Company Registration in the Kingdom of Saudi Arabia

Forming a company in Saudi Arabia opens up access to financial incentives, leading-edge infrastructure, an extensively educated workforce, a robust research sphere, and a conducive regulatory landscape, fostering a conducive setting promoting commercial advancement and inventiveness.

The country's leadership is committed to transforming the economic setting, as evidenced by the "Vision 2030" program. Its primary aim is to spur investments in the IT field, fintech, professional services, tourism, healthcare, and education fields.

For those pondering firm formation in Saudi Arabia, familiarizing oneself with this publication could prove germane. The article succinctly illustrates various legal formations prevalent in the domain, elucidating key disparities among them, alongside delineating the fundamental stages involved in company enrollment in the KSA jurisdiction.

Advantages of initiating a venture in Saudi Arabia

The KSA is a prestigious business hub, exemplifying a flourishing business environment, efficient commercial support, and robust financial infrastructure. Having captured the top spot for entrepreneurial initiatives in the MENA region during the first half of 2023, the KSA offers a diverse range of opportunities for launching startup ventures within a technologically advanced ecosystem. Compelling justifications for establishing a venture in Saudi Arabia involve streamlined enrollment process and tax advantageous frameworks.

Strategically located at the crossroads of three continents, the KSA acts as a portal to the Gulf Cooperation Council (GCC), granting businesses access to a market exceeding 50 million consumers. This prime geographic position makes it a magnet for corporations seeking global market penetration. Establishing ventures focused on international trade and commerce in Saudi Arabia thrives due to its well-developed transportation infrastructure, encompassing a comprehensive network for air, maritime, and land-based logistics.

In a move to bolster the startup ecosystem, policymakers have enacted several facilitative measures. This includes the rollout of a modernized Companies Act, relaxed regulations concerning foreign ownership, and streamlining the business formation procedure in the KSA. Delimited Special Economic Zones (SEZs) provide entrepreneurs with premium infrastructure, tax advantages, and unparalleled incentives.

The KSA authority is actively fostering technological innovation via a multipronged approach. They rolled out a multitude of programs targeted at attracting entrepreneurs and fostering startup creation. These initiatives offer a holistic support ecosystem, encompassing funding, operational assistance, and mentorship from industry experts. These strategies entail executing initiatives such as RELOCATE* and instituting entities like Jada**, completely oriented towards nurturing the progress of a vibrant sector for direct and investment funding.

* RELOCATE is a program targeting the fostering and acquisition of global technological startups and multinational corporations to the country, expediting their approach and providing a variety of compelling incentives and benefits.

** Jada was created to stimulate the growth of direct and venture capital contributions, targeting the advancement of SMEs (small and medium-sized enterprises) in Saudi Arabia, while complying with regulatory frameworks and commercial imperatives.

A well-developed legitimate framework in the KSA offers exceptional protections for intellectual property, crafting it an enticing destination for business ventures. Additionally, initiatives like the National Transformation Program and the establishment of Saudi Arabian General Investment Authority act as the key catalysts for economic growth by providing companies with assistance in their efforts to expand and optimize.

Another compelling magnetic force for entrepreneurial minds towards the nation is its lively and youthful talent base. Administration has earmarked considerable assets towards academic education and professional training, fostering the advancement of a profoundly educated labor pool. Creating a company here grants the opportunity to leverage this well-educated labor force. It's important to underscore the competitive market dynamics in contrast to numerous other advanced economies, with relatively low cost of living, accessible office spaces, and competitive labor costs.

Furthermore, the Kingdom's Ministry of Investment (MISA) has made a substantial leap in alleviating administrative obstacles and aiding budding entrepreneurs by streamlining the formation of an enterprise in Saudi Arabia with minimal documentation requirements.

Regulation of business activities in the KSA

The establishment and operation of authorized business entities within the jurisdiction are supervised by the Companies Law of 2016. This legislation permits foreign capital providers to create a commercial footing in Saudi Arabia using various structures.

• Limited Liability Company (LLC)
• Joint Stock Company (JSC)
• General or limited partnership
• Collaborative enterprises

Choosing the most suitable business framework is imperative for all entrepreneurs launching a venture. Moreover, corporate legislation facilitates the establishment of representative offices for foreign corporations within the KSA.

Inbound investment regulations, including the Foreign Investment Law of 2000 and its supplementary rules from 2013 (as revised), govern the inflow of foreign capital into the country. These legal instruments restrict international capital providers from engaging in specific business activities within the manufacturing and services industry.

To establish a business entity in the KSA, foreign contributors should secure an investment permit from the Ministry of Investment. Certain business frameworks may necessitate foreign investors to acquire prior approval from the relevant ministry before the issuance of the license.

LLC establishment in the KSA

In the Kingdom, LLC emerges as a prevalent business setup. If you're considering establishing an LLC, get to know its essential features:

1. One founder and one director are necessary.
2. While certain entities under the purview of the Capital Markets Authority (CMA) or the Ministry of Internal Affairs (MOI) may be exempt, the initial capital thresholds are not stipulated. An LLC needs to earmark at least 10% of its yearly net income as a mandatory reserve. Once the required reserve hits 30% of the corporation's contributed capital, LLCs can opt to cease these dividend payments.
3. The level of answerability within an LLC is typically capped by the capital invested by its creators. Additionally, according to corporate regulations, there's an exemption to limited liability for partners in the case of creating a Saudi Arabian LLC with a sole partner. Then he would be answerable for obligations extending to their personal assets before third parties.
4. In the absence of the IPO, an LLC is unable to secure capital contributions from the public for ownership participation. To achieve this structure, a conversion into a public company, specifically a joint-stock corporation (JSC), is necessary.
5. The company's share register, the Ministry of Commerce (MOC), and the Articles of Association all mandate that any external ownership transfers be formally recorded. The articles grant members the power to determine the methodology for valuing their ownership interest in the LLC.

Formation of a JSC in the KSA

A JSC stands as the counterpart to publicly held LLC. In some industries, particularly those involving financial activities like banking, insurance, and wealth management, regulations mandate the use of a corporate JSC structure. Two distinct classifications of such enterprises exist, namely:

• establishing a "privately owned" JSC in the KSA, which is not listed on the stock exchange;
• formation of a "public" JSC, integrated into the equity market.

Any company listed on the Saudi Arabian Stock Exchange is considered publicly traded and subject to intense examination by the Capital Market Authority and other strict regulatory bodies. To participate in government projects, seek state financing, or engage in banking or insurance activities, a JSC must acquire authorization through a royal decree.

Other attributes comprise:

• To form a joint venture, a minimum of 3 directors and 2 equity holders are required. However, within the legitimate domain of Saudi Arabia, it's permissible to establish a private JSC with a sole stakeholder, provided it's a legal entity with a capital contribution of at least 5 million SAR (equivalent to 1,333,340 USD).
• Share capital: a minimum threshold of 500,000 SAR (approximately 133,334 USD), with exceptions given to particular varieties of enterprises sanctioned by the Ministry of Interior, the Saudi Arabian Monetary Authority (SAMA), or CMA. A 25% of the JSC's capital must be paid-in upon incorporation, while the remaining amount should be paid-up over 5 years.
• The liability structure within a JSC mirrors that of LLCs, limiting investor exposure to their equity contributions. JSCs are mandated to maintain a capital buffer equivalent to no less than 10% of their profit. Shareholders retain subscription rights during the flotation of new stock.
• Setting up a JSC in Saudi Arabia, it's important to understand that such enterprises hold the privilege to issue debt obligations, subsequently exchangeable for shares in circulation.
• JSCs have the authorization to either redeem or collateralize their shares.
• There exists no statutory preemptive entitlement for shareholders regarding share transfer.
• The company's governance policies mandate that members of the board of directors recuses itself from voting during board meetings or shareholder assemblies if they have a material financial interest, either directly or indirectly, in any business transaction under consideration.

Founding a satellite of an overseas corporation within Saudi Arabia

Overseas direct financiers have the ability to establish a subsidiary within the KSA, in addition to technical representative offices (TSOs). Each affiliate and TSO must secure an operating permit from the Saudi Food and Drug Authority.

Foreign enterprises view branch offices as essential components due to their swift establishment compared to LLCs and JSCs. These operational frameworks can participate in both public and private sector projects, driving their businesses' expansion throughout the KSA.

Branches and Trading Service Organizations are exempt from minimum capitalization requirements. Their participation in business endeavors is forbidden. Their role is limited to offering Saudi resellers and end users technical information and assistance on items made by foreign firms. This includes gathering market data, producing reports, and carrying out assessments.

Ways to enroll an entity in Saudi Arabia

Multinational corporations striving to broaden their presence in the Saudi market landscape can secure one of several permits issued by the Ministry of Investment:

• Service
• Industrial
• Agricultural
• Real estate
• Trade
• Mining
• Professional
• License for scientific and technical bureau
• Communications office license

Not all permits allow the creation of a wholly foreign-controlled company in the KSA without further requirements. The only industries, sectors where foreign ownership rights are unrestrained are agriculture, industry, and solutions. On the other hand, certain investment categories, like commerce, require that a foreign company that wants to enter the Saudi market have four worldwide subsidiaries and a minimum capital of 10 million SAR (about 2.7 million USD). In addition, several investment categories—like real estate and private equity—demand that a corporation with headquarters in Saudi Arabia hold a 25% ownership position.

In order to establish an LLC in Saudi Arabia, a foreign entrepreneur must secure either an official letter of support from a governmental entity (e.g., MISA) or possess a unique patent for a groundbreaking business concept. Essentially, fulfilling one of these prerequisites demonstrates legitimacy and innovation, thereby qualifying the applicant for LLC formation.

A feasible option for foreign ventures aiming to penetrate the Saudi Arabian market is the entrepreneurial business certificate. To be eligible for securing this license, it is crucial to furnish documented verification substantiating that your fledgling enterprise has been functioning for a period exceeding five years and aligns with one of the predetermined classifications:

1. Backed by venture finances.
2. The startup idea is patented.
3. A letter of recommendation from the KSA government office.
4. A Saudi-accredited incubator such as AstroLabs offers assistance to the startup.

Establishing a business venture in Saudi Arabia as a foreigner necessitates:

1. Select an appropriate lawful framework and secure authorization from MISA.
2. Book an entity name.
3. Formulate and legitimize corporate internal regulations, supplementary documents, and acquire a commercial permit.
4. Enroll with the Chamber of Commerce and Industry.

To guarantee the efficacious activity of your enterprise within the KSA, securing an exclusive corporate bank account is of utmost importance.

Starting an enterprise in Saudi Arabia: flourishing industries and support initiatives

Leveraging "Vision 2030", the KSA seeks to diversify its revenue streams by transitioning from a hydrocarbon-centric economic model. The government champions financial empowerment across various industries, aiming to cultivate a resilient and future-proof economic landscape. Target sectors for growth include leisure and hospitality, production, innovation, fintech, and healthcare.

The KSA has demonstrated significant progress in the technological arena. The nation's flourishing IT sector, along with strategic partnerships with international technology giants, has cultivated a favorable ecosystem for IT company registrations within Saudi Arabia.

The FinTech sector has witnessed remarkable expansion in recent years. SAMA has been instrumental in nurturing the financial technology landscape through programs like the FinTech Hub, designed to accelerate industry progress. There has been a surge of FinTech startups in Saudi Arabia offering pioneering solutions in areas encompassing payments, insurance, and automation.

Leveraging next-generation novelties like artificial intelligence, the Internet of Things, and blockchain has streamlined commercial procedures, elevated the caliber of customer service, and spurred groundbreaking advancements across various sectors.

The Saudi Industrial Development Fund provides medium and long-term capital for industrial ventures. Funding allocations are strategically distributed, with businesses in less-developed areas receiving amplified incentives. Financing options range from 50% to 75% of project cost with maturity of 15 or 20 years.

The state is offering attractive propositions to stimulate foreign direct investment in the solar energy sector, encompassing the distribution of photovoltaic panels, production of solar facilities, and associated activities. Other targeted industries for garnering foreign capital involve chemicals, transportation and logistics, healthcare and life sciences, property development, education, hospitality, manufacturing, mining, and metals.

The KSA has unveiled the Global Supply Chain Resilience Initiative, strategically targeting to solidify the country as the premier location for industrial corporations, cultivating stability and robustness within supply chains.

In 2023, the Saudi Arabian government launched dedicated economic zones specifically designed to attract entrepreneurs and investors across a broad range of industries, encompassing a diversified portfolio of economic activities.

• Light industry (biopharmaceuticals, medical equipment, automobile assembly)
• Logistics (optimization of the movement of goods and services)
• Marine sector (shipbuilding, marine services, construction of drilling rigs)
• Food industry (serving the huge sector of food production and processing)
• Cloud computing

The administration acts as a key catalyst in cultivating the entrepreneurial ecosystem through a diverse array of initiatives such as:

1. The National Technology Development Program (NTDP), which accelerates the Kingdom's digital transformation (from accelerating the procedure of initiating an internet enterprise to remotely attending court hearings).
2. The Center for Digital Entrepreneurship (CODE), primed to leverage the burgeoning momentum of Saudi Arabia's digital economy, spearheads and accelerates the advancement of digital acumen. It extends the horizons for local talent, fostering digital entrepreneurship at every inception stage through networking initiatives, proliferating incubation hubs, and fostering accelerators.

Certain provisions of the NTDP program encompass the financing of technology development, Venture Debt, Tech Crew, Boost, Connect, Bridge Initiative, and Relocate. Under the Venture Debt initiative, a sum of $150 million USD will be allocated towards the expansion and sustenance of rapidly burgeoning startups within the KSA. This initiative will afford 15% of the equity capital size.

In line with the TechCrew initiative designed to empower technology-focused SMEs, $78 million USD will be earmarked for these businesses. This initiative will offer them the flexibility to choose between a 50% payroll subsidy or extended financial support for a period of up to 18 months.

To propel tech-based startups through incubation support, the Boost initiative has allocated a total of $46 million USD. This funding will be distributed over a twelve-month period, with individual entrepreneurs receiving grants ranging from $1900 to $3600 USD.

Within the framework of the Connect initiative, a budget of USD 42 million have been designated to assist regional technology startups in acquiring qualifications and meeting the criteria of significant technological ventures. Under the program's guidelines, half of the expenses required to validate the business proposal will be covered, with a maximum limit of USD 200,000.

In the framework of the Bridge initiative program, pecuniary assistance will be granted to high-growth technology ventures exceeding $100 million USD in revenue to facilitate their global expansion endeavors. Each enterprise will be eligible to receive up to $1.3 million USD or a maximum of 70% of their qualified expenses, with a program term capped at two years.

The Relocate initiative aims to stimulate international technology ventures and intercontinental enterprises to establish a presence in Saudi Arabia, facilitating growth and market reach within the country and across other regional markets. A maximum budget of $1.4 million USD will be allocated to assist businesses, comprising up to $235,000 USD for office space subsidy, $960,000 USD for hiring local talent, and an additional funding of $240,000 USD for relocation expenses.

CODE offers a holistic suite of solutions and backing to nascent technology ventures. Specifically, it encompasses the following services:

• The mentorship provided to entrepreneurs will exclusively pertain to technical domains encompassing application development, gaming, artificial intelligence, Internet of Things, virtual/augmented reality, e-commerce, data analytics, UI/UX design, SaaS, fintech, cybersecurity, cloud computing, and product management.
• Startup incentives offered through digital privileges can be categorized into several key value propositions. At the forefront are cost-containment benefits, enabling Saudi startups to optimize their operational outlays through access to discounts and credits. Additionally, these privileges unlock membership opportunities in leading global entrepreneurial organizations, fostering valuable connections and industry exposure. Furthermore, the Ministry of Communications and Information Technology collaborates with prominent global platforms to provide startups with additional benefits and programs.
• Comprehensive technical support throughout the project lifecycle, facilitated by the Kingdom's R&D facilities.
• Capitalizing efforts to propel the technological advancement of nascent ventures and underwriting their R&D initiatives.

Enrollment of enterprises within unrestricted regions of Saudi Arabia

The creation of SEZ in the KSA represents a strategic program offering customized benefits designed to attract fully foreign-owned enterprises to launch their operations within the country.

If you're inquisitive in incorporating an enterprise in Saudi Arabia as an international entity, the data delineated in the table below may prove germane to your endeavor for optimal channels within your domain of operations. In 2023, 4 SEZ were inaugurated, portending potential prospects for well-considered development and compliance synchronization.

Leverage our in-house specialists to facilitate the launch of your targeted business within the designated zones. Our team of experts possesses deep-seated experience in delivering turnkey solutions. From entity formation to ongoing operational assistance, we offer a full suite of services to assist in the establishment of your business and guarantee the enduring prosperity of your enterprise in the KSA.

Acquaintance with the prevailing tax frame

A company is considered domiciled in the KSA if it is incorporated under the Saudi Arabian Companies Law or if its principal place of business is situated within the Kingdom's territory.

The Saudi Arabian government offers advantageous tax breaks to business owners undertaking their ventures in six underdeveloped areas of the Kingdom:

• Ha’il
• Jazan
• Najran
• Al-Baha
• Al-Jouf
• Northern Territory

A ten-year tax holiday is offered upon project commencement. Duties are waived for essential equipment and materials not currently available domestically.

The administration has established a strategic logistics hub advantageously located near Riyadh's international airport. This zone offers an attractive incentive structure for companies domiciled in the Kingdom, including an exemption from corporate income tax and a deferment of import customs tariffs over a five-decade timeframe.

If you're considering setting up a business within the KSA, it's crucial to understand that the Companies Law outlines requirements concerning record-keeping procedures, audit standards, and reporting guidelines in KSA. According to the Companies Law, all JSCs, LLCs, and brokerage firms are obligated to undergo a mandatory yearly audit of their financial records. Nevertheless, exceptions to audit necessities are granted to small businesses.

Funding, accelerators and incubators KSA

Nascent ventures in the KSA can strategically utilize programs that offer a comprehensive suite of advantages, including financial backing, guidance, workspaces, and connections, thus strengthening their business ventures within the commercial and regulatory landscapes.

Opening an account in Saudi Arabia

In Saudi Arabia, non-residents can create corporate bank accounts, however the procedure is difficult and takes time. They have to follow tight guidelines and submit more documentation.

To open a bank account as a non-resident, the following documentation is required:

• Valid passport and residency authorization.
• Proof of business enrollment in the country.
• A corporate plan outlining the company's activities, fiscal sustainability, and growth projections.
• Proof of residency, such as a utility bill or rental agreement.
• Official records for tax registration with the relevant authorities in the KSA.
• Executive committee resolution to establish a deposit account at a Saudi financial institution, indicating authorized signatories.
• Banking endorsements from current financial institutions (if applicable).

Initiating a corporate banking account in Saudi Arabia:

1. Choose a suitable financial institution following a thorough examination of their fee schedules, variety of solutions, and criteria for eligibility.
2. Deliver your application along with the expected documents to the chosen bank for review by their management team.
3. Upon successful completion of your application, proceed to execute a client service agreement outlining the account parameters and the bank's commitment to regulatory compliance.
4. Set up the account and utilize an initial deposit to activate its features. Afterward, the bank will furnish you with the pertinent details and paperwork for accessing your account.

The lead time for opening a corporate account in the KSA can vary between financial institutions. Typically, the entire process can take anywhere from several weeks to several months. To streamline the procedure and mitigate potential roadblocks, it is advisable to enlist the support of industry professionals and utilize investment facilitation services offered within the Kingdom.

Residential authorization in Saudi Arabia

In a bid to bolster the talent pool of high-caliber professionals, entrepreneurs, and investors, the Saudi Arabian leadership launched Residency Permit program in 2019. To fast track to the present, the program underwent a significant overhaul in 2024, unveiling innovative categories within the premium Permanent Residency Permit initiative.

Expatriates seeking to obtain residency in Saudi Arabia can qualify under one of the consequent designations:

• highly specialized skills (encompassing C-suite leaders, healthcare providers, and scientific researchers);
• high-potential contributors in the creative, artistic, and athletic domains;
• strategic partners (must infuse capital at least 7 million SAR (USD 1,866,550) in the country's domestic market, while creating at least 10 new employment opportunities);
• venture capitalists (including individuals pursuing the launch of a start-up in Saudi Arabia and fostering specific industries);
• property owners.

Applicants (regardless of category) must present evidence of ample financial means, a statement of no criminal record, and have valid medical insurance.

Conclusion

The global spotlight shines brightly on Saudi Arabia, thanks to the swift execution of "Vision 2030" reforms. These transformations are not only reshaping the economy but also unveiling a plethora of enticing investment prospects within the nation. Yet, like any venture, navigating the juridical landscape and comprehensively evaluating risks is paramount for company owners in the country.

Leverage the experienced counsel of IQ Decision UK consultants to expedite the launch of your commercial operations in Saudi Arabia.