How to open a subsidiary in Saudi Arabia

The New Companies Law took effect on January 19, 2023 (the Effective Date), and the Ministry of Commerce (MoC) officially announced its Implementing Regulations, which went into effect one day earlier on January 18, 2023. The former Companies Law, established by Royal Decree No. M/3 of November 10, 2015, is replaced with the New Companies Act.

Entities that will be incorporated and enter the KSA market after the effective date must adhere strictly to the New Companies Law’s requirements. All entities, regardless of the grace period, are subject to the continuing requirements that were included in the 2015 Companies Law and mirrored in the New Companies Law.

The incorporation procedure has been simplified for companies that want to open a subsidiary here, even though there still are certain minimum capital requirements.

There is no limit on the foreign ownership of a?subsidiary company in Saudi Arabia in 2023, as long as the registration and capital criteria have been respected.?

Why operate through a subsidiary in Saudi Arabia

Foreign and local enterprises seeking to expand their operations in?Saudi Arabia, respectively other regions than the ones they operate in here, can choose between branches? and?subsidiaries. If for Saudi companies the branch office can ensure full control over the satellite business and the creation procedure is fairly simple, foreign entities need to consider their options more attentively.

Here are the main?features of a?Saudi subsidiary?and the advantages it could deliver to foreign companies deciding on this business form:

1. it can take the form of of limited liability or joint stock company, thus being treated like a domestic entity;
2. it will be a separate and independent business from the parent company and its management will be based in Saudi Arabia where it will decide on behalf of the subsidiary;
3. it can complete the same activities of the parent company, as well as other operations, thus ensuring a better adjustment to the local market;
4. from a taxation point of view, the subsidiary will pay the corporate income tax and other levies applicable to Saudi companies;
5. it can own various types of assets in Saudi Arabia, which makes it the perfect solution for foreign holding companies;
6. it must comply with the Company Law applicable in Saudi Arabia, however, it can report to the parent company and implement internal regulations from its country of origin.

Many times, foreign enterprises decide on?subsidiaries in Saudi Arabia?thanks to the fact that they can adapt their products or services to the local market and have no liabilities concerning the debts or obligations of their subsidiaries.

The downside of opening a subsidiary compared to a branch in Saudi Arabia is that the former needs to apply for a foreign capital investment license with the Saudi Arabia General Investment Authority?(SAGIA license). The procedure is not complicated, however, it can be long until all the documents are verified and approved.

You can also count on our Saudi accountants for payroll services. This implies not only handing out paychecks but also completing the paperwork related to employment. As easy as it may seem, this is one of the most strenuous activities of an accounting department in a company. If you want to outsource it, you can use our services.

If you are interested in Saudi immigration, many cities are quite welcoming. For example, Jeddah is one of the largest ports. It is also the country’s second-largest city in the nation with 3.5 million residents. Additionally, the city hosts quite an impressive number of international residents from all over the world.

People who want to move to Saudi Arabia can apply for different types of visas, However, not all visas can be used to secure Saudi Iqamas or residence permits. For this purpose, a foreign citizen must comply with various requirements, among which one of the most important is sponsorship.

Requirements to open a subsidiary in Saudi Arabia

A foreign company interested in?setting up a subsidiary in Saudi Arabia?must consider a few important aspects, among which:

• Having a local registered address for the Saudi subsidiary
• Draft Articles of Association for the subsidiary
• Setup a local bank account
• Register with the Tax and Zakat Authority in Saudi Arabia
• Apply for the SAGIA license, plus other business permits depending on the industry it will operate;
• Obtaining a company seal and becoming a member of the Chamber of Commerce are also requirements to be met.

Share capital requirements for subsidiary registration in Saudi Arabia

One of the main things to consider when?establishing a subsidiary in Saudi Arabia?is the minimum share capital?imposed by the law. From this point of view, the following should be noted:

• To register a subsidiary as a private limited liability company, a foreign enterprise will need at least 100,000 SAR or the equivalent of nearly 27,000 USD;
• In the case of a joint stock company, the minimum amount required rises to 500,000 SAR or approximately 134,000 USD;
• SAGIA license requires a minimum share capital ranging between 134,000 USD and up to 8 million USD.

Here are the main aspects to consider about the SAGIA license for a?Saudi subsidiary:

• For a services license, the minimum amount required is 134,000 USD;
• for an industrial license, the minimum share capital ranges between 267,000 USD and 1,334,000 USD;
• For a trading license, the amount starts at 7,2 million USD if a Saudi partner holding at least 25% of the business is brought on board;
• 8 million USD is required if full foreign ownership is sought;

In the case of the trading license, the share capital must be increased to 54 million USD within 2 two years when divided shareholding between a foreign and a Saudi Company is chosen.