Saudi Arabia offers immense business expansion opportunities due to its rapid economic growth and introduction of the Vision 2030 plan. Due to its youthful demography, high consumer purchasing power, and government incentives, the country has been attracting entrepreneurs from around the world in various industries.
As per KSA’s FDI report, the FDI inflow in 2021 was 100 billion SAR. It later increased by 22% in 2022 to 122 billion SAR. The growth is expected to continue due to the extensive regulatory reforms that make it easier to incorporate and operate a business in KSA.
Saudi Arabia is constantly improving its position as an economic powerhouse in the GCC region. The country has abundant natural resources and fast growth in many sectors. The KSA offers a safe, secure, and stable environment for the inflow of foreign direct investments.
In this article, we offer a complete guide to business setup in Saudi Arabia, legal structures, profitable sectors, incentives, and considerations for foreigners seeking to establish themselves in the Saudi Market.
Types of Legal Business Structures:
Saudi Arabia allows foreigners to choose from several business structures while setting up their business in Saudi Arabia. Some of the most common business structures in KSA are:
Sole Proprietorship
It is best suited for small businesses where only one person is involved. The owner personally gains all profits and is responsible for all debts and losses. Formal business registration is optional in this scenario.
Limited Liability Company (LLC)
An LLC, short for a limited liability company, is also called a private limited company. Formal business registration is required to incorporate an LLC. You need a minimum of 2 and a maximum of 50 shareholders to set up an LLC.
Recent amendments now allow foreigners to enjoy 100% ownership of an LLC in Saudi Arabia. Engaging a consultancy firm like Avyanco helps you make registering and running an LLC in the KSA region much smoother. It is the best legal structure, as shareholders’ assets are safe in an LLC.
Joint Stock Company
A joint stock company has shares of stock that shareholders purchase. You need a minimum capital requirement of SAR 5-10 million to set up a joint stock company. There are also quite strict requirements to list such companies on the stock exchange.
Branch Office
A branch office can also be an extension of its overseas parent company. The branch office can only engage in business activities that its parent company performs. It does offer limited liability but has higher investor restrictions in specific sectors.
Representative Office
A representative office must refrain from engaging in profit-making activities and have a limited operational scope. Usually, they can only engage in market research in Saudi Arabia and promote the business activities carried out by their parent company based overseas.
How to Start a Business in Saudi Arabia
Company formation in Saudi Arabia is a complex process. Multiple steps are involved, and even a slight mistake can result in a failure in your application.
Hence, you must partner with a consultancy firm that simplifies the entire business setup process, helps you throughout each step, and removes any documentation errors for a flawless experience.
Here are the steps involved in setting up a business in Saudi Arabia.
1. Get A Foreign Investment Licence
This is the first and most crucial step. You must obtain a MISA licence by applying to the Ministry of Investment of Saudi Arabia (MISA) in your preferred category. This process alone can take 6-8 weeks. You can engage a professional business setup service provider to help you obtain the MISA licence sooner.
2. Business Name Reservation
In the next step, you must select and register a name for your business in the KSA. You must get approval for the name from the Ministry of Commerce (MOC). The name reservation is valid for 60 days.
3. Submit Notarised Articles of Association
The next step is to craft articles of association that provide details about the company’s business activities, manager and employee responsibilities, and profit distribution. The articles of association must be drafted per the Companies Law of Saudi Arabia and notarized before submission.
4. Seek Commercial Registration
You must now officially register with the Ministry of Commerce for the issuance of CR (commercial registration) to establish a legal entity. This must be done within 30 days of receiving your investment licence. You usually receive the CR within 2-4 weeks. Partnering with the right consultancy firms can reduce the chances of errors and expedite the process.
5. Deposit Share Capital
After registration and obtaining the required licences, you must open a bank account in Saudi Arabia and deposit the share capital. The business registration to start a business in Saudi Arabia would require a minimum share capital of SAR 50,000 (around 13,000 USD). Avyanco can assist you with this step by helping you open a bank account at any of the leading banks in Saudi Arabia. We take care of the legal work and processes to ensure a seamless experience.
6. VAT Registration
Businesses with a total taxable income of more than or equal to SAR 375,000 in Saudi Arabia must register for VAT with the Zakat Tax and Customs Authority. The VAT rate in KSA is 15%, and Corporate Tax, known as Zakat, is 20% for foreigners.
7. Get an Office
To operate your business, you need office space. Depending on your business requirements and activities, you can buy or rent an office space in Saudi Arabia. Avyanco helps you find the best office spaces that complement your business operations.
8. Additional Documents Submission
You may have to submit additional documents to the Ministry of Commerce before starting your business operations. These documents are –
- ID and address proofs of all shareholders and directors of the company
- Trade name declaration copy
- Copies of passports of shareholders and directors
- Bank reference letter
9. Secure Visas
You have to obtain visas for yourself and also for your dependents or any employees that you wish to bring to work in Saudi Arabia. You must also register with the Ministry of Labor if you wish to hire employees in your company.
10. Additional Permits
Some businesses require additional permits depending on their activities. Some of the authorities that grant such permits are the Saudi Food and Drug Authority, the Ministry of Health, the Saudi Commission for Tourism and National Heritage, Social Insurance, and Municipals.
Note* One important thing to note is that businesses must be fully 1 year operational in their home country to get the benefits of 100% foreign ownership in Saudi Arabia.
How much does it cost to start a business in Saudi Arabia?
The cost of starting a business in Saudi Arabia starts from SAR 60,000*. Although, it can vary depending on different factors, such as legal structure, business activity, location, and office space rental. Usually, there are costs associated with licences, permits, and registrations.
All these activities can get overwhelming. Hence, it is recommended that you hire a company set-up advisory firm in Saudi Arabia to assist you. Consultancy firms usually offer a fixed price to take care of all the costs involved in business setup in Saudi Arabia.
Benefits of Company Registration in Saudi Arabia
There are multiple benefits for a foreigner to start a business in Saudi Arabia. Some of these are:
1. Growing Economic Powerhouse
Saudi Arabia has one of the largest economies in the world, with a GDP of USD 1 trillion. The current GDP growth rate is 3.5%, making it the top economy in the MENA region.
2. Tech-Savvy Population
Saudi Arabia has an internet consumption rate of 98%, making it one of the most digitally connected countries in the world. The most popular online platforms used by Saudi residents are YouTube, Snapchat, WhatsApp, and Twitter, offering significant opportunities for social media marketing agencies and innovative business ideas.
3. Youthful Demographic
Saudi Arabia boasts the largest ratio of younger population in the MENA region. The country has 63% of its people below the age of 30. It means any business can instantly get access to the largest pool of young talent and can expect significant growth quickly.
4. Business-Friendly Environment
Saudi Arabia offers a business-friendly environment by simplifying processes and encouraging entrepreneurship. KSA has a low corporate tax rate of 20%, and individuals are not subjected to any income tax at all.
5. Tech Revolution and Global Investor Confidence
KSA has seen one of the largest technology launches with launch.sa. It featured 12 programs that were valued at $1.2 billion and also created more than 25,000 jobs. In addition to that, global investors are also finding Saudi Arabia as an ideal location for investment. It was evident in H1 2021 when 31% of investors were foreign investors.
Post-Incorporation Considerations
After a successful business registration, there are still some other considerations for you. Let’s take a look at them.
Work Visas
Founders, directors, and foreign employees must have their work visas sponsored by the company. Obtaining a work visa can take 4-6 weeks.
VAT Registration
Once you start operating and making revenue, you may be required to register for VAT in KSA. Businesses with a total taxable income of more than or equal to SAR 375,000 in Saudi Arabia must register for VAT with the Zakat Tax and Customs Authority. The VAT rate in KSA is 5%.
Hiring Challenges
If you want to run a company in Saudi Arabia, you are required to have some quotas for local employees. There are also visa quotas and minimum pay thresholds that you must comply with.
Ongoing Reporting
You have to remain compliant by filing annual tax returns with MOC, submitting your VAT declarations, and filing corporate and zakat taxes. All these activities are essential to avoid any penalties and fines due to late submissions or non-compliance. You can engage expert consultants to assist you with all the reporting requirements. By partnering with a firm like Avyanco, you significantly minimise your chances of non-compliance or delayed submissions.
Key Industries and Opportunities
The Saudi Vision 2030 plan explicitly promotes FDI in high-growth sectors. Government incentives such as subsidies, grants, and tax benefits for LLCs are also offered to promote growth and attract investors in specific industries:
Tourism – There are opportunities in hotels, recreational facilities, and heritage sites that can boost leisure as well as religious tourism. The Saudi Tourism Authority aims to attract 100 million visitors by 2030 under its National Tourism Strategy.
Healthcare – In the healthcare sector, investors can focus on ventures that are involved in upgrading hospitals, care facilities, and medical R&D to improve healthcare access and outcomes. Vision 2030 puts a lot of focus on digital health, medical education, and preventive care. This also creates outsourcing opportunities, which can be beneficial for new business owners and entrepreneurs.
Financial Services – The Saudi Population consists of a majority of young and tech-savvy people. Innovative fintech projects have government backing with various frameworks like sandbox testing. This presents opportunities for business setup in Saudi Arabia by foreigners with a positive inflow of FDI.
Technology – Saudi Arabia has a strong infrastructure and one of the highest social media intake rates in the world. This presents a number of opportunities in fields like e-commerce, cybersecurity, and digital payments.
Manufacturing – Saudi Arabia has started attracting technology, aerospace, machine, and defence manufacturers to diversify from oil dependency. It is a great opportunity for new players to set up a company and create a mark in one of the fastest-growing economies in the world.
Challenges and Restrictions
KSA is working hard to increase the direct foreign investment inflow. However, some limitations still exist:
- You may need a local partner to run a business in specific industries, such as real estate, legal, and accounting services.
- There are still barriers to importing and exporting certain goods.
- Expats cannot gain permanent residency status and face restrictions on bringing families.
- You may experience bureaucratic delays occasionally while applying for permits and licences.
- Some expats from different cultures may find it a little hard in the beginning to understand Islamic customs and the Arabic language.
Why Avyanco Business Setup for Your KSA Company Formation
Saudi Arabia offers great opportunities to enter into the region’s largest economy by setting up a business. The future looks promising as the economy is booming, and the inflow of FDI has been increasing constantly at a great rate. The regulatory environment and other incentives can help foreign businesses unlock immense potential and growth.
However, the company setup process and registering for various licences can become confusing and overwhelming for startups and businesses.
For business setup in Saudi Arabia and to stay compliant with all regulations, partnering with a business setup consultancy firm like Avyanco is highly recommended.
Avyanco offers customised business setup solutions and ongoing operational support in Saudi Arabia to ensure your success. We provide the following services for company setup in Saudi Arabia:
- End-to-end company incorporation
- Assistance with visas, accounting, recruitment, etc
- Special packages for LLC setup
You can contact us via mobile at +971 52 398 9000 or info@avyanco.com to schedule a free consultation. With our team of skilled business setup experts, you can register and sustainably grow your Saudi venture seamlessly without any delays.
