Your global partner in establishing a legal entity in Saudi Arabia
If you have decided to establish a Saudi Arabia company, it is important that you have an in-depth understanding of the options and Saudi Arabian laws that may impact you. Our experienced staff at Horizons can discuss each option with you and describe the benefits and limitations of the various options so that you can make an informed decision about the type of legal entity you wish to establish in Saudi Arabia.
We also provide ongoing support and guidance to make your expansion to Saudi Arabia a success.
Streamline your entity setup
Company Incorporation
Our team of in-country experts work alongside local governments to handle the bulk of the incorporation process. This saves you valuable time and money.
Advisory Services
Our highly-skilled advisors will manage all of your monthly corporate services. This includes your bookkeeping, financial planning, and accounting.
Local HR Department
You can rely on the support of our local Human Resources department for reliable and compliant guidance for your entire entity setup.
Hire borderless talent with Horizons
The establishment
The establishment option in Saudi Arabia is similar to a sole proprietorship in other regions. Only one owner is necessary for this type of establishment. This entity can only be registered by a Saudi or GCC national. Sole proprietors are personally responsible for any debts the business accrues.
Limited liability company
Limited liability companies are some of the most common business entities and form of investment for foreign businesses in Saudi Arabia. Only one director and one shareholder are required to set up this type of entity. There is no board of directors that is required, but many businesses decide to establish a board and integrate this requirement into their Memorandum of Association. If the company has more than 20 partners, the company is required to set up a Board of Controllers. Shareholders may be natural persons or other businesses. An auditor must also be appointed.
There is no limitation on the percentage of foreign ownership for this type of entity. However, many investors use LLCs to establish joint ventures with Saudi partners.
These companies can engage in the activities which are described under the approved objectives of the business. They can participate in public or private sector jobs. LLC can sponsor employees for residency purposes.
The paid up share capital requirement for this type of entity is SAR 100,000. Shareholders are liable for the debts of the company up to the amount of the value of their shares in the company.
Registering an LLC in Saudi Arabia is more complicated and time-consuming because you must obtain a foreign capital investment license from the Saudi Arabian General Investment Authority, which is often expensive.
Joint stock company
The Saudi Arabia joint stock company must consist of at least two shareholders and three directors who need not be Saudi residents. An auditor must also be appointed for the company, who is responsible for submitting financial reports each year.
The minimum share capital to establish a joint stock company in Saudi Arabia is SAR 500,000. The Ministry of Commerce and Industry can allow for this capital to be made in stages.
Limited partnership
A limited partnership in Saudi Arabia requires a minimum of one director and two partners or any nationality and residency. There must be at least one managing partner and one limited partner. This type of business has no minimum capital requirement to register the business.
Branch office
Foreign companies can register a wholly foreign-owned Saudi Branch office after acquiring the necessary license. The office can only engage in commercial activity within the license’s scope. The business can promote and solicit business throughout Saudi Arabia and do work in the public and private sector.
To establish a branch office in Saudi Arabia, you must have an existing GCC company in another country. The branch office is 100% owned by foreign investment. The branch must appoint a legal representative in Saudi Arabia. The Ministry of Commerce and Industry issues the certificate of registration to the business. The formation of this type of business is usually easier than other forms since there are not reserve requirements or Articles of Association.
A branch office is not a locally incorporated entity. The parent company assumes full liability for all activity that the branch office engages in. The company is required to deposit an amount equal to the capital requirement for subsidiaries. A minimum capital of SAR 500,000 is mandatory. This capital must be deposited with a local bank.
Representative office
Saudi Arabian law permits the establishment of representative offices in the form of technical and scientific offices and temporary company registrations. Technical and scientific offices are often established to provide technical support to manufacturers through a distributor. A temporary company registration is a general business that is developed for a specific government contract.
These establishments are limited in the type of activities that they complete. Technical and scientific offices cannot complete commercial activities or earn revenue. Instead, they can only provide technical information and assist distributors and customers with products and market and technical research related to these products. Typically, only pharmaceutical companies can establish these offices. Companies that are not pharmaceutical in nature can only be formed with permission from the SAGIA and the Ministry of Commerce and Industry. Before they will approve this type of office, they must believe that the company’s products are sufficiently complex to justify the establishment of a technical and scientific office.
Agency agreement
While this option does not technically create a separate legal entity, it is usually the most affordable and fastest way to enter the Saudi market. Commercial agency agreements let foreign investors conduct business in Saudi Arabia through a local agent without the need to obtain a SAGIA foreign investment license.
This agreement must be registered with the Ministry of Commerce and Industry. A commercial agent must be appointed. This agent is responsible for representing, promoting and selling goods and services on behalf of the business under the terms and conditions of the commercial agency agreement.
Explaining the legal requirements and complexities of establishing a legal entity in Saudi Arabia
Our local experts can explain the legal requirements and the tax system used in Saudi Arabia so that you are fully compliant with the applicable bureaucracies.
Our experts can discuss the following issues with you:
Foreign investment prohibited activities
Saudi Arabia allows 100% foreign investment in the service sector. Trading and retail activities are permitted only for Saudi nationals or Saudi Arabian-owned entities.
Minimum paid up capital
The general minimum paid up capital requirements for the
- Industrial – SAR 1 million
- Trading – SAR 20 million
- Agriculture – SAR 25 million
- Real estate – SAR 30 million
SAGIA may impose additional requirements.
Tax structure in Saudi Arabia
Saudi Arabia does not impose a personal income tax that employees earn. However, taxes are levied on companies based on how they are set up. Corporate tax is imposed on all registered entities, including companies or branches with foreign ownership. Unlisted companies must pay a corporate tax rate of 20%. Tax is imposed on the net adjusted profits. The share of profits to interests owned by non-Saudi or non-GCC nationals is subject to income tax.
The share of profits that are due to interests owned by Saudi or GCC nationals is subject to Zakat tax, which is a religious levy. It is 2%. Saudi citizens who are investors and GCC residents who are considered Saudi citizens for tax purposes are responsible for the payment of these taxes.
Withholding taxes are imposed on entities that make payments to foreigners, such as for rent or management fees. Some withholding tax rates include:
- Rent – 5%
- Payment for airline tickets or maritime or air freight – 5%
- Payments for international telecommunications services – 5%
- Royalties – 15%
- Management fees – 20%
Use a PEO while you establish your legal entity
Establishing your own legal entity is a complex process. Our experts can discuss the risks, benefits, advantages and disadvantages of each option. We can assist you with all aspects of the registration and incorporation process.
We can also discuss your needs for employees and how to structure the employment relationship. We can discuss the compliance matters and employer responsibilities of hiring internal staff. Additionally, we can discuss using a Professional Employer Organization (PEO) so that you can delegate the employer responsibilities to a trusted third-party.
Our PEO service may be a viable and attractive option if you:
- Want to set up an office quickly
- Want to work within a defined budget
- Want to minimize your risk in entering the market in Saudi Arabia
- Want to test the market in Saudi Arabia before completing a full launch
- Want to comply with employment laws, immigration reform, tax matters and payroll rules in Saudi Arabia
- Do not want to damage your relationship with governmental bureaucracies in Saudi Arabia
Labor regulations and other compliance matters in Saudi Arabia are often complex and may come as a surprise to many foreign investors who are not accustomed to these rigid practices. Horizons provides comprehensive PEO solutions that allow you to quickly deploy your staff while maintaining costs within your budget. Through this arrangement, you contact with us to employ and pay your staff in Saudi Arabia.
Horizons takes on all legal responsibility for these employees as the official Employer of Record, including:
- Sponsoring employees on work permits
- Managing monthly payroll and benefits administration
- Complying with local employment laws
Using our comprehensive PEO solution is the fastest and most cost-effective method for doing business in Saudi Arabia. To learn more about our company setup, PEO and other employment services, contact us.
