Advantages and Disadvantages of Establishing a Company in Saudi Arabia

Navigating the Landscape of Business Setup in Saudi Arabia

Investing in Saudi Arabia offers a unique blend of opportunities and challenges, each shaping a promising landscape for business growth and innovation. As the Kingdom continues its journey towards economic diversification, foreign investors are presented with unparalleled advantages. From extensive government support and lucrative financial incentives to a vast and growing market eager for international products and services, the potential for success is substantial.

Saudi Arabia's strategic initiatives to modernize its infrastructure, enhance technological capabilities, and improve the overall business environment create a fertile ground for new ventures. The ambitious Vision 2030 plan is transforming the Kingdom into a global investment powerhouse, making now the ideal time to enter this dynamic market.

While challenges such as bureaucratic hurdles and regulatory complexities exist, they are being steadily addressed through progressive reforms aimed at fostering a more competitive and investor-friendly environment. By understanding and navigating these aspects, investors can tap into the immense potential that Saudi Arabia offers.

Addressing the Advantages and Disadvantages of Establishing a Company in Saudi Arabia is a must to know to take the right decision in incorporating a business in Saudi Arabia:

I- Advantages of Saudi Arabia Company Registration

1. Diversified Economy:

Saudi Arabia is actively moving away from its reliance on oil, opening various sectors to foreign direct investment. Key industries welcoming foreign businesses include:

• Agriculture, Forestry, and Fishing
• Mining and Quarrying
• Manufacturing
• Electricity, Gas, Steam, and Air Conditioning Supply
• Construction
• Wholesale and Retail Trade
• Transportation and Storage
• Accommodation and Food Services
• Information and Communication
• Real Estate
• Professional, Scientific, and Technical Activities

2. Extended Investment License Renewal:

The renewability period for foreign investment licenses has been extended from 1 year to 5 years, with a reduced processing time for license issuance. This change helps businesses save on maintenance costs and setup time.

3. Customs Duty Exemptions:

Foreign companies are exempt from customs duties on importing machinery, equipment, tools, and spare parts for industrial projects. They are also permitted to bid for government contracts and operate independently without needing a Saudi agent or partner.

4. Interest-Free Loans:

The Saudi Industrial Development Fund offers interest-free loans covering up to 50% of the total project cost. This includes pre-operating costs, investment in fixed assets, and working capital. A 50% loan requires at least 50% Saudi participation; otherwise, the loan is reduced proportionally.

5. Large and Growing Market:

Saudi Arabia is the largest Arab market and remains heavily dependent on imports of manufactured goods and foodstuffs. This creates a high demand for international products and services.

6. Significant Public Investment Fund:

Saudi Arabia boasts the largest Public Investment Fund in the Middle East. Investments from this fund aim to improve the country's standard of living, potentially increasing demand for international goods and services.

7. Lucrative ICT Sector:

Saudi Arabia has the largest IT market in the Gulf region, valued at approximately US$4.6 billion. The Kingdom's plans to implement 5G services are expected to transform the Middle East and North Africa (MENA) region technologically. The CITC’s initiatives to enhance computer literacy among the Saudi population further boost opportunities for ICT-related businesses.

8. Improved Economic Competitiveness:

Saudi Arabia is making efforts to improve its economic competitiveness by easing visa rules for skilled foreign workers, strengthening laws to protect investor rights, and reducing high import duties and lengthy customs procedures.

9. Regional Trade Advantages:

Companies serving the local Saudi market can benefit from duty-free access to the 17 countries of the Greater Arab Free Trade Area.

II- Disadvantages of Saudi Arabia Company Registration

1. Bureaucratic Challenges:

Extensive government bureaucracy can lead to ambiguity in Saudi law, resulting in corruption and delays in executing business deals.

2. High Tax Rates:

Since 2020, the VAT rate in Saudi Arabia is 15%, raising the prices of goods and services. Additionally, companies face a 20% corporate tax.

3. High Capital Requirements:

Foreign companies need a minimum paid-up share capital of US$134,000 for service licenses and up to US$8 million for real estate business licenses.

4. Favorable Conditions for Local Citizens:

Saudi business practices and laws tend to favor Saudi citizens. In investment disputes, Saudi litigants often have an advantage due to their knowledge of local law and culture.

5. Dispute Risks with Saudi Partners:

Disputes with Saudi partners can pose serious challenges, including restricted access to exit visas and potential imprisonment in cases of alleged fraud while awaiting investigation or adjudication.

6. Document Attestation Requirements:

The Saudi Government often requires documents to be attested by the Saudi Embassy in the client's country of origin, complicating the company incorporation process. This can be both costly and time-consuming.

Required documents typically include:

Passport copies of directors

• Parent company certificate of incorporation and
• Memorandum & Articles of Association (M&AA)
• Power of attorney issued by the parent company

7. Restrictions in Key Industries:

Saudi Arabia still restricts foreign investment in several key industries such as oil exploration, fisheries, printing and publishing, and recruitment services.

By understanding these advantages and disadvantages, businesses can strategically navigate the Saudi market, leveraging the opportunities while managing the challenges to establish a successful presence in this dynamic economy.