Starting a business in Saudi Arabia is an exciting opportunity as Vision 2030 changes shape the kingdom’s economy, and it is looking to become a world business hub. With an expected AI investment of over $20 billion and e-commerce projected to hit $13 billion by 2025, there is no better time to invest and innovate.
What might interest those looking to set up in Saudi Arabia is an important consideration, including securing your Investor Licence with MISA and the Saudization of all their employees.
The guide can be a stepping stone for both the local entrepreneur and the foreign investor through the process to ensure businesses are equipped and prepared to scale up and perform in one of the most dynamic markets within the Middle East.
Steps to follow to Start a Company in Saudi Arabia
Choose the Type of Business Entity
Before registering your business in Saudi Arabia, the first step is to select the legal structure for the industry. This is important since it details your company’s responsibilities, liabilities, and taxation. The most cited forms of business are:
Sole Proprietorship:
- Minimum Capital: There is no minimum capital requirement.
- Shareholders: 1 (the owner).
- Liability: Unlimited liability; the owner is responsible for all debts and obligations.
- Registration Fees: Around SAR 2,000 to SAR 5,000, depending on the business type.
The structure consists of an entity owned and run by an individual. This is particularly suitable for small businesses with a very low capital outlay and a single owner. The proprietor exercises complete control, with full responsibility for debts and liabilities.
Limited Liability Company (LLC)
- Minimum Capital: Typically SAR 100,000 (for an LLC with foreign ownership, it can vary based on business type).
- Shareholders: A minimum of 2 shareholders and a maximum of 50.
- Liability: Limited liability, meaning shareholders’ assets are protected.
- Registration Fees: Approximately SAR 2,000 to SAR 3,000 for registration, with additional licensing and legal documentation costs.
- Foreign Ownership: It can be up to 100% for specific sectors under Saudi Arabia’s Vision 2030 reforms.
The LLC is one of the most widely practised forms of business organization in Saudi Arabia. It requires at least two shareholders. This form of organization offers liability protection, which means that personal assets are protected from debts in the business world. In Saudi Arabia, such a business structure attracts local and foreign investors in equal numbers, thus finding preference among SMEs.
Joint Stock Company (JSC)
- Minimum Capital: SAR 500,000 (for a closed JSC) or higher, depending on the type of company.
- Shareholders: A minimum of 2 shareholders, with no upper limit. The company can issue shares to the public.
- Liability: Limited to the amount invested in shares.
- Registration Fees: Higher than LLC due to the complexity of this structure, typically SAR 5,000 to SAR 10,000 or more.
Suitable for more prominent companies, a JSC can issue shares to raise capital. It is much more complex compared to an LLC and is usually more heavily regulated, but it has the potential to attract significant investments and expansion.
Partnership
- Minimum Capital: No minimum capital is required, but the capital should be sufficient for the business’s operations.
- Shareholders: 2 or more partners, with no maximum limit.
- Liability: Partners share liabilities; each partner is personally liable for the business’s debts.
- Registration Fees: Similar to those of an LLC, ranging between SAR 2,000 to SAR 3,000.
This is shared ownership by two or more partners, wherein profits and liabilities shall be divided according to the partnership agreement.
Branch or Subsidiary of a Foreign Company
- Minimum Capital: Varies depending on the sector, but typically SAR 200,000 to SAR 500,000.
- Shareholders: A foreign company establishes a branch or subsidiary.
- Liability: The foreign parent company holds full responsibility for the branch or subsidiary.
- Registration Fees: Generally, the costs are higher for foreign businesses; expect fees of SAR 10,000 to SAR 15,000 for registration and licensing.
Foreign companies wishing to enter the Saudi Arabian market could do so by opening a branch or subsidiary, though this form of corporation requires additional regulatory measures.
Obtain an Investment License
To conduct legitimate business in Saudi Arabia, foreign investors must obtain an Investor Licence from MISA, an acronym for Ministry of Investment. This licence will be mandatory for all foreign businesses, and it is a licence that permits them to operate the company within the Kingdom.
To obtain this licence, the applicant must submit all the mandatory documents, including a business plan, proof of identity, and payment of an application fee.
This would ensure that the documents meet the requirements of MISA to facilitate approval. This is a crucial requirement for foreign entities to establish an office within Saudi Arabia.
Reserve and Register Your Business Name
This step includes reserving and registering your business name as part of the procedure to establish your firm in Saudi Arabia. This would be needed to establish and adequately legalize your business within the Kingdom.
- Choose a Unique Name: Select a culturally appropriate and distinctive name.
- Ensure Compliance: The name must align with the Ministry of Commerce and Investment (MCI) guidelines, avoiding conflicts with existing trademarks.
- Name Reservation: Once you’ve chosen the name, reserve it with the MCI to secure its availability for registration and protect your brand identity.
Draft the Articles of Association (AoA)
Articles of Association (AoA) can include critical aspects such as the formation of the company, the business objectives of the company, and the roles, responsibilities, and authority of the shareholders in general. These also provide details on how decisions are made and the rules governing the operational activities of a company.
These serve as the essential documents that prescribe precise business running guidelines, and they have to be notarized to ensure compliance with the specific Saudi Arabian legal requirements.
The AOA issued in Saudi Arabia shall be notarized by a notary public licensed under the law to become valid. This will authenticate your document and make it corporate law compliant under Saudi law, guaranteeing a great foundation on which your business would operate.
Commercial Registration (CR)
Once the AoA is finalized, you must apply for Commercial Registration (CR) with the Ministry of Commerce and Investment (MCI).
This official registration confirms that your company exists. This concludes the application with crucial details about the shareholders, the activities a business would undertake, and its capital structure.
In Saudi Arabia, CR assures you that your business is legally recognized, and you must complete the process to ensure you can do legal transactions or sign a contract in the company’s name.
The process generally involves assuring your business’s compliance with local authorities’ rules and regulations.
Open a Corporate Bank Account
To meet the legal requirements of Saudi Arabia, you must open an account with a local bank as a corporation. Your share capital is deposited into an LLC account, usually SAR 100,000.
Your company’s Commercial Registration (CR), Articles of Association (AoA), and identification documents are required for the process with the bank. The account is necessary to carry out business transactions and receive payments.
Obtain Necessary Business Licences and Permits
Some industries require further licences or permits to monitor whether the standard is met. They can be in the form of health, environmental, or sector-specific certifications.
In some industries, such as healthcare, food, and construction businesses, you must seek accreditation from various ministries, such as the Ministry of Health or the Ministry of Environment. Your company should comply with the area’s regulations to prevent some fines and litigation.
Tax and VAT Registration
VAT Registration: If your business’s yearly turnover exceeds the VAT threshold, you must register with the Zakat Tax and Customs Authority. VAT is now set at 5%. You must register with Saudi tax law for compliance.
Corporate Tax: Saudi Arabia imposes 20% corporate tax on profit. Companies must register for corporate tax with ZATCA to fulfil their tax obligations and file and submit tax returns on time and accurately.
Register with the Chamber of Commerce
The other significant steps toward legally operating your business in Saudi Arabia comprise registration with the Chamber of Commerce.
At the chamber of commerce, businesses are empowered to access most governmental services, licences, permits, and industry-related transactions; it also provides official documents such as commercial certificates and even contracts from some business circles.
The Chamber of Commerce is responsible for compliance with and insurance for entrepreneurial activities within the Kingdom.
Registration of Employee and Saudi Compliance
The Saudi policy mandates that business companies operating in Saudi Arabia must maintain a minimum percentage of employing local employees, depending on their activity.
The quota percentage varies for different industries and aims to increase the employment opportunities available for Saudi citizens.
Further, all businesses should be registered with the General Organization for Social Insurance (GOSI), thereby ensuring insurance benefits to the employee and enabling the employee to become eligible to receive social security. These are some of the essential practices for conducting business in the Kingdom.
Issue work visas and Iqama for foreign employees
Foreign workers in Saudi Arabia must obtain a work visa to be legally accommodated working in the Kingdom. After obtaining the work visa, they should seek Iqama, a residence permit allowing for more than three months of stay.
The two legally binding papers on residence and stay for foreigners in Saudi Arabia are the work visa and Iqama. Therefore, employers must keep track of these applications as part of processes to comply with Saudi labour laws.
Obtain a National Address for Your Business
In Saudi Arabia, every business has to have a national address to receive letterhead and paperwork. Getting one requires companies to apply for registration at their location through Saudi Post.
A national address has become an essential identifying factor for any business that makes communication, delivery services, and governmental documentation possible. This valid National Address ensures they are by the regulations and promptly get government mail.
Health Insurance and Social Security
Employee health insurance coverage is sponsored by business organizations in Saudi Arabia. This is part of the effort toward employees’ welfare and access to medical care.
Law on health insurance and social security stipulated by the government include health insurance and social security.
Such subscriptions avoid penalties on those observed violating the respective regulations. This means that the employees’ medical needs are being taken care of.
Corporate Seal
A corporate seal is compulsory for formal business performances in Saudi Arabia, mainly to authenticate official documents and contracts through the seal.
After acquiring such a seal, it should be registered with the Ministry of Commerce and Investment (MCI) and kept safe.
The seal will be required to perform an official business transaction or any other official business transaction, as it would be used to sign papers relating to any company agreement, partnership, or other related legal matters.
Registration with Relevant Online Portals
Saudi Arabian businesses should register on various online portals to effectively manage their legal and administrative processes. Some of the relevant portals are as follows:
- Absher Portal: It caters to issues related to visa and immigration.
- Muqeem Portal: It caters to matters related to residency and work permits.
- Qiwa Portal: It caters to labour and employment-related services.
- Mudad Portal: It facilitates municipal services and the submission of labour documents.
These help and assist businesses in achieving regulatory compliance and minimizing bureaucratic processes.
Compliance upon Registration
After registering your business in Saudi Arabia, you will see that post-registration compliance is in order, including keeping accurate financial records and statutory audits and filing corporate tax and VAT tax returns within the deadlines set. Organisations with more than one shareholder are also obliged to hold an Annual General Meeting of the shareholders within four months after the close of the financial year. This will be for governance and decision-making processes within the organisation.
Entrepreneurship in Saudi Arabia is well-regulated but relatively easy to start. By following this guide, your business will be adequately established and ready to operate within one of the most dynamic markets in the Middle East.
Seek the help of local experts, lawyers, or accountants to understand regulatory requirements and ensure compliance as you go along.
By planning and executing correctly, your business in Saudi Arabia will have a chance to be successful in taking advantage of growth and potential investment opportunities within the Kingdom.