Startup guide to Saudi Arabia

Saudi Arabia is the largest producer and exporter of oil, the second country in the world in terms of hydrocarbon reserves and the only Arab state that is part of the G20, the Organization of Islamic Cooperation and OPEC. The Kingdom's position in the world opens up great business opportunities and makes it attractive to foreign investors.

The Saudi government has relaxed the requirements for them and created the General Investment Authority (SAGIA), which helps businesses obtain permits and licenses to operate in the country, obtain work visas and resolve other issues. Let's figure out what it takes to launch a startup in Saudi Arabia.

Business culture

In Saudi Arabia, it is customary to first establish relationships and only then get down to business. As a rule, meetings last longer than in other countries, and necessarily include time for communication, which allows you to get to know your partners better. Meetings may start later than planned or run longer. When greeting, Saudis shake hands for a long time, and sometimes kiss their interlocutor on the cheek. However, men and women do not shake hands or greet each other in public.

Business visa

To visit Saudi Arabia, you need to get the right type of visa. If you are traveling on business, you will need a commercial or business visa. If you want to stay in this country, you will need a work visa and a residence permit.

• Business visa:needed by those who visit the kingdom to temporarily work there. It does not give the right to live in the country or open a bank account.
• Commercial visa: is intended for those who come to attend a meeting, conference or other business purposes. It does not allow you to work in the kingdom.

SAGIA

The General Investment Authority (SAGIA) was established to support and develop foreign direct investment in Saudi Arabia. His goal — help the private sector overcome the challenges it faces. SAGIA makes the market more accessible to foreign and local enterprises, making it easier to do business and expanding their capabilities.

SAGIA offers many electronic services: from obtaining a license to consulting and government services. As a result, managing a business in Saudi Arabia is significantly easier.

SAGIA Licenses

SAGIA provides many specific types of licenses. It is important to determine what you need to legally conduct your business:

• service license — for companies engaged in management consulting, information technology, tourism, training and much more;
• industrial license — suitable for representatives of heavy and light industry, as well as transformation industries;
• license for scientific or technical department — for foreign companies that have an agent distributing the company's products in the kingdom;
• temporary certificate for submitting applications for government projects — for organizations that participate in bidding on government projects;
• real estate license — for representatives of the real estate industry;
• temporary licenses to perform government/semi-government contracts— for foreign legal entities without a license for investment activities, with whom a state or semi-state contract has been concluded;
• trade license — for foreign legal entities who plan to engage in wholesale and retail trade in the kingdom;
• license for public transport — for international companies wishing to provide ground public transport services (buses/metro) in the cities of the kingdom;
• consulting license for engineering offices — for international companies wishing to provide ground public transport services (buses/metro) within the cities of the kingdom;
• license for entrepreneurs — for those who want to create pilot projects accredited by Saudi universities or business incubators;
• instant license — for companies that want to set up headquarters in Saudi Arabia to immediately begin investment activities;
• consulting license for technical and economic communication offices — economic and technical bureaus associated with countries wishing to have a license;
• license for agents for the selection and hiring of domestic workers — for foreign companies intending to provide home care services and hire relevant personnel;
• license for university colleges and permanent universities — for foreign companies that plan to engage in educational activities in educational institutions of the kingdom;
• audiovisual media licensing — for foreign companies wishing to provide audiovisual services.

FAQ

What is a SAGIA license?

The SAGIA license allows you to establish a business in Saudi Arabia and manage it in accordance with legal requirements. The license depends on the type of activity you want to carry out.

What documents are required to obtain an investment license?

This depends on the type of license you want to purchase.

What are the conditions for obtaining an investment license?

• The applicant must have a business outside the kingdom.
• The applicant must have at least three years of experience in the type of activity for which he receives a license.
• An applicant may apply for a license if it has patents, publications and intellectual rights documented by internationally recognized organizations.

What services does SAGIA provide to investors?

SAGIA offers consulting, training, licensing, post-licensing and government services and much more. The organization is integrated with relevant government agencies.

Are there specialized investor service centers?

SAGIA branches serve investors in Riyadh, Jeddah, Dammam, Madinah and Jubail.

Creating a company

Saudi Arabia offers interested investors various options for starting a business. There are several restrictions depending on the industry.

The Saudi government is always looking for ways to make the market more attractive to foreign investors. Recently, special attention has been paid to companies that are introducing new or patented technologies in the country, — they receive additional incentives. Also last year, an entrepreneur license was created to enhance the startup culture in Saudi Arabia.

Main options for setting up a company in Saudi Arabia:

• Limited Liability Company (LLC): two or more founders (maximum 50) who are liable for the debts of the company in accordance with their share in it;
• Single Member Limited Liability Company (SMLLC): This is an LLC created by one person. It is responsible for the company in the amount of invested capital and can occupy the positions of director, board of directors and general meeting of shareholders;
• branch of a foreign company: a branch established in Saudi Arabia, the parent company bears full responsibility for its actions;
• Joint Stock Company (JSC): Its shares are divided into negotiable shares. The JSC has a name that describes its purpose, and is governed by a board of directors of at least three people, with a maximum of — from 11.

Taxes

Corporate tax

The tax system of Saudi Arabia is unique: there is no personal income tax in the kingdom. The tax for a company depends on whether they are classified as residents or non-residents.

Non-resident organizations are located outside the Gulf Cooperation Council (GCC) and operate in the kingdom without a SAGIA license. Residents — organizations registered in Saudi Arabia or the GCC.

Non-residents are required to pay tax on income received from commercial activities in the kingdom (20%), and residents — Zakat tax (2.5%). Companies owned by two or more owners who fall into both categories are required to pay a tax rate proportional to the percentage of ownership for each party. Exceptions — representatives of oil companies, which pay a tax rate of 85%, and natural gas (30%).

Zakat is also calculated on capital not invested in long-term investments or fixed assets. Companies should be mindful of termination charges, depreciation, owners' equity, charges on owners' outstanding share of profits, statutory reserves and severance payments. Dividends received in Saudi Arabia are considered income and are subject to tax. From dividends received by non-residents and non-resident organizations providing technical services, income repatriation tax (5%) is deducted, which increases to 15% for related parties.

The tax payment deadline for each company is different, since the financial year is counted from the date of issue of the business registration or license. Corporate tax and zakat are filed once a year based on financial statements audited by the General Authority of Zakat and Income Tax (GAZT).

Value added tax (VAT)

From January 1, 2018, Saudi Arabia has a five percent VAT (on July 1, 2020, VAT was increased to 15% - editor's note). This is a consumption tax that businesses pay to suppliers and collect from customers. The difference between these amounts is transferred to the government. VAT is collected on a periodic basis on most goods and services.

Mail registration

Post registration — the most important procedure for doing business in Saudi Arabia. Once a company opens, there are several requirements that must be met before it can begin operations and hire employees. The local agent's knowledge and experience will be very helpful throughout the process.

For postal registration you need to fulfill a number of requirements.

• Office — Companies operating in Saudi Arabia must have office premises in order to obtain a municipal license and a local address (wasel).
• Municipal license — To obtain a license, you need to complete registration with the Ministry of Labor and the General Directorate of Social Insurance. Depending on the type of activity of the company, the Ministry of Municipal and Rural Affairs may issue an immediate license.
• Local address (uazel) — Once a local address is registered, a company automatically gains access to a commercial postal service. This allows you to receive correspondence in large volumes. The service is available for both public and private companies.
• PO Box — will be required if using a commercial postal service. If you do not register a PO Box, mail will be brought to the office, but a person in charge will need to be appointed to deliver parcels.
• Zakat — Tax payment is controlled by the General Directorate of Zakat and Taxes (GAZT).
• GOSI — This is social insurance for private sector workers and some government employees, which guarantees payment of compensation after the employee retires, as well as in the event of his disability or death.