Company Formation in Saudi Arabia
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Total Posts: 3 Last post by Dr. Sukumar
Total Posts: 5 Last post by Dr. Sukumar
Saudi Arabia Company Formation
The start-up procedure has never been so simple in Saudi. In 2007 the government decreased both the minimum capital needed to set-up and the length of time it takes to incorporate.
Registration of a company in Saudi Arabia follows this 11-stage process:
- Prepare the documents including legalisation by the Saudi consulate. This takes 2 weeks.
- Submit an application to the Saudi Arabian General Investment Authority (SAGIA) and obtain an investment license. This takes 3 to 4 weeks and costs 2000 SR.
- Obtain approval from the Companies Department at the Ministry of Commerce and Industry after submitting the Articles of Association and the company name. This takes 5 days.
- Sign the Articles of Association in front of a notary public. This takes 2 days.
- Publication of the company name and a summary of the Articles of Association in the official gazette. This takes 2 days and approximately 5500SR.
- Open a bank account, transfer the share capital and obtain a certificate stating that the capital has been deposited - a process which takes 2 weeks.
- Register with the General Department of Passports, Ministry of Interior and the Ministry of Labor and obtain a work visa for the company manager. This takes 2 weeks.
- Company manager getting his visa stamped at the Saudi consulate and obtaining his work permit and residence permit upon arrival in Saudi Arabia a process that takes 2 weeks.
- Registrations with the Commercial Registry at the Ministry of Commerce and Industry and the Chamber of Commerce. This takes 2 days and costs 8100 SR.
- Obtain a file number and certificate of business commencement by registering with the Department of Zakat and Income Tax (DZIT), Ministry of Finance. This takes one day.
- Register with the General Organisation of Social Insurance. This takes one day.
There are several ways of doing business in Saudi Arabia, most common of these are:
- Direct Exports
- Non Resident Execution of Projects
- Commercial Agents and Distributors
- 'Technical and Scientific Offices (Rep Offices)
- Permanent Branches
- Temporary Branches
- Sole Proprietorships
- 100% Self-Owned Companies (Limited, Joint Stock)
- Joint Venture Companies (Limited, Joint Stock)
The easiest way of conducting business in Saudi Arabia is direct export into the country. A business can invariably sell its goods directly to Saudi Arabian customers, provided they meet health and safety standards. Hiring a local agent is not a prerequisite. However, most companies have a local presence to trade their goods effectively, and some types of transactions require a local entity.
Non Resident Execution of Projects
Smaller projects, in both the private and the government sector, do usually not require a local presence to be established. A tax registration is needed and the local client will pay withholding tax on behalf of the contractor. Visas and residence permits can be temporarily sourced from other entities.
Commercial Agents and Distributors
A commercial agent will be comprehensive of the local market and will be able to facilitate certain transactions. It is recommended that businesses choose their agent with diligence; even though Saudi legislation in this field is the least stringent in the entire Gulf, terminating or changing agents can be an arduous process.
The term commercial agent can be defined by range of roles and responsibilities. Some agents trade products; others sell services. Some buy products straight from the manufacturer and resell them; these are called 'distributors' ;others sell products for the manufacturer and receive a commission. All, however, are covered by the commercial agency law.
This approach is becoming an increasingly favourable way of doing business in Saudi Arabia. It can provide more flexibility than a commercial agency, but does not require the resources of a branch office or joint venture. As in the case of commercial agents, an overseas investor should proceed with circumspection before entering into, transposing or ending a franchisee. The commercial agency law applies to franchises.
Technical and Scientific Offices (Rep Offices)
A representative office provides the manufacturer with an independent base in the market. Saudi law allows rep offices only in the form of so-called Technical and Scientific Offices (TSOs). While fully owned by the manufacturer and issuing its own visas and residence permits, the commercial agent must issue a clearance letter before licensing and registration can be completed. TSOs do not require a minimum capital
A branch office will entail a more dedicated approach than a commercial agent. A branch office is generally limited to an admin role and may not carry out trading activities. The parent company will assume full liability for all activity undertaken by the branch office. A minimum capital of 500,000 SR is required. Licence to establish a branch office is issued by the Saudi Arabian General Investment Authority Temporary branches, which do not require any minimum capital, can be established for the execution of a project for a government agency.
Since recently, foreigners are allowed to invest in Saudi Arabia as sole traders, in their personal name. A minimum capital of 100,000 SR is required for this formula and the sole proprietorship is the sponsor of its owner.
By choosing to incorporate an offshore company, business owners and investors can set-up a business outside the jurisdiction of its operations. Offshore companies are traditionally, but not exclusively, incorporated for lower fees and taxes. Business owners must abide the regulations of the offshore jurisdiction, and must not trade within the jurisdiction. The benefits are vast. As aforesaid, reduced tax and fees are often big factors when considering offshore incorporation. A company may also choose and offshore location to:
- Simplify set-up and maintenance - entrepreneurs may find bureaucracy and red tape less of an obstacle in offshore jurisdictions
- Assume anonymity - the names of owners and directors are not for public record, and references to the company may only be made in its registered agent
- Ensure legal protection - for instance, some jurisdictions favour corporate governance, meaning a company is only liable to offshore laws as opposed to those in its areas of operation
- Protect assets - business owners may opt to arrange their assets and transactions in such a way that protects them from liability
Characteristics of an offshore company:
- Memorandum and Articles of Association
- Certificate of Incorporation
- Registered Office/Agent
- Shareholders / Members
- Directors / Managers
- Company secretary
- Statutory Register
Traditional locations for offshore incorporation are tax havens, such as the British Virgin Islands, Panama and Monaco. Other favoured areas include India, the Bahamas, Dubai, the Cayman Islands, Cyprus, Seychelles, Marshall islands, Delaware, Turks & Caicos Islands, Hong Kong, Jersey, Guernsey and the Isle of Man.
The law permits foreign investment in all sectors of the economy, except for particular operations outlined in the negative list (below).
Foreign investors no longer need to make local partners and are allowed to own real property for their operations. They can transfer money from their companies externally from the country, and can sponsor foreign employees.
The negative list:
- The Industrial Sector
- Catering to military sectors
- Oil exploration, drilling and production. Except the services related to mining
- Manufacturing of military equipment, devices and uniforms
- Manufacturing of civilian explosives
- The Service Sector
- Catering to military sectors
- Security and detective services
- Real estate investment in Makkah and Madina
- Tourist orientation and guidance services related to Hajj and Umrah
- Recruitment and employment services including local recruitment offices
- Real estate brokerage
- Printing and publishing. Except the following activities:
- Pre-printing services
- Printing Presses
- Drawing and calligraphy
- Radio and Television Broadcasting Studios
- Foreign Media Offices and Correspondents
- Promotion and Advertising
- Public Relations
- Press Services
- Production, selling and renting of computer software
- Media consultancies and studies
- Typing and copying
- Motion picture and video tape distribution
- Commission agents
- Audiovisual and media services
- Land transportation services, excluding the inter-city passenger transport by trains
- Services provided by midwives, nurses, physical therapy services and quasi-doctoral services
- Blood banks, poison centres and quarantines
Will I need an agent?
Saudi law does not state that foreign companies need to delegate a commercial agent in order to sell products from overseas into Saudi Arabia. You can make direct sales to the private sector from outside Saudi Arabia. It is recommended, however, that you employ a Saudi agent or distributor. Saudi law does not allow an alien business to operate as commission agent. Wholesale and retail trading and distribution is subject to a minimum foreign investment of 20 million SR and a 25% local partner.
Nearly all government buying is made by local tender and, in some cases, only Saudi Arabian companies may bid. In such cases, foreign companies will therefore need a Saudi agent to bid on their behalf.
Saudi law allows the delegation of more than one agent for the same geographic sector. However, some businesses prefer to assign a sole agent to avoid contradicting interests and accidental mix-up; particularly when bidding for government contracts.
UK businesses frequently enter dialogue with Saudi Arabian companies interested in acquiring their agency. UK companies should really try to visit a potential agent in their environment before finalising any contractual agreements. It is also recommended that businesses seek professional advice before entering said agreements. The official model agency agreement issued by the Ministry of Commerce and Industry is not compulsory.
Agreements are overseen by Royal Decrees, Ministry of Commerce Resolutions, Council of Ministers Resolutions as well as principles of Islamic law. The contract is not immune from alteration, providing it does not contradict with the relevant law and regulations.