of Commerce and the relevant ministry, this will target home-bases businesses too and enable them to register. Not sure, when its going to roll-out though, might take 2-3 years, considering how slow things move here

pkmusd wrote:

Can you elaborate? Didn't get you?

If you manage any saudi's business and your iqama isn't in his name, the entire thing gets illegal. Heavy penalities apply followed by immediate deportation.

I agree with this part: "this will target home-bases businesses too". Yes, they'll TARGET 180 degree of what you've described (probably getting a bit cynical here and this is how things trending)

TheLegendLeads wrote:

pkmusd wrote:

Can you elaborate? Didn't get you?

If you manage any saudi's business and your iqama isn't in his name, the entire thing gets illegal. Heavy penalities apply followed by immediate deportation.

I agree with this part: "this will target home-bases businesses too". Yes, they'll TARGET 180 degree of what you've described (probably getting a bit cynical here and this is how things trending)

yeah ofcourse, but the scenario you have mentioned will affect the expat even worse than saudi.

I think conclusion is to have a Saudi and work with him as a undocumented partner!

Exactly. Please do have a look again at the last 2 lines of my PM.

TheLegendLeads wrote:

Exactly. Please do have a look again at the last 2 lines of my PM.

yeah, rechecked that.

Sorry guys, was caught up and could not follow up on the thread earlier.

I have also searched for rules posted some place but was unsuccessful, will search again and if I come across something I will let you know.

As I said it is not possible for a Saudi to be owner and then go work some place else as most business owners used to do for small trading businesses in KSA. What happened before is you get a license in a Saudi Nationals name and then you do the business as yours, of course you give a share of the profit to him. In this scenario you would be under this Saudi National's / company's sponsorship. Its still doable and fine, provided that Saudi you choose remains only under your company's ID.

If he goes for another job, he has to be registered under social insurance and its not possible for him to be registered twice. So he will have to choose either his business with you or the job and most of them will never leave their jobs.

So your best bet would be to find some one who has multiple CR's under his name and who will only be interested in doing business rather than a job. The other risks are very evident, if he decides to take over the company / business once its successful there is nothing much you can do.

Hope this is clear. Do let me know if you need more details.

HRGuru wrote:

Sorry guys, was caught up and could not follow up on the thread earlier.

I have also searched for rules posted some place but was unsuccessful, will search again and if I come across something I will let you know.

As I said it is not possible for a Saudi to be owner and then go work some place else as most business owners used to do for small trading businesses in KSA. What happened before is you get a license in a Saudi Nationals name and then you do the business as yours, of course you give a share of the profit to him. In this scenario you would be under this Saudi National's / company's sponsorship. Its still doable and fine, provided that Saudi you choose remains only under your company's ID.

If he goes for another job, he has to be registered under social insurance and its not possible for him to be registered twice. So he will have to choose either his business with you or the job and most of them will never leave their jobs.

So your best bet would be to find some one who has multiple CR's under his name and who will only be interested in doing business rather than a job. The other risks are very evident, if he decides to take over the company / business once its successful there is nothing much you can do.

Hope this is clear. Do let me know if you need more details.

What a useful information, you've fetched out.

The key point I've noted here that you can not deal with someone who works, instead you need someone who is into business already. But then chances of takeover grows as the success comes.

I am trying hard to find a 100% legal way to operate.. lets see if I come across some

The only 100% legal way is as Foreign Investor only. But even this has pros and cons and if you are planning to do small business this is not for you. On the other hand, to get the license itslef as investor you need to invest a min of SR.1 Million.

The good side is you get peace of mind, legal, your own sponsorship with option to hire more staff under you, a good market with min profit mark up of 50-60% .

Flip side is you cant get into a whole lot of interesting / specific sectors. Like for eg: In education, you cant have higher education institutes or specialized institutes while you can have training centers , schools (international syllabus and no Saudi students). Another issue would be profit share, depending on business sector under Investor license you need to pay tax of 20% of profit.

So is there no legal way for an expat to be a part owner in a small business?  If you get a license in a local's name and run a business, couldn't you two draw a written agreement between both of you--saying for example the local will get 30% and you will take the rest--and have it legalized with a lawyer in front of witnesses?

Yeah I guess that is not allowed.  What if both of you put equal amounts of money into the business and so the local gets 51% share.  Would that make it legal?  If not, is there any cutoff percentage that would make it legal?  If not, then it means it is not legal for an expat to be part owner of an SME and the only options of expats in this country are a salaried job or as an investor in or owner of a large enterprise.

@Trapezius : For this you have to understand the visa system, I am sure you know we all are here on work visa to work under a sponsor.

So how can a worker, under a sponsor enter into partnership with another Saudi and do a business. This will not stand in any court of law in KSA.

Assume that you are a worker under the same establishment, how can you have a contract that entitles to 50% or even less share of the profits of business owned by your employer.

The problems has now been compounded b'z of the new regulations, you cannot work under another sponsor any more.

People have tried different methods, some have tried to do business by being under the same sponsor and then mentioning the returns as fixed bonus in the employment contract, but the problem was no employer / Saudi would ever agree with this to you since they will be bound to give this % or fixed amount even if the business is bad or if you are leaving.

I know you have to work under your sponsor, and that's not a new regulation, actually.  It is being enforced for the first time, but it has always been illegal to work for another.  So my question was assuming you are working under your sponsor, and specify a certain percentage as your share of the profits, a share equal to your share in the initial investment, even if a mere 10-20%.  If they allowed it, would it hurt their economy?  There must be a reason why they don't allow it.  The could even limit it to a max of, say, 10% or 15%, i.e., any number under 50%.  Yes, I can see that a certain amount of money will be leaving the country, but I think it will also spur the creation of more businesses.

Just thinking out loud... in the end, it is their country, they can do what they want.

Trapezius wrote:

I know you have to work under your sponsor, and that's not a new regulation, actually.  It is being enforced for the first time, but it has always been illegal to work for another.  So my question was assuming you are working under your sponsor, and specify a certain percentage as your share of the profits, a share equal to your share in the initial investment, even if a mere 10-20%.  If they allowed it, would it hurt their economy?  There must be a reason why they don't allow it.  The could even limit it to a max of, say, 10% or 15%, i.e., any number under 50%.  Yes, I can see that a certain amount of money will be leaving the country, but I think it will also spur the creation of more businesses.

Just thinking out loud... in the end, it is their country, they can do what they want.

What you are suggesting is.....I would say a "suggestion". It is a workable solution as well.But then it does not serve the purpose.

If you are speaking in terms of impact on economy, the suggestion you gave is more harmful for any economy and not just in KSA. Economies or countries rather would strive to attract foreign investments since this way its not only attracting investments, its developing industry, capability and economy.

While your suggestion just only prevents money leaving the country or the opposite of it, it does not do anything to improve the economy to a great extend. The impact is minimal when compared to a foreign investment.

Oh and no employer and employment law will ever state a profit share of such huge %'s to any employee. And if you are even investing 1% in the business you are no longer an employee but a partner / share holder.

I agree HRGuru, you are right.

So tell me, what have all the expats that I come across once in a while and they tell me "I own a travel agency" or "I own a restaurant" or "I own a car workshop", etc, what have they done with their businesses, during the amnesty?  One of the stated aims of the government during the amnesty was to root out all these cover-up businesses, as they called them.

So have those people sold off their businesses to their sponsors (or to other Saudis)?

Trapezius wrote:

I agree HRGuru, you are right.

So tell me, what have all the expats that I come across once in a while and they tell me "I own a travel agency" or "I own a restaurant" or "I own a car workshop", etc, what have they done with their businesses, during the amnesty?  One of the stated aims of the government during the amnesty was to root out all these cover-up businesses, as they called them.

So have those people sold off their businesses to their sponsors (or to other Saudis)?

Well a very good question Trapezius.

A lot of them whose sponsor's were working some place else had to buy off their "business" back and look for new sponsor who is not registered anywhere else and will be loyal to their business. People who found such sponsors are still open and doing business as usual. The others who could not find are the ones that we see closed down or sold. Most are just closed for the time being just to see how thing will turn out in the end. As with every new process and rule in KSA, its best to wait out and see how the implementation is going on. Once you know how the system works, people then can find ways to override the system.

These people could very well still continue for a long time working the loopholes in the system. But there will be tougher restrictions and process to follow like paying salaries for all through bank accounts : this will put imaginary companies in trouble, not serious if they know how to bend the system. Will it root out what they wanted to do, honestly no. The very people who are now checking and making these rules are the ones who brought and are doing businesses and will continue to do so as well.

Proof: The Indian govt set up a registration center to monitor people coming back from KSA due to the current changes in rule and out of the 1384 registered people from April 2013 onwards, more than 1000 have returned to KSA in new visas.

(There are of course more who left and not registered but the point is they are kicking out through one door while even a bigger door is left wide open for a lot to return / come back, beats the whole program doesn't it ?)

I second HR Guru on this, the steps being taken will not achieve the target.
There must be a setup for expats to open small business legally in the system.

pkmusd wrote:

I second HR Guru on this, the steps being taken will not achieve the target.
There must be a setup for expats to open small business legally in the system.

With the current drive to stamp out illegals and correct legal status of workers, I dont think any one would even think of legally allowing us to open business here. Food for thought.

HRGuru wrote:

pkmusd wrote:

I second HR Guru on this, the steps being taken will not achieve the target.
There must be a setup for expats to open small business legally in the system.

With the current drive to stamp out illegals and correct legal status of workers, I dont think any one would even think of legally allowing us to open business here. Food for thought.

Yes, so your advise is to give up, or at least wait for sometime, as the SME policy is introduced, if it all it has some benefits for expats planning to start a business

Giving up can't be a suggestion.

But don't expect any good from the upcoming policy. They never let expats enjoy any business benefits unless they are left with no other options.

TheLegendLeads wrote:

Giving up can't be a suggestion.

But don't expect any good from the upcoming policy. They never let expats enjoy any business benefits unless they are left with no other options.

Yeah, right.
We have to try finding options that are close to legal atleast