Form One Person Limited Liability Company in Saudi Arabia

One Person Limited Liability Company in Saudi Arabia: A single person LLC in Saudi Arabia is the most preferred company for startup businesses. It has limited liabilities as the name indicates. In this article we have discussed in detail features, formation, benefits, advantages and disadvantages, required share capital, documents, tax liability, and other facts related to one person limited liability company in Saudi Arabia.

Single Person Limited Liability Company in KSA

According to Saudi New Company Law 2022 it is now possible to form one person Limited Liability Company in Saudi Arabia. It means a single person company formation in Saudi Arabia as a startup business is preferred by a single shareholder with 100% of the company’s shares. He or she has all the rights and powers of the LLC like board of directors, general manager, and shareholders general assembly. That’s why all the liability of the single person LLC company in KSA lies with that single shareholder as per his or her contribution to the share capital.

How to Form One Person Limited Liability Company in Saudi Arabia?

There are two ways to form a single person limited liability company in Saudi Arabia, direct establishment and indirect establishment. Through direct establishment a single person intends to form LLC in KSA with 100% shares. While through indirect establishment a single person collects all the shares of an LLC and transfers the company to a single shareholder company.

The other feature of one person limited liability company in Saudi Arabia is that a single person cannot own more than one LLC shareholder company. Whether such a single shareholder company in Saudi Arabia like LLC is either natural or legal the owner may not incorporate another single-member LLC in KSA.

To attract FDI in the Kingdom the Ministry of Investment of Saudi Arabia (MISA) allows  foreign investors to establish an LLC company in the KSA with 100% share capitals holding without a local partner and with the least government restriction. But for this 100% foreign ownership of a company in Saudi Arabia there is a requirement of MISA registration or license to establish with.

Benefits of Limited Liability Company in Saudi Arabia

There are many reasons to establish an LLC in Saudi Arabia in general and it is the most preferred type of company to start a business in the market. A few of the benefits of limited liability company in Saudi Arabia why most investors choose it to establish are given below.

Why to Establish Limited Liability Company in KSA?

The most important benefits of a limited liability company in KSA are double tax avoidance, its structure can be changed later on, etc. as given below: 

Saudi LLC Avoid Double Taxation

The LLC in KSA is kept out of the double taxation system depending on how it is established and the number of employees or investors there will be. As a small startup business in the form of an LLC in KSA avoids double taxation and can still support multiple classes of stock if required.

Double taxation in Saudi business entities generally occurs when an investor chooses a C-Corp business structure, for this company and its owner are both taxed separately in April of the financial year. But an LLC prevents this and it is more likely taxed as a sole proprietorship. 

Saudi LLC Structure Can be Changed Easily

The most important benefit of the LLC startup business structure in Saudi Arabia is that it can be changed easily when required. After establishing an LLC in KSA, there is no need to maintain its form and structure continuously. There is a very easy process to add new partners to the company or sell its shares to someone else as per need.

It is very simple in comparison to the C-Corp business structure, as in C-Corp minutes are required to make board decisions for changes in its structure. However, LLCs of KSA have fewer restrictions on many administrative and management rules as compared to other types of business structures.

LLC Shareholders Can Protect Their Personal Assets/Property in KSA

The most important benefit of LLC company formation in Saudi  Arabia is that its shareholders can protect their personal assets and property. This is the reason why many startups create the LLC structure to protect their personal assets or property against any lawsuits directed to the company. One person limited liability company in Saudi Arabia is more suitable for businesses that are in their beginning stages.

But after some time when the LLCs expanded and grew, their founders or promoters convert the structure of LLCs to an S-Corp (S-Corporation) or C-Corp (C-Corporation) structure to make acquisitions and mergers easy. The reason is that an LLC structure is limited for acquisitions and mergers. 

Because of the above reasons we would like to advise investors to establish LLC in Saudi Arabia in the beginning of their businesses. You can contact us for quality legal services to set up a one person LLC in KSA.

 Advantage and Disadvantage of Single Person LLC  in KSA

The other important thing to know about the one person limited liability company in Saudi Arabia is its advantages and disadvantages. Both the advantage and disadvantage of single person LLC in Saudi Arabia are given in the table below:

Advantages of LLC in KSA	Disadvantages of LLC in KSA
One person LLC in Saudi owned by foreign investors can sponsor its employees for residency purposes.	A foreign company forming an LLC in KSA is not allowed to be a partner in another company or form a branch with similar or overlapping objects.
A Saudi LLC undertaking industrial projects qualifies for financing from the SIDF (Saudi Industrial Development Fund) at lower rates.	A foreign investment can not be allowed to incorporate LLC in KSA in activities of negative list like defence, petroleum, financial services, air & sea transport, etc.
An LLC in KSA can undertake projects in both the public and private sectors.	The dissolution process of an LLC in KSA is costly if a partner chooses not to be cooperative.
An LLC in Saudi can be involved in the full range of activities which are approved objects of the company.	The range of an LLC business activities is limited to only approved objects of the company by MISA (SAGIA).
An LLC in KSA can promote and solicit its business throughout Saudi Arabia.	Setting up an LLC in KSA requires a sizable initial capital share to enter specific industries for business operation.

Required Share Capital for One-person LLC in KSA

The one person limited liability company in Saudi Arabia needs some specific minimum capital share to incorporate and run the business which are given below.

1. MISA generally requires a minimum of SAR 500,000 share capital to form foreign LLC in KSA.
2. This share capital can be used as working capital.  In the majority of cases, this capital needs not to be paid down, or deposited in a local bank. It should appear on the balance sheet of the company business.
3. For some types of business activity, MISA prescribes a specific minimum share capital like:

• SAR 30 million for property investment projects.
• SAR 500,000 (along with revenue or asset value requirements) for contracting business activity. 
• SAR 30 million for commercial activity with a commitment to invest at least SAR 200 million over the first 5 years in case of 100% foreign ownership of LLC.

4. An LLC in Saudi Arabia must set aside at least 10% net profits until the statutory reserve reaches 30% of the LLCs original share capital.

What are Documents Required to Form One Person LLC in Saudi?

1. Commercial registration (CR) certificate or business license from the Ministry of Commerce and Industry (MOCI).
2.  MISA (Ministry of Investment of Saudi Arabia) registration certificate or foreign investment license.
3. Registration certificate from chamber of commerce.
4.  A MOCI approved Articles of Association (AoA) and signed in presence of a notary.
5.  A bank account in Saudi local bank.
6.  Office address with Wasel registration is a mandatory provision of local address as an LLC needs a local physical office lease and address because a virtual office is not sufficient.
7.  Registration certificate from the Ministry of Labour and Social Development (MLSD) for the visa issuing purposes.
8. Registration certificate from General Organisation of Social Insurance (GOSI). As in KSA the social insurance is mandatory for processing salaries monthly and maintains government records for Saudization quota system.
9. General Authority of ZAKAT and tax (GAZT) registration certificate for Saudi and GCC investors.
10. In addition to above, certain types of business activities in Saudi  need specific licensing from relevant government departments, for example- pharmaceutical companies need a Saudi Food and Drug Association license.

Tax Liability for Single Shareholder Company in Saudi Arabia

1. Company is liable to pay 20% corporate/capital gains tax when it comes under this taxation.
2. LLC needs to pay withholding taxes (WHT) at the rates between 5% and 20%.
3. Zakat is charged on the company’s Zakat base at 2.5% as per specific owner.
4. There is a standard 15% VAT on all goods and services.
5. A one person limited liability company in Saudi Arabia needs to file its tax returns within 120 days from the end of the financial year. 
6. Tax year in Saudi Arabia starts on 1^st January and ends on 31^st December. The delay in the tax process can lead to 1% revenue penalties or 5-25% as per delay duration.

Other Facts of One Person Limited Liability Company in Saudi Arabia

There are some important information investors should know before going to form limited liability company in Saudi Arabia, for example: 

• Setting up a one person LLC in KSA can take months from application submission to MISA.
•  A single person LLC in Saudi is required to hold at least one annual shareholders meeting (AGM), within 4 months of the end of the financial year. 
•  There is no mandatory requirement for LLC to have a board of directors or specific nationality of the directors. It is at the discretion of the company to have the board of directors.
• An LLC company in KSA may be managed by a General Manager (GM) or Board of Directors if the company has it.
•  If a board is formed by the LLC, there’s no need to have frequency of meetings, other than the AGM.
•  The GM in an LLC needs to be a Saudi resident, with an Iqama. However other directors of the company don’t need to hold residency or nationality requirements, depending on their activity..
•  In the LLC of KSA there is no need to publicly disclose the identity of directors and shareholders.
•  An LLC in KSA may add shareholders if need to expand but shareholders cannot be more than 50. 
• There is no need for a local corporate secretary in Saudi LLC beyond managers or directors. 
•  An LLC in Saudi is allowed to be a holding company and none of the subsidiaries hold shares in the holding company.

For any type of business setup legal and consultancy services in KSA contact our learned legal professionals.