DOING BUSINESS IN
Saudi Arabia
DOING BUSINESS IN SAUDI ARABIA
Overview
structuring options may range from
A) BRANCH
The Kingdom of Saudi Arabia
establishing a distinct legal entity
Wholly foreign-owned entities may
(“KSA”) is the largest country on
to entering into a distribution or a
establish branch offices in KSA.
the Arabian Peninsula, bordering
commercial agency agreement with
Certain conditions must be met
Jordan, Iraq, Kuwait, Qatar, Bahrain,
a local partner.
before a foreign investment license
the United Arab Emirates, Oman
will be issued by SAGIA.
and Yemen. Like its neighbours in
Generally, in order to conduct
the Arabian Gulf, KSA is primarily
business legally on the ground in
B) SCIENTIFIC OFFICES
known as a petroleum-based
KSA, an investor must have a legal
Scientific offices are permitted to
economy. It has the second largest
presence locally. Once established,
conduct market surveys, undertake
oil reserves in the world and is
the corporate entity may only
product research, and provide
the world’s leading oil producer.
conduct activities in accordance with
scientific and technical services
Petroleum accounts for more than
the terms of its foreign investment
support for their products to agents,
90 percent of its export earnings and
licence, issued by the Saudi Arabian
distributors and consumers of
nearly 75 percent of government
General Investment Authority
their products. However, they are
revenues. Against this background,
(“SAGIA”), and its commercial
prohibited from directly or indirectly
the Saudi government has recently
registration certificate, issued by
engaging in commercial activities
announced an intention to transform
the Saudi Ministry of Commerce
in KSA, including sales.
and diversify the capabilities of its
and Investment (“MOCI”). Additional
economy through its “2030 Vision”.
licences and certificates are
C) LIMITED LIABILITY COMPANY
required from other government
(“LLC”)
Legal background
departments such as the General
An LLC is a company with limited
As KSA is an Islamic State, there
Authority of Zakat and Tax (“GAZT”),
liability where the number
are a number of fundamental
the Municipality, and the General
of shareholders must not exceed
differences between the local
Organisation for Social Insurance
50. Each shareholder is only
commercial and legal position
(“GOSI”). For specialized activities,
liable to the extent of the paid
and Western commercial and legal
pre-approval or clearance may
up value of his share in the capital
concepts. Laws in the KSA are
be required from the relevant
(subject to Islamic Law provisions
based on Islamic law, with four main
authorities, such as the Ministry of
regarding limitation of liability).
schools of jurisprudence, namely,
Education, the Saudi Commission
Such companies cannot deal in
Hanbali, Hanafi, Shafai, and Maliki.
for Tourism and National Heritage,
insurance or financial operations
Courts in KSA generally apply the
the Saudi Food and Drug Authority,
and are required to set aside
Hanbali school of jurisprudence.
and the General Entertainment
a statutory reserve of net annual
However, the courts may also rely
Authority.
profits. One hundred percent
on other schools of jurisprudence
foreign ownership is available
together with state regulations,
Foreign companies wishing to
in certain sectors as directed
royal decrees (where these are
establish a legal presence in KSA
by SAGIA.
relevant), custom, and practice.
may choose to establish a corporate
In the event of a conflict between
entity in the form of a branch office
D) JOINT STOCK COMPANY (“JSC”)
Islamic law and government
(“Branch”), a Scientific and Technical
A JSC must be owned by two
rules and regulations, Islamic law
Offices (“Scientific Offices”), a
or more individuals or entities.
will prevail.
limited liability company (“LLC”),
Single shareholders may form
or a joint stock company (“JSC”).
a JSC if; (i) the single shareholder
The choice of entity will depend
is fully owned by the government,
on the foreign investor’s business
a government body or a company
Options to conduct business in KSA
goals and the types of activities
wholly owned by the government;
depend upon, among other things,
that the foreign investor wishes
or (ii) the share capital is no
the foreign investor’s business
to undertake.
less than five million. Capital
Structures for doing
business in KSA
goals and the types of activities
is apportioned into negotiable
that the foreign investor wishes
Entity options are discussed
shares of an equal amount and
to undertake locally. Business
briefly below.
shareholders are liable only to the
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extent of the paid up value of their
The Agency Law is primarily
and locally compliant employment
share holdings. The minimum capital
concerned with mandatory
contracts. It is generally more
requirement is 500,000 Saudi Riyals.
registration procedures and the
difficult to attain visas for female
The issued paid-up capital upon
penalties resulting from non-
expatriate employees.
incorporation must be not less
compliance with these procedures.
than 50 percent of the authorised
The Agency Law also contains
The Ministry of Labour also requires
capital. A JSC is permitted to issue
provisions concerning the
legal entities to comply with its
non-voting preferential shares
relationship between the principal
‘Nitaqat’ system, which aims to
in an amount up to 50 percent
and the agent, primarily intended
deal with national unemployment
of the authorised capital.
to secure the interests of the
concerns by amending the existing
consumers.
Saudization system. The previous
Prospective JSCs involving
requirement of a 30 percent Saudi
businesses such as minerals
The Agency Law does not
workforce has been replaced with
exploitation, administration of public
differentiate between the terms
minimum Saudization requirements
utilities, banking and finance, and
“agent” or “distributor” in terms
that are based on an updated set
insurance require authorisation by
of legal status, but governs
of categories of workplace activity
Royal Decree prior to incorporation.
the relationship between any
and size of workforce. The exact
The management of a JSC is
Saudi entity which enters into
level of Saudization for each legal
composed of a board of directors.
an agreement with a foreign
entity is calculated by the Ministry
This board, appointed by the
producer to perform commercial
of Labour accordingly.
shareholders, must have a minimum
activities, whether as an agent
of three members.
or as a distributor in any manner
Real estate in KSA
for a certain profit, commission
Subject to obtaining the approval
E) PROFESSIONAL COMPANY
or other benefit of any other
of the relevant licensing authority,
A professional company may
kind. The meaning of “commercial
foreign investors, whether they
perform professional services, such
activities” includes the purchase of
are natural persons or corporate
as accounting, certain types of
goods or produce for resale either
entities, are permitted to own real
project management consultancy,
directly or after manufacture or
estate required for the conduct of
engineering, and architecture.
processing.
their licensed professional, technical
The Saudi Professional Companies
or economic activities. However,
One or more Saudi individuals must
Employment issues
in KSA
be partners owning in the aggregate
Labour matters in KSA are governed
within the city limits of Mecca
at least 25%, and the Saudi partners
by Labour Law and its Implementing
and Medina.
must hold the relevant professional
Regulations issued by the Ministry of
license and not be a partner in any
Labour (both as recently amended
other professional company.
and together the “Labour Law”).
Law regulates such companies.
non-Saudi persons may not obtain
the title of use of real estate located
Generally, the Labour Law applies
F) COMMERCIAL AGENCIES
to all staff and employees working
Commercial agency and
in KSA, whether KSA nationals
distributorship arrangements are
or expatriates. It is essential for
regulated by the Law of Commercial
any client wishing to establish
Agencies supplemented by the
a legal entity in KSA to consider
related Executive Regulations
key employment issues, such as
(together the “Agency Law”).
visas, secondment of employees
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DOING BUSINESS IN SAUDI ARABIA
Tax in KSA
applies on the supply of goods and
It is important to mention that
The corporate tax rate on foreign
services by domestic taxpayers as
as part of Vision 2030, SAGIA has
investor profits (excluding
well as on the import of such goods
recently adopted the International
investors in hydrocarbons) is a
and services. Under circumstances,
Standard Industrial Classification
flat 20 percent. Saudi and other
foreign businesses with supplies
of all economic activities (ISIC),
GCC shareholders do not pay
in Saudi Arabia may also fall within
for the issuance of new Foreign
corporate income tax, but are
the scope of VAT.
Investment Licenses. KSA’s objective
instead subject to a 2.5 percent
is to improve investment by
tax on net current assets, or Zakat
General
in line with Sharia laws. Saudi
This guide highlights high-level
commercial standards which aims to
Arabia levies withholding taxes on
issues which may be relevant to
attract foreign investment.
various outbound payments such
a potential foreign investor in KSA.
as dividends, interest, royalties,
It does not constitute legal advice
Detailed registration and licensing
technical and management fees,
nor does it purport to address every
requirements to establish a legal
the rates of which range from
legal issue or summarise all current
entity must be confirmed with
5% to 20% depending on the type
rules, structures or regulatory
relevant Saudi authorities on
of payment. Where non-Saudi
frameworks.
a case by case basis with regard
shareholders transfer shares in
implementing such international
to the proposed activities of the
a Saudi company, a 20% capital
The regulatory system in KSA
new entity. We recommend that
gains tax normally applies.
is dynamic and subject to frequent
you obtain legal advice on how the
Foreign businesses investing into
changes in application and
law applies to foreign investors in
Saudi Arabia must always pay
interpretation. This guide is based
respect of a particular investment or
careful attention to the relevant
on material available to DLA Piper
business activity at the relevant time.
tax considerations.
as at October 2016 and is subject
to amendment from time to time
We hope you find this guide useful
On 1 January 2018 Saudi Arabia
as legislation is amended or new
and invite you to contact us if you
introduced value added tax
policies or interpretations are
have any queries regarding the
(“VAT”). The standard rate of VAT
adopted by government authorities,
material set out in this guide or
is 5% whereas some supplies are
courts and/or regulators.
if you require specific legal advice in
exempt or zero rated. VAT generally
respect of an establishment in KSA.
For further information, please contact
Amer Al Amr
Will Seivewright
Country Managing Partner,
Partner,
Saudi Arabia
Head of Corporate, Middle East
T +966 1 1201 8977
T +971 4438 6150
amer.alamr@dlapiper.com
will.seivewright@dlapiper.com
The information contained in this briefing does not constitute legal advice. Specific legal advice should be taken
before acting on any of the topics covered.
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