• ESTABLISHING A BUSINESS
• TAX & ACCOUNTING
• CORPORATE IMMIGRATION
• CONTACT T&S
Saudi Arabia offers excellent opportunities for international business, particularly in
light of the Government’s ambitious Vision 2030 plan encouraging expansion of trade
and allowing greater access for overseas investors.
However, foreign investment is governed by complex legal and administrative
regulations, and this document is intended as overview of the requirements. Broadly,
it will cover the establishment of a business or commercial relationship; tax
regulations; and immigration requirements.
Five types of business entity are recognised in Saudi Arabia.
A. Limited Liability Company (LLC) or Single Owner Company (One Person)
B. Joint Stock Company (JSC)
C. Joint liability company (equivalent to partnership)
D. Limited partnership company (equivalent to limited liability partnership) E. Joint
Foreign companies may also establish branches or representative offices in Saudi
Arabia, or may choose to work through an agent or distributor. The most common
forms of entry to the Saudi Arabian market chosen by foreign investors are LLC, JSC,
branches and agency relationships. These are considered further below.
Broadly, the steps to be taken can be divided as follows:
1. SAGIA licence (required for any foreign investment)
2. Choice of, and establishment of, business entity
3. Further required registrations
1. MISA Licence
Before investing in Saudi Arabia, a foreign investor must first obtain a licence from the
Ministry of MISA). This process takes 2-5days and requires copies of the following
• Articles of Association Commercial registration (or equivalent);
• Financial Statement of last year.
(All documents to be legalised by the local Saudi Consulate.)
Some activities require the additional approval of the relevant Government
Department, particularly those in verticals which are restricted for foreign investors.
Such approval may need to be sought before the MISA licence application, or after –
depending on the sector involved. Such restricted activities will often be subject to
specific rules regarding minimum capital requirements and the percentage of foreign
ownership. These rules are changing currently, and it is imperative to take local advice
on what will apply in your sector of activity.
2. Choice of business entity
Limited Liability Company (LLC) or Single Owner Company (One Person)
This is the equivalent of a private limited company. It may comprise 1, 2 or up to 50
shareholders, each of whom is liable to the extent of their shareholding.
There is no minimum capital requirement, save for certain categories of MISA
licences. MISA keeps an updated information about the capital requirements, further
guidance to be provided at the information stage. Shares may not be offered for public subscription (to do this the LLC would be required to convert to a JSC). The register of shareholders should be lodged with the Ministry of Commerce (MOC)and updated as required. Note that any sale or transfer of shares is subject to statutory rights of pre-emption.
Joint Stock Company (JSC)
This is the equivalent of a public limited company. Closed JSCs are unlisted, public
JSCs are listed on the Saudi Stock Exchange and are subject to a much higher
degree of oversight. JSCs require authorisation by both MISA and MOC, and, banking or insurance activities or to receive state assistance. The additional regulations imposed on JSCs increase compliance costs significantly as compared with LLCs. Normally there must be a minimum of two shareholders, and a minimum capital requirement of SAR 500,000 (save for certain categories of MISA licences). Corporate governance requirements are imposed similar to those found in other countries.
Technical and Scientific Services Office (TSO)
This is intended primarily to provide technical support to the parent company’s Saudi
Arabian agent or distributor and is not permitted to carry out any sales activity.
There is no minimum capital requirement.
Commercial Agency / Distribution Arrangements
Goods or services originating from outside Saudi Arabia can be sold through a local
distributor or agent. Such relationships are governed by the Saudi Commercial
Agencies Law which allows considerable latitude to the parties to decide their own
arrangements. Agents must be registered in the Commercial Agents Register at
MOC, and the agency/distribution agreement should be registered with MOC within
three months of coming into effect (though this is not always done and the main
practical effect of failing to register is that it can be hard to appoint a new agent if a
change is needed).
Although exclusive arrangements are not obligatory, it is the policy of MOC that
agency and distribution arrangements are exclusive either by product line or by
geography. A foreign company may appoint different distributors, for example, for
each of the three main regions of Saudi Arabia.
3. Further Registrations
Once the business entity is appropriately licensed and set up, the business should
also register with the following Government agencies:
• Ministry of Commerce Commercial Registration (this should be done after the
MISA registration is finalised ). You must provide: the original and a copy of:
the Articles of Association, a Board resolution authorising the investment, the
MISA Licence, Parent Company CR and a copy of the General Manager’s ID
• Chamber of Commerce: this registration is issued in person to the Authorised
Signatory on the day of application. Document requirements are original and
copy of the Articles of Association, the Board resolution and the original
Commercial Registration from MOC.
• Municipal Licence: This necessitates a physical inspection of the proposed
business premises, along with a review of the lease and various maintenance
• Ministry of Labor.
• Ministry of Interior.
• General Organisation for Social Insurance (GOSI)
• General Authority of Zakat and Tax (GAZT):
• VAT registration: (if necessary – see below) with GAZT
• Qiwa registration.
• Mudad registration.
Please note that this is not an exhaustive list of requirements and that Saudi
business and foreign investment regulations are currently changing rapidly. It is strongly recommended that foreign businesses work closely with a local advisor
throughout the process to ensure they comply with up-to-date regulations.
A resident corporation is taxed on income arising in Saudi Arabia. A company is
considered resident if it is registered in accordance with the regulations for companies
in Saudi Arabia or if its central management is in the Kingdom.
A non-resident carrying out activities in Saudi Arabia through a permanent
establishment is taxed on income arising from or related to the permanent
A resident corporation is taxed on the income arising in the kingdom. A company is
considered resident company if it is formed under the Saudi Arabian Regulations for
companies. The corporate income tax is 20% on a non-Saudi share in a resident
corporation and on income derived by a non-resident from a PE in Saudi Arabia.
Saudi citizens investors and citizen of GCC countries ( who are treated as Saudi
nationals) and shares of Saudi governmental bodies are liable for Zakat. Zakat is
charged on the company’s base at 2.5%.
The rate of income tax working on the exploitation of natural gas is 30% if the IRR is 8% or less. The rate increases gradually up to 85% if the IRR equals or exceeds
20%. Companies engaged in the production of oil and hydrocarbons is determined
on the basis of capital investment as follow:
• More than 100 billion: 50%
• Between 80 – 100 billion: 65%
• Between 60- 80 billion: 75%
• Less than 60 billion: 85%
Local Income Tax
There is no local, state or provincial government taxes on income other than the
regular income tax or zakat as mentioned above.
Capital gains are subject to income tax or Zakat as appropriate, at the normal tax rate. However capital gains realized from the disposal of shares in Saudi stock companies listed in the Saudi market are tax exempt, subject to certain conditions.
Withholding tax is applicable when payments is made from a permeant establishment
(PE) or a resident party or to a non-resident party for services performed.
• Management Fee – 20%
• Royalties or proceeds; payments for services to a head office or related company – 15%
• Payments for rent; payments for technical and consulting services; payments for air tickets, air freight and maritime freight; payments for international telecommunications services; dividends; loan charges; insurance or reinsurance premiums – 5%
• Other Payment – 15%
Value Added Tax
Value Added Tax is an indirect tax imposed on all goods and services at a rate of 15%, with certain exceptions applicable. Registration is mandatory for all persons who are resident in the KSA and whose annual taxable turnover exceeds a SAR 375,000.
Social security is paid monthly and is computed as 2% for non-Saudi employee’s and
22% for Saudi employees the employer must contribute 12% of the employee’s salary
to General Organisation for Social Insurance ( GOSI), and the employee contribute 10%.
As per the General Authority of Zakat & Taxes “Excise tax is an indirect tax levied on
selective goods at various stages in the supply chain. It can be applied on production,
import or sale of the goods”. The excise duty is 50% on soft drinks and 100% on energy
drinks and tobacco products.
There is no personal income tax in Saudi Arabia.
Annual dependent levy of SAR 1,200 has been applied from July 2017 for dependents
of expats. The amount will increase gradually on YOY basis SAR 2,400 from July
2018, SAR 3,600 from July 2019 and SAR 4,800 from July 2020.
Transfer pricing refers to the Pricing of transaction between related persons and
persons under common control (referred to as “Controlled Transactions”).
As per General Authority of Zakat & Taxes “the TP By-laws are applicable to persons
considered taxpayers in Saudi Arabia under the corporate Income Tax Law. Generally,
this includes – without limitation – multinational enterprise groups (MNE Groups), one
or many members of which are deemed a taxable person in Saudi Arabia.”
Saudi Arabia uses accounting standards issued by the Saudi Organisation for
Certified Public Accountants (SOCPA) which are fully compliant with IFRS. Saudi
standards includes requirements on matters that are not covered by IFRS (such as
Zakat or religious tax). SMEs currently use standards issued by SOCPA, however
the transition to IFRS for SMEs is expected to take place in 2018.
Accounting Regulation Bodies SOCPA, Saudi Organisation for Certified Public
Saudi Accounting Laws. Also refer to the SAGIA web site. Difference Between
National and International Standards (IAS/IFRS) Saudi accounting standards are
entirely based on IFRS. They also include requirements on matters that are not
covered by IFRS such as Zakat (religious tax).
Broadly there are three types of visa for those who require a visa to enter Saudi Arabia
for business or work purposes (nationals of other GCC countries may enter without a
1. Business Visit / Commercial Visas
These are intended for short visits to conduct business in Saudi. Under such a visa
the entrant is not allowed to do work – the visa is intended for those needing to attend
meetings, conferences or for visiting facilities. These can be issued for a one-off trip,
or for a series of trips over a specified period. The process is as follows:
1. Obtain invitation letter (2 working days): submit passport, job title, purpose of
the visit, details of the applicant’s company and the type and length of visa
2. Process the visa at the applicant’s local Saudi consulate: submit passport,
purpose of visit, proof of intent to depart Saudi Arabia, proof of sufficient funds
for the duration of the visit; letter of invitation from a Saudi company; letter of
introduction from the visitor’s company stating job title and purpose of trip;
medical insurance for the duration of the trip.
2. Temporary Work Visa
The temporary work visa service enables enterprises to issue a temporary work visa
whereas holders can work for 6 months from entry date and can be extended for a
similar period. The request must be submitted by the business owner or a commissioner on Qiwa business Log in to the enterprise’s account.
3. Work Visa (Iqama)
This is intended for long-term work assignments, and may last one or two years. The
application is sponsored by a Saudi entity, who must have registered with the Ministry
of Labor for approval to sponsor foreign nationals (the “Block Visa”). The applicant,
at their local Saudi Consulate, then applies for a permit, submitting the visa
authorisation number provided by the sponsoring Saudi entity along with identity
documents, medical certificates, professional and educational certificates, and a
contract of employment.
The visa can take several weeks to be issued. Any trips out of the country should be
planned well in advance as exit/re-entry visas will need to be applied for.
Note that nationals of some countries are prohibited entry to Saudi Arabia.
4. Job Nationalization Program (Nitaqat)
This government program was introduced in 2011 and is designed to increase
employment opportunities for Saudi nationals. Businesses are classified into six
categories depending on the percentage of employees who are Saudi nationals:
businesses with a high proportion of Saudi employees will be in the platinum category,
and the levels run down through green (sub-divided into high, medium and low), yellow
and red. Platinum category businesses have the benefit of fast-track services with the Ministry
of Labor for visa applications and are preferred suppliers for government projects.
Only platinum and high green category businesses may apply for the Block Visa
needed in order to recruit expatriate employees. Lower categories of businesses are
restricted to expatriate employees already in Saudi Arabia and looking to change
Ranking is based on an evaluation of:
• Company’s activity sector
• Size of Company
• Percentage of Saudi national employees
The percentage levels for each category vary widely by industry and by the total
number of employees in the business.
Three industry examples (valid as of September 2017) are shown below:
For information on other industries or special requirements or dispensations that may be available in different geographical areas, please contact us as set out below. For companies struggling to find sufficient Saudis with the required skills, there is a “Parallel Nitaqat” system, where a company can choose the Nitaqat category it wishes to be in, and pay a fee in respect of each Saudi employee they would need to hire in order to reach that level. This money is used to train Saudi nationals in skills that are in short supply. Certain types of employment which are updated frequently are reserved exclusively for Saudi nationals, including cashiers, senior HR personnel, security personnel and receptionists.
PLEASE NOTE: the rules for the Saudization program, and other programs to
increase Saudi employment, change often in response to alterations in the job market
and skills availability. In order to ensure you are making business decisions based on
the latest information on your industry, please call us for advice.