Can foreigners do business in Saudi Arabia?

Yes, foreigners can establish and operate businesses in Saudi Arabia, KSA, including owning 100% of the company in many sectors. The Kingdom has actively encouraged foreign investment under its Vision 2030 plan, making it easier for foreign entrepreneurs to set up shop.

Being one of the leading economies in the middle east, Saudi Arabia has become business highlight for foreign investors. With the aim to broaden the economy above oil dependence, KSA provides a favorable business environment for both local and international players. KSA has vigorously supported international investments across various sectors including real estate, tourism, technology, finance, manufacturing, and renewable energy. Hence, we can say that foreigners can not only start business in Saudi Arabia but are also actively welcomed. With moderate ownership structures, advanced legal protections, tax incentives and an attractive development plan, the country is positioning itself as a premium destination for international entrepreneurs and corporations. However, success depends on establishing the business through the right steps, careful planning, fulfilling legal requirements, and building trustworthy bonds.

Legal Framework for Foreign Investment

The Saudi Legal Framework is supervised by Ministry of Investment of Saudi Arabia (MISA) previously known as SAGIA. MISA mainly looks after licensing, compliance, and facilitation of foreign ownership. International businesses must focus on complying with the legal demands and cultural values to stay away from any legal hurdles. Key areas that they shouldn’t overlook include:

• Saudization (Nitaqat) program which makes it mandatory for businesses to hire a specific percentage of Saudi Nationals depending on their size, sectors and business type.
• Foreigners must Register trademarks, patents, copyrights to protect their confidential rights
• They must value cultural practices like respecting Islamic values, prayer timing, fasting hours during Ramadan and be familiar with Arabic language.
• They must follow a legal procedure to establish their company in Saudi Arabia without any trouble from authorities.

Apart from that, it is necessary to pick the right business structure prior to starting a business at KSA. They must go for the most suitable legal structure for their operations. Common options include:

1. Limited Liability Company (LLC): This is widely picked by foreign investors. It provides liability protection and operational flexibility. For certain sectors Foreigners can now own up to 100% ownership of their company.
2. Branch Office of a Foreign Company: This allows the foreign parent company to operate in Saudi Arabia without building any separate legal entity. It is primarily suited for businesses whose goal is to maintain complete ownership and control.
3. Joint Venture (JV): This is for businesses with partnership with a local entity. This is oftentimes required in certain sectors or preferred for strategic reasons.
4. Technical and Scientific Services Office: Best aligns with companies offering expert consulting, engineering, or scientific services without any commercial activity.

Each structure comes with its own implications on ownership, liability, tax obligations, and operational complexity, therefore it is important to perform thorough due diligence before selecting the right structure.

Step by Step Guide for Business Setup for Foreigners in Saudi Arabia

Starting a business in KSA is easy but growing it into a rewarding one is anything but easy. It demands a complete understanding, planning, and structured approach. Some of the key steps involved in Business setup for Foreigners in KSA includes:

1.     Obtain a MISA License

MISA is generally responsible to supervise foreign investment licenses, to obtain it you must submit your complete business plan, present proof of financial capabilities and international professional services record, must meet the sector specific regulatory requirements, and for 100% ownership businesses should fall under the category. Once MISA approves the foreign investment license, companies can move towards other legal procedures.

2.     Commercial Registration (CR) from MoC

After securing the MISA license, now is the time to register business with the Ministry of Commerce (MOC) to get a commercial registration (CR) certificate. CR formally approves a company’s existence and permits it to legally operate in KSA. This demands the submission of initial documentation, ownership structure, office address, and proof of capital where applicable. During this process companies also reserve their trade names and draft the article of association (AoA)

3.     Chamber of Commerce Membership

Registered businesses are required to become a part of the local Chamber of Commerce, which is important to validate business identity commercially. It also gives access to business services, which includes attestations, trade shows, and support for government interactions. Membership is done as per the type of business type and size and should be renewed on an annual basis.

4.     ZATCA Registration

It is crucial for international businesses to register with Zakat, Tax and Customs Authority (ZATCA). In KSA foreign companies are required to pay corporate income tax while GCC are required to pay Zakat. Additionally, businesses exceeding the revenue threshold, which is SAR 375,000, must also pay and register for VAT. To avoid penalties and assure full compliance it is important to have accurate record of financial statements and provide timely tax filings. Businesses must also comply with e-invoicing systems presented by ZATKA.

5.     Municipal and Sector-Specific Licenses

It is also mandatory to receive a municipal license also known as Baladiya license from the regional municipality. There are certain sectors like healthcare, education, real estate, construction, and F&B that needs additional approvals, and work permits from the applicable legal authorities like Ministry of Health, Saudi Food & Drug Authority (SFDA), Ministry of Tourism (MoT) and Ministry of Education (MoE). These licenses are essential for compliance to assure safety, hygiene, technical, and regulatory standards.

Saudi Arabia’s Competitive Business Advantages

1.     Strategic Location

KSA is situated at the crossroads of Europe, Asia, and Africa. It therefore gives better access to global businesses and facilitates global trade with businesses. It is one of the major reasons businesses invest in the KSA market.

2.     Tax Incentives

Foreign businesses are only required to pay 20% of corporate tax and 15% of VAT, Zakat is normally not applied to them unless they are GCC nationals and in that case, they are exempted from Corporate Income Tax. KSA also provides special economic zones (SEZs) that offer tax holidays and custom tax exemptions.

3.     Economic Cities and Free Zones

KSA offers custom incentives and relaxed Saudization requirements for certain zones such as King Abdullah Economic City, NEOM, Red Sea Project and SEZs in Riyadh, Jazan, and Ras Al-Khair. These zones are specifically made to attract foreign investments to reduce dependency on oil.

4.     Ease of Doing Business

The KSA government has streamlined the foreign business operations in KSA through offering platforms like Meras and Qiwa, to ease the process of business registrations and HR compliance. Furthermore, KSA also speeds up the Visa procedures of investors and offers them dedicated teams and support.

5.     100% foreign ownership

According to recent developments, 100% ownership is provided in many sectors including wholesale and retail trade, IT and communications, education, healthcare and manufacturing. However, there are specific sectors such as oil exploration, military equipment manufacturing, and certain real estate that are restricted to complete ownership or require a local partner.

Common Challenges and Mitigation Strategies for Foreign Businesses

Although establishing an entity in KSA can be highly rewarding yet it comes with certain challenges such as:

• Bureaucracy: Over time it’s improving, yet government procedures can be complex.
• Legal Differences: Sharia-based legal system is different from Western norms which can be hard to understand at times.
• Saudization Pressure: Balancing cost with certain percentage of national employment requirements is a struggle
• Regulatory Changes: Rapidly changing legal laws require regular updates, understanding, and adaptation.

To overcome these challenges, businesses can onboard a local consultant or hire accounting firm who is familiar with Saudi Laws. Additionally, it is also important to attend business councils and utilize portals like MISA, MoC, ZATCA, GOSI, and Qiwa to further streamline the process.

Start Smart in Saudi Arabia with SS&CO: Your Gateway to Business Success

SS&CO KSA empowers foreign investors to initiate and grow their business in KSA. With a team of expert accountants, best technological tools and years of expertise SS&CO stands as one of the best accounting firms operating in Saudi Arabia. Our team is well familiar with your sector specific challenges, and we offer you the best support in setting up business in KSA with a full suite of setup and compliance services that are specifically crafted for international clients. Some of over matchless services includes:

• Business Structure Advisory which helps in picking the right entity: LLC, branch, or JV
• MISA Licensing Support: Assists in attaining Hassle-free foreign investment license.
• ZATCA & Tax Compliance: skilled guidance on VAT, corporate tax, and zakat
• Municipal & Sector Licenses: Secure location-based and permits specific to each activity
• Saudization & HR Support: effortlessly handle and advice Nitaqat quotas with recruitment assistance
• Banking & Visa Assistance: Facilitates in opening corporate accounts and manage expat visas

With offices across Riyadh, Jeddah, and Dammam, SS&CO is your trusted local partner who is always professional, proactive, and always a step ahead.