Attractive Investment Industries in Saudi Arabia

Forming a company in Saudi Arabia is a structured process that can take several weeks, but the country offers an accommodating legal framework for foreign businesses through the Saudi Arabian General Investment Authority (SAGIA). The steps involved in establishing a business in Saudi Arabia are similar to those in other countries, but with the right guidance, the process can be smooth and efficient. Below, we provide an overview of company formation in Saudi Arabia and the various legal entities available.

Types of Companies in Saudi Arabia

Entrepreneurs in Saudi Arabia have the option to form different types of business entities, including:

- Sole Trader

- Private Company

- Limited Liability Company (LLC)

- Public Company

- General Partnership

- Limited Partnership

Each of these business structures has specific advantages and requirements, so it’s essential to select the one that best suits your business needs.

Key Requirements for a Limited Liability Company (LLC)

- Minimum Share Capital: SAR 100,000 (approximately USD 26,000)

- Minimum Number of Shareholders: Only one shareholder is required.

- Minimum Number of Directors: A minimum of one director is needed.

- Timeframe for Registration: It takes approximately 2 months to complete the registration process.

Taxation and VAT Rates

- Corporate Tax Rate: 20%

- Standard VAT Rate: 5% (Zakat)

- No Reduced VAT Rates: There are no specific reduced VAT rates.

Annual Shareholders’ Meeting Requirement

Yes, an annual shareholders' meeting is mandatory and must be held within 4 months after the end of the financial year.

Full Foreign Ownership in Saudi Arabia

Yes, Saudi Arabia allows full foreign ownership in certain sectors, including wholesale and retail.

Double Tax Treaties and Tax Exemptions

Saudi Arabia has signed around 55 double tax treaties, providing relief from double taxation for foreign investors. Additionally, non-resident companies and investors are not subject to Zakat, and special tax exemptions apply to certain regions and industries.

Selecting the Right Legal Entity

Before starting the company formation process, foreign investors must choose the appropriate legal structure for their business. Options include:

- Sole Proprietorship: Suitable for single entrepreneurs, typically in specific professional fields.

- General Partnership: Requires at least two members.

- Limited Partnership by Shares: Requires between 2 and 50 shareholders.

- Limited Liability Company (LLC): The most popular choice for foreign investors, requiring at least two shareholders.

- Private Limited Liability Company: Popular among foreign investors due to its flexibility.

- Public Limited Liability Company: Ideal for larger-scale operations.

Additionally, foreign companies can establish a presence through branch offices or subsidiaries. LLCs can also be used to create holding companies in Saudi Arabia.

Steps to Register a Company in Saudi Arabia

Foreign and local entrepreneurs must follow several steps to successfully set up a business in Saudi Arabia:

1. Choose and Reserve a Trading Name: The trading name must meet specific requirements and be reserved with the Ministry of Commerce and Industry.

2. Prepare Incorporation Documents: These documents should reflect the chosen legal entity’s requirements.

3. Open a Corporate Bank Account: The company must have a bank account to deposit the minimum share capital.

4. File Incorporation Documents: Submit the paperwork to the Companies Register.

5. Obtain Tax Registration: Register for corporate tax and VAT.

6. Apply for Business Licenses: Depending on the industry, specific licenses and permits may be required.

Foreign investors may also set up companies in Saudi Arabia’s free zones, which offer advantageous conditions. Immigration lawyers can assist foreign entrepreneurs with visas and residency requirements.

Compulsory Registration Requirements

Once the business form is selected, investors must register the company's trading name with the Ministry of Commerce and Industry. The name reservation process can be completed online and is valid for two months. Additionally, company documents must be filed with the Ministry’s Companies Department and signed in front of a public notary.

The company’s trading name and key information must also be published in the official gazette, following payment of a specific fee.

Share Capital Requirements by Business Type

- Limited Liability Company (LLC): Minimum share capital of SAR 100,000.

- Public Company: Minimum share capital of SAR 10 million.

- Private Company: Minimum share capital of SAR 2 million.

- General Partnership: Minimum share capital of SAR 500,000 for two partners.

- Limited Partnership by Shares: Minimum share capital of SAR 2 million.

- Sole Proprietorship: No minimum share capital required.

Opening a Corporate Bank Account

Once the legal entity is formed, a corporate bank account must be opened for depositing the required share capital. After the certificate of registration is issued, the account will be activated.

Business Environment in Saudi Arabia

Saudi Arabia offers a favorable business environment, making it an attractive destination for foreign investors:

- Ranked 62nd globally for ease of doing business by the World Bank in 2020.

- Entered the top 10 global business climate improvers in 2020.

- Business registration can be completed in as little as 11 days.

- The cost of company registration is only 5.4% of per capita income.

Saudi Arabia has experienced significant industrial growth over the past four decades, particularly in sectors like non-metallic minerals, plastics, chemicals, and petroleum products. The country continues to see high levels of investment and employment, with over 7,741 operational units in 2016.

Setting up a business in Saudi Arabia is a straightforward process, as long as all required steps are followed. With favorable tax incentives, double tax treaties, and opportunities for full foreign ownership, Saudi Arabia provides an attractive environment for entrepreneurs and investors. For more assistance, legal and registration consultants are available to guide you through the process, ensuring that your business complies with all regulations and operates smoothly.