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Setting Up a Company in Saudi Arabia

When setting up a company you may want to consider these factors:

1. Business Factors

Some examples would be:

The industry and type of business
Nationality of the headquarters or individual(s) and
Presence of existing trade agreements or relationships

2. Commercial Agents

According to information on Startup Overseas, while you can make direct sales to the private sector from outside Saudi Arabia, it is recommended to employ a Saudi agent or distributor. Saudi law does not allow an alien business to operate as a commission agent. Wholesale, retail trading and distribution is subject to a minimum foreign investment of 20 million SR with a 25% local partner.

Generally the nation seems open to foreign investment, and according to the CIA World Factbook, the previous king worked to modernize the nation through social and economic initiatives. These include attracting foreign investment, expanding employment and social opportunities for women, and increasing the role of the private sector in the economy. It is worthy to note that there was also a proposed movement towards “Saudization” to secure more jobs for future youth by discouraging businesses from hiring foreign workers, though to date, this has not been very effective.

The Kingdom of Saudi Arabia is the largest Arab state and the world’s second largest oil producer and exporter. It is also the birthplace of Islam and home to Islam’s two holiest shrines in Mecca and Medina. Modern-day Saudi Arabia formerly consists of four distinct regions: Hejaz, Najd, and parts of Eastern Arabia (Al-Ahsa) and Southern Arabia (‘Asir).

Population 30,000,000

Capital Riyadh

Official language Arabic

Currency Saudi Riyal (SR) (International code: SAR)

USD$1 = approx. 3.75SAR

Time zone UTC+3

Calling code +966

Nominal GDP $648.971 billion ($20,677 per capita)

Internet domain .sa

A regional economic power, Saudi Arabia is one of the only Arab countries to be a member of the G20. It is heavily dependent on its oil industry which comprises almost half of its GDP. It is also dependent on foreign workers, with about 80% of private sector employees being non-Saudi.

There are three types of business forms available to foreign companies in Saudi Arabia. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most situations, these requirements are dependent on the degree of commitment a company has to Saudi Arabia, and the proposed business activity.

Subsidiary Company

A. Requirements/Restrictions

The limited liability company (LLC) is the most common type of company and form of investment for foreign businesses entering Saudi Arabia.

The minimum capital investment required to establish an LLC is SR 500,000 and must have between 2 and 50 shareholders and be managed and represented by one or more managers. There is no Board of Directors, although shareholders often provide for a Board and other management arrangements in the Memorandum of Association. However, if there are more than twenty partners, the company must establish a “Board of Controllers”. A Saudi partner is not required since there are no legal limitations on the percentage of foreign ownership.

The LLC must also have an auditor.

B. Advantages/Disadvantages

A limited liability company (LLC) is the most common form, and a particularly popular vehicle for entering into joint ventures with Saudi partners.

In particular, a limited liability company may engage in the full range of activities which fall under the approved objects of the company, and undertake projects in both the public and private sector. It is more likely to qualify for financing from the Saudi Industrial Development Fund at favorable rates for any industrial projects. A limited liability company can also sponsor its employees for residency purposes.

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On the other hand, initial capitalization may be quite large and the approval of objects of the company are also a source of restriction. These objects are limited to the approval of MISA. As such while the objects must be broad enough to allow the company to engage in the activities, if they are too broad MISA is unlikely to approve them.

In addition the dissolution process can be fairly involved and, if any partner chooses not to cooperate, costly.

C. Registration steps

Reserve a Company Name

An approved name must be reserved before registering a company. A name can be reserved at the Ministry of Commerce and Industry. The name reservation is valid for 2 months and can also be done completely online through the website of the Ministry of Commerce and Industry.

Time: Instant (online procedure)

Cost: No charge

Apply for Investment License at General Investment Authority

Obtaining an investment license is the first requirement for the establishment of a Saudi company with foreign shareholders. This can be done by submitting an application to the Ministry of Investment Saudi Arabia (MISA) to obtain an investment license.

The following documents must be submitted:

A completed standard license application form signed by each applicant, which must include an authenticated declaration that the applicants have reviewed the Foreign Investment Regulation and its Implementing Rules.
An authenticated resolution of the applicant’s board of directors to incorporate a limited liability company (LLC) in Saudi Arabia.
An authenticated copy of the applicant’s certificate of incorporation and articles of association.
An authenticated copy of the applicant’s balance sheet for a period of two years preceding the year of application.
A complete copy of the company’s proposed manager’s passport, including the empty pages, as well as four passport-size photographs.
Complete copies of the passport, including the empty pages, as well as four passport-size photographs of each person listed in the applicant’s articles of association.

Time: 3 to 4 weeks

Cost: 2000 SR

Approval of Company Documents from Companies Department

After obtaining the investment license, the company must prepare draft documents (articles of association) which can then be submitted at the Unified Center (UC) for approval:

Confirmation of the reservation of the company name
Cover letter/Summary of the AOA
Articles of Association (AOA), in line with a standard template provided by the UC. The AOA must also be submitted in a soft copy on a CD (in practice)
Identification cards (e.g. passports)
MISA investment license
Application form

The registration fee is apparently paid separately at a bank window, however this should also be located in the same Unified Center and can be done at the same time.

Time: 5 days

Cost: No charge

4.Legalize/Notarize Documents

Once the draft articles of association have been approved, the company or authorized representative must execute and legalize the articles of association before a notary public. The following documents are usually required:

The original articles of association as approved by the Ministry of Commerce and Industry
Directorate of Companies signed by the shareholders or their representatives
A copy of the certificate of incorporation and articles of association of each shareholder
An authenticated power of attorney authorizing the representative of each shareholder to sign the articles of association.
A copy of the MISA investment license.
A copy of each of the identification cards of the two witnesses present

A notary public office should be located in the same building of the Unified Center (UC). The notary public reviews all the documents to make sure they are complete. The notary public is estimated to review up to 15 companies per day, so there may be waiting times. However, the offices are moving towards computerization and electronic notarization, increasing the chances of a faster notarization process.

Time: 1-2 weeks

Cost: No charge

Publication in Official Gazette

After having the company documents approved and legalized, the company must publish the company name and a summary of the Articles of Association in the official gazette.

Reports on the fees vary wildly, the Doing Business project reports as little as 650 SR while Startup Overseas reports as much as 5500 SR for the same step.

Time: 2 days

Cost: approximately 650-5500SR.

Open a Bank Account

After completing the above-mentioned steps, a bank account can be opened. Shareholders can now transfer the share capital, and obtain certification stating that the capital has been deposited. It is required to obtain the certificate before the final procedure at the Unified Center.

Time: 2 weeks.

Cost: No charge (aside from the capital deposit)

Establish an Office

It is likely that there are no requirements to have an office address ‘registered’ or ‘approved’, although this is required before completing registration in the Commercial Registry. Therefore, there are no formal procedures for establishing an office aside from arranging lease agreements.

Time: n/a

Cost: n/a

Register in Commercial Registry

The final step of the registration process is to obtain a commercial registration certificate. Once all the above-mentioned paperwork is sorted and the office and bank account is established, the final registration can be submitted to the Commercial Registry at the Ministry of Commerce and Industry. Similar to the steps above, this can be done at the Unified Center by submitting the approved documents. Generally the following documents must be submitted at the Unified Center:

An authenticated board resolution from the shareholders appointing their respective board members.
Two notarized copies of the articles of association.
Two copies of the receipt of fees for publication of the summary of the articles of association in the Official Gazette, or the commercial newspaper, where appropriate.
The bank certificate confirming payment of the capital.
A copy of the MISA investment license.
A copy of the office lease.

Time: 2 days

Cost: 0-8100 S.R.

Register Membership at Chamber of Commerce

The Doing Business project states that a company must register at the Chamber of Commerce, and this can be paid at the same building the Unified Center is located in.

Time: 1 day

Cost: 2000 S.R.

Register for Taxes

The company must register to obtain a file number and certificate of business commencement by registering with the Department of Zakat and Income Tax (DZIT). The Zakat aspect is a religious wealth tax, and is assessed based on taxable income and certain assets. The calculation of Zakat is complex, but the effective rate is 2.5% of the companies’ total capital resources.

The required documents to register and obtain a financial number are as follows:

A filled out official registration form (obtained from DZIT’s offices or website)
A copy of commercial registration certificate of main office and subsidiaries if available.
Articles of association
A copy of the Investment permit.
Copies of any other required permits.
A certificate of capital deposit at a bank for Saudi companies.
A copy of the identity card for Saudis or of the passport and resident permit for non-Saudis.
Notarized authorization to deal on behalf of the taxpayer with DZIT (if applicable).

The DZIT has a registration service that can be done directly online via its website.

Time:1-3 days (can be done simultaneously with social insurance registration, below)

Cost: No charge

Register for Social Insurance

To register for social security insurance, the employer must open a file with the General Organization for Social Insurance (GOSI). This action will register the employer and the employee with the organization’s two branches: the Pension Fund and the Industrial and Illness Fund (Occupational Hazards Fund).

Registration can be done at the GOSI office online through its e-services portal.

Time: 1-3 days

Cost: No charge

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Branch Office

A. Requirements/Restrictions

Foreign companies may register a wholly foreign-owned Saudi branch office, provided that they obtain the requisite license. The branch office may engage in commercial activity within the scope of its license. Like in most countries, the parent company will assume full liability for all activity undertaken by the branch office.

Although not a locally incorporated entity, a foreign company branch in Saudi Arabia is required to deposit an amount equivalent to the capital required for subsidiaries with a local bank. The amount is then blocked until issuance of the certificate of registration for the branch by the Ministry of Commerce and Industry. A minimum capital of 500,000 SAR is required.

Branch office registration follows the same general procedure as the registration of a subsidiary, except that there are no Articles of Association to be approved.

B. Advantages/Disadvantages

A branch may engage in the full range of activities which fall within its approved objects and undertake projects in both the public and private sector. In addition, the branch may promote and solicit business throughout Saudi Arabia. The formation process is generally simpler than for a company, since no Articles of Association have to be approved and there are no reserve requirements.

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It can take longer to form a company if the manager is not a Saudi national or resident. A foreign manager needs to obtain a residence permit as part of the formation process while in the case of a company it may not be necessary to obtain a residence permit during the formation process. However, this is dependent on the company’s ownership and management structure.

Despite not being a locally incorporated entity, the branch office requires both a capital deposit and a similar registration procedure to a subsidiary. Like a limited liability company (LLC), a branch’s activities are also limited to the objects which have been approved by MISA. Branches can find it difficult to function in Saudi Arabia without a Saudi partner to handle local authorities and procedures. The partnership can take the form of an agency or consulting relationship.

Given that a branch office is not a separate legal entity and the parent office maintains liability, it suggests that a branch office could prove to be an undesirable option in most cases.

C. Registration Steps

Reserve a company name

Time: Instant (online procedure)

Cost: No charge

Apply at General Investment Authority

The following documents must be submitted:

A completed standard license application form signed by each applicant, which must include an authenticated declaration that the applicants have reviewed the Foreign Investment Regulation and its Implementing Rules
An authenticated resolution of the applicant’s board of directors to incorporate a limited liability company (LLC) in Saudi Arabia
An authenticated copy of the applicant’s certificate of incorporation and articles of association
An authenticated copy of the applicant’s balance sheet for a period of two years preceding the year of application
A complete copy of the company’s proposed manager’s passport, including the empty pages, as well as four passport-size photographs
Complete copies of the passport, including the empty pages, as well as four passport-size photographs of each natural person who is listed in the applicant’s articles of association

Time: 3 to 4 weeks

Cost: 2000 S.R.

Legalize/Notarize documents

Although a branch does not need to draft local incorporation documents, it is common that its parent company’s documents need to be legalized to prove the legal existence of the company. The company or authorized representative must execute and legalize the articles of association before the appropriate notary public.

The following documents are usually required to be legalized:

The original articles of association
Directorate of Companies signed by the shareholders or their representatives
A copy of the certificate of incorporation and articles of association of each shareholder
An authenticated power of attorney authorizing the representative of each shareholder to sign the articles of association
A copy of each of the identification cards of the two witnesses present

A notary public office should be located in the same building of the Unified Center (UC). The notary public reviews all the documents to make sure they are complete. Currently, the notary public is said to review up to 15 companies per day, so there may be waiting times. However, the offices are moving towards computerization and electronic notarization, so it is likely the notarization process would take a shorter time.

Time: 1-2 weeks

Cost: No charge

Publication in Official Gazette

Publication of the company name and a summary of the Articles of Association in the official gazette is required.

Reports on the fees vary wildly, the Doing Business project reports as little as 650 SR while Startup Overseas reports as much as 5500 SR for the same step.

Time: 2 days

Cost: approximately 650-5500 S.R.

Open a bank account

After the previous steps a bank account can be opened where shareholders can transfer the share capital, and obtain a certificate stating that the capital has been deposited. It is required to obtain the certificate before the final procedure at the Unified Center.

Time: 2 weeks.

Cost: No charge (aside from the capital deposit)

Establish an Office

Time: n/a

Cost: n/a

Register in Commercial Registry

The final step of the registration process is to obtain a commercial registration certificate.

Once all the above mentioned paperwork is sorted and the office and bank account is established, the final registration can be submitted to the Commercial Registry at the Ministry of Commerce and Industry. Similar to the steps above, this can be done at the Unified Center by submitting the approved documents. Generally the following documents must be submitted at the Unified Center:

An authenticated board resolution from the shareholders appointing their respective board members
Two notarized copies of the articles of association
Two copies of the receipt of fees for publication of the summary of the articles of association in the Official Gazette, or the commercial newspaper, where appropriate
The bank certificate confirming payment of the capital
A copy of the MISA investment license
A copy of the office lease

Time: 2 days

Cost: 0-8100 S.R.

Register membership at Chamber of Commerce

The Doing Business project states that a company must register at the Chamber of Commerce, and this can be paid at the same building the Unified Center is located in.

Time: 1 day

Cost: 2000 S.R.

Register for Taxes

The required documents to register and obtain a financial number are as follows:

A filled out official registration form (obtained from DZIT’s offices or website)
A copy of commercial registration certificate of main office and subsidiaries if available
Articles of association
A copy of the Investment permit
Copies of any other required permits
A certificate of capital deposit at a bank for Saudi companies
A copy of identity card for Saudis or a copy of passport and resident permit for non-Saudis
Notarized authorization to deal on behalf of the taxpayer with DZIT (if applicable)

The DZIT has a registration service that can be done directly online via its website.

Time: 1-3 days (can be done simultaneously with social insurance registration, below)

Cost: No charge

Register for Social Insurance

Registration can be done at the GOSI office online through its e-services portal.

Time: 1-3 days

Cost: No charge

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Representative Office

Saudi law allows rep offices in the form of Technical and Scientific Offices (TSOs) and Temporary Company Registrations (TCRs). TSOs are primarily liaison offices for a manufacturer to provide technical support to the local market via a distributor, while a TCR is a short-term general business established for the purpose of a specific government contract. Like a typical ‘representative office’ these forms are limited in their activities, especially from promotion and solicitation of business. In particular, a TSO serves only as a liaison between a foreign company and the local market (and a Saudi distributor), while a TCR may perform the contracted work operations but may not engage in any other or further general promotion or solicitation of its business(es).

A. Requirements/Restrictions

A TSO cannot engage in commercial activities or earn revenue. Instead its activities are limited to providing technical information and assistance to the distributor and to users regarding products and market and technical research in connection with the products. Generally, however only foreign pharmaceutical companies can establish a TSO. Non-pharmaceutical companies can do so at the discretion of MISA and the Ministry of Commerce and Industry if they can be convinced the products of the company are sufficiently complex enough to justify establishing the TSO. This means that TSOs can generally only be used in relation to complex products.

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The process of forming a TSO or TCR is similar to that of forming a branch. However, a TSO would also require the foreign company to enter into a distributorship agreement with a Saudi distributor. While the TSO is still fully owned by the parent company (manufacturer), the distributor must write a letter supporting the establishment of the TSO before licensing and registration can be completed. For the TCR, after a government contract is established, the company must then obtain a Temporary License from Ministry of Investment Saudi Arabia (MISA), before formally filing for a TCR with the Ministry of Commerce and Industry. In general the rest of the formation process is similar to that of a branch for both TSOs and TCRs. TSOs and TCRs do not require a minimum capital.

B. Advantages/Disadvantages

For both types there are no capital requirements, and the formation process is said to be simpler than a company. The TSO may also bring its employees into Saudi Arabia on visas.

The TCR can be obtained for consulting projects, and the actual TCR itself need not be applied for until a contract has been obtained. On the other hand, the TSO is only available for certain types of companies and cannot be involved in any commercial work. A TSO also does not have a separate legal identity, making the foreign parent company operating, liable to local legal obligations.

For the TCR, a major disadvantage is that the license is strictly limited to the scope and duration of the contract only. It is not allowed to promote business, or even monitor market conditions and business opportunities.

While the TSO can employ people, it is generally limited to five to ten persons (the exact number is subject to approval by Saudi authorities).

C. Registration Steps

Enter Distributorship Agreement (TSO)

If establishing a TSO, the foreign company is required to enter into a distributorship agreement with a Saudi distributor.

The specifics of establishing a distributor arrangement depend upon the management and legal process, and costs will be based on consulting and legal fees, etc. As such specifics cannot be advised in further detail.

However, the key requirement is that once an agreement has been reached the distributor must write a letter supporting the establishment of the TSO before licensing can occur.

Time: n/a

Cost: n/a

Obtain Government Contract (TCR)

If establishing a TCR, the company does not need to begin any registration steps until after a government contract has been obtained. In fact, there is no way to begin applying for a license and TCR before this point.

Since the specifics of obtaining a government contract depend upon the management and legal contract negotiation and drafting process, etc this step is mainly listed here as a reference point.

Time: n/a

Cost: n/a

Obtain Approval/License from MISA

Once the initial distributor/contract is obtained, the TSO/TCR can then apply for approval from MISA (Ministry of Investment Saudi Arabia)

There is limited information on this process. However, it appears that the appropriate application can be submitted to MISA offices, or online via its e-services portal.

In addition to company information documents, a TSO will need to prove that it is the manufacturer of the product and that its product is complex enough to constitute a TSO (such as pharmaceutical products), and require a letter from its distributor supporting the establishment of the TSO.

A TCR will need to provide evidence of the government contract.

Time: 3 days

Cost: 2000 SAR

Open a Bank Account

Although it may not be required for a non-permanent establishment to open a bank account, it is listed as a general requirement for registering in the commercial registry. Regardless it may also ease operating in Saudi Arabia. After the previous steps a bank account can be opened where the shareholders can transfer the share capital, and obtain a certificate stating that the capital has been deposited. It is required to obtain the certificate before the final procedure at the Unified Center.

Time: 2 weeks.

Cost: No charge (aside from the capital deposit)

Establish an Office

Time: n/a

Cost: n/a

Register in Commercial Registry

The final step of the registration process once the preliminary requirements are arranged is to obtain a commercial registration certificate (TSO or TCR depending).

Once all the above mentioned paperwork is sorted and the office and bank account is established, the final registration can be submitted to the Commercial Registry at the Ministry of Commerce and Industry for the appropriate license. This can be done at the Unified Center. The following documents must be submitted at the Unified Center:

The bank certificate confirming payment of the capital
A copy of the appropriate MISA approval/license
A copy of the office lease

Time: 2 days

Cost: 0-8100 S.R.

Register for Taxes

It is not known whether TSOs and TCRs are required to register for taxes. Even if Zakat does not apply, a TSO may still need to register if it is employing people. As a TCR is operating for profit it is likely to require to register especially if it employs individuals.

The required documents to register and obtain a financial number are as follows:

A filled out official registration form (obtained from DZIT’s offices or website)
A copy of commercial registration certificate of main office and subsidiaries if available
Articles of association
A copy of the Investment permit
Copies of any other required permits
A certificate of capital deposit at a bank for Saudi companies
A copy of identity card for Saudis or of passport and resident permit for non-Saudis
Notarized authorization to deal on behalf of the taxpayer with DZIT (if applicable)

The DZIT has a registration service that can be done directly via its website.

Time:1-3 days (can be done simultaneously with social insurance registration, below)

Cost: No charge

Register for Social Insurance

Registration can be done at the GOSI office online through its eservices portal.

Time: 1-3 days

Cost: No charge

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Summary of Setup Steps

	Company	Branch	TSO/TCR	Time	Cost (SAR)
Obtain Preliminary Distributor/Government Contract	–	–	Yes	n/a	n/a
Check and Reserve Company Name	Yes	Yes	–	instant	0
Apply for License at MISA	Yes	Yes	Yes	3-4 weeks	2000
Approve Company Documents	Yes	–	–	5 days	0
Legalize Company Documents	Yes	–	–	1-2 days	0
Publish Documents in Gazette	Yes	–	–	2 days	650-5500
Open Company Bank Account	Yes	Yes	Yes	2 weeks	0
Establish Office Address	Yes	Yes	Yes	n/a	n/a
Register in Commercial Registry	Yes	Yes	Yes	2 days	0-8100
Chamber of Commerce Membership	Yes	Yes	–	1 day	2000
Register for Taxes	Yes	Yes	Yes	1-3 days	0
Register for Social Insurances	Yes	Yes	Yes	1-3 days	0
TOTALS: *applications and processing times, not including internal document preparation, lawyer fees, etc	Comp. 48-60 days – 4650-17,600 SAR	Branch 40-44 days – 4000-12,100 SAR	Rep. Office 40-44 days – 2000-10,100 SAR

Conclusion

A branch may be a preferred option for a foreign investor keen to invest, without having to commit to the complicated requirements in establishing a limited liability company (LLC).

A Technical Services Office (TSO) however may be preferred if the investing company is only interested in providing technical support to facilitate distribution to the Saudi market, while a Temporary Company Registration (TCR) may be preferred if the investor is a contractor engaged in a single project with the Saudi governmental authority.