How to Form 100% Foreign Owned LLC Company in Saudi: A limited liability company (LLC) is one of the most common forms of business entity preferred by foreign investors when they are looking towards the Kingdom of Saudi Arabia (KSA) for their business expansion. The Ministry of Investments of Saudi Arabia (MISA) offers to establish a 100% ownership company without a local partner and minimal government restriction. In this article we have discussed why 100% FDI is permitted, which sectors are open for, rules and conditions, licenses, documents, taxes, etc. requirements to form 100% foreign owned LLC company in Saudi.
Why 100% Foreign Ownership Allowed by MISA
The Kingdom of Saudi Arabia (KSA) is the fastest growing and diversifying business market in the Gulf Cooperation Council (GCC). As per the latest world bank ranking on Ease of Doing Business, Saudi Arabia is placed at 62nd position compared to 92nd position in the year before. This is because of more favorable ease of doing business, opening up its market to more foreign direct investment (FDI), liberalizing business regulations, and providing online service portals for all ministries and departments.
The Kingdom is also attracting a huge number of potential foreign investors to form a 100% foreign owned limited liability company (LLC) company in Saudi Arabia for achieving the objectives set in the Vision 2030. For this reason there has been a steep hike in the issue of foreign licenses during the past 3 years like 377 licenses in 2017, 736 in 2018, and 1131 in 2019 and the numbers are increasing year to year.
Which Sectors are Permitted 100% Foreign Ownership by MISA
Earlier the Kingdom of Saudi Arabia (KSA) required at least 25% of KSA national ownership in foreign businesses. But to achieve the goals of Vision 2030 by attracting more FDI the Saudi Arabian General Investment Authority (SAGIA), presently the Ministry of Investments of Saudi Arabia (MISA), announced in a ‘Decree’ on 6 September 2015 that foreign nationals would be permitted to hold 100% ownership for retail and wholesale business operations in the KSA. It was kept up to 75% for foreign ownership before this decree.
The KSA Government has approved the rules and regulations in 2016 for issuing licenses to form 100% foreign owned LLC company in Saudi wholesale and retail businesses. The Saudi Government’s approval was published in the Official Gazette on July 1, 2016. We provide legal support services in KSA related to all requirements for foreign investors to establish 100% foreign owned LLC company in Saudi.
License Conditions to form 100% Foreign Owned LLC Company in Saudi
The Saudi Government’s Council of Ministers ratified the decision made by SAGIA (now MISA) in September 2015, and SAGIA announced conditions on 13 June 2016 for granting licenses to establish 100% owned LLC company in Saudi retail and wholesale business sectors by foreign nationals. These rules and conditions along with our review and remarks are given in the table below:
|License Conditions for 100% Ownership||Our Review and Remarks|
|The applicant company must have a minimum of SAR 3om (US$8m) cash capital.||In practice, this capital is not required to be frozen in the bank account and may be withdrawn after showing the proof of deposit to the authorities.|
|The foreign national must have operations at least in three regional or international markets.||The condition of ‘operations’ is not clear presently, it is expected to have direct trade and legal presence in more than three jurisdictions.|
|The foreign investors must invest at least SAR 200m (app. US$53.33m) including initial SAR 30m over the first five years of issuance of license by MISA (formerly SAGIA).||The earlier initial capital requirement was SAR 20m.|
|The company may be incorporated as aLLC or a branch of the foreign company.||Earlier, a branch of a foreign firm was not permitted to form 100% foreign owned LLC in Saudi.|
|The foreign investor must commit to achieve the Saudization (Nitaqat) percentage given by Ministry of Labour and Social Development (MLSD), provide a plan to enable Saudi nationals to hold key positions within the firstfive years of operation, and guaranteetheir continued employment.||The MLSD has prescribed Saudization percentages for various industries.The rules don’t specify “key position” but it seems the senior executive management positions.|
|The company must train at least 30% Saudi employees annually.||The earlier requirement was for a minimum of 15% of Saudi employees to be trained annually.|
|The foreign investor must fulfill one or more of the following conditions within the first five years: (a) Manufacturing: 30% of products to be distributed must be manufactured in the KSA,|
(b) R&D: Invest at least 5% of gross sale revenue in research and development within KSA, and(c) Establish logistics centre and after sales services in the Kingdom of Saudi Arabia.
|It is not clear if satisfaction of any one condition will suffice.|
(a) The percentage of manufacturing is unclear. As clarity is required on ensuring a certain percentage of raw materials is procured from KSA. (b) The research and development is also unclear, and remains to be seen how it will vary as per industry.(c) Logistics condition is not clear as to whether the investor must establish its own distribution channels, and if so, it is prevented from engaging other distributors in KSA.
|Note: However, the above preceding conditions may not apply if the company invests SAR 300m (US$80m) within the first five years.|
Capital Requirement to Start 100% Foreign Owned Company in KSA
The Ministry of Investments of Saudi Arabia (MISA) formerly SAGIA requires foreign investors to have at least SAR 500,000 share capital to form 100% foreign owned LLC company in Saudi. In most of the cases, this share capital needs not to be deposited in a local bank, but it should appear on the balance sheet of the company and can be used as working capital.
However, for some types of businesses, MISA prescribes different minimum capital requirements as given below:
- In property investment sector – SAR 30 million
- In contracting businesses– SAR 500,000 (with other asset value)
- In the commercial sector– SAR 30 million with an assurance to invest at least SAR 200 million during the first 5 years to form 100% foreign owned LLC company in Saudi.
The LLCs must keep aside a minimum 10% net profits until the company’s statutory reserve reaches 30% of the LLCs original capital share.
Documents to Establish 100% Foreign Owned LLC Company in Saudi
There are some documents required to form 100% foreign owned LLC company in Saudi Arabia, for example:
- Take a commercial registration certificate (CR) from the Ministry of Commerce and Industry (MOCI).
- A 100% foreign owned LLC company in KSA must get an investment license from MISA.
- An approved article of association (AOA) by MOCI and signed in presence of a notary.
- A local Saudi bank account.
- It should have a local physical office lease and address.
- A registration certificate with the Ministry of Labour and Social Development (MLSD).
- Registration certificate with the General Organisation of Social Insurance (GOSI) is a mandatory social insurance for processing salaries monthly.
- In addition, specific licensing from relevant government departments, for example pharmaceutical companies need a Saudi Food and Drug Association (SFDA) license.
Taxes Applicable to 100% Foreign Owned LLC Company in KSA
- 20% corporate income tax on 100% foreign owned LLC company in KSA.
- Withholding taxes (WHT) rates are 5% (rent), 15% (royalty) and 20% (management fees).
- Standard 15% value added tax (VAT) on all goods and services.
- The Saudi LLC must file income tax returns (ITR) within 120 days from the end of the financial year as the KSA tax year begins on 1st January and ends 31st December. However delay in filing ITR can lead to 1% revenue penalties.
Other Requirements to Set Up 100% Foreign Owned LLC in KSA
There are some other requirements to form 100% foreign owned LLC company in Saudi Arabia like:
- The 100% foreign owned LLC company in Saudi is required to hold a minimum one annual general (shareholders) meeting (AGM) to prepare financial statements, operations reports, etc. within 4 months of the end of the financial year to submit to MOCI.
- There is no need to have a board of directors as it is at the discretion of the company to have or not. Because LLCs in KSA may be managed by either a general manager (GM) or board of directors.
- If a board is formed by the LLC, there is no need to hold frequent meetings other than the AGM.
- The GM of the company needs to be a Saudi resident with an Iqama while other directors don’t need to fulfill residency or nationality requirements that depend on activity.
- There is no need to disclose publicly the identity of the company’s directors and shareholders.
- As per Saudi New Company Law 2022 a minimum of 1 shareholder and maximum of 50 shareholders is required for an LLC while there is no minimum or maximum limit for directors.
- A 100% foreign owned LLC in KSA may add shareholders to expand but up to a maximum of 50.
- An LLC company is allowed to be a holding company but none of its subsidiaries hold shares in the holding company.
- A 100% foreign owned company should have “limited liability” at the end of its name as derived from its purpose approved by MOCI.
- The LLC can sponsor its employees for residency in Saudi Arabia.
Conclusion: How to form 100% foreign owned company in KSA
The decree of SAGIA introduced in 2015 as a permission to form 100% foreign owned LLC company in Saudi and the recently introduced conditions by MISA is an important development to increase the attractiveness of retail and wholesale business operations in the Kingdom.
However, there are a number of rules and conditions as per Saudi New Company Law 2022 that need to be fulfilled to take advantage of the latest changes. Our qualified professional and experienced company’s lawyers at F. Al Tamimi Law Firm has the expertise to provide quality consultancy for establishing 100% foreign ownership LLC in Saudi by taking care of all requirements.
Let’s talk: For a detailed discussion of how to have your businesses in Saudi Arabia, please contact:
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Office No. 6, First floor
Prince Mansoor Bin Abdul Aziz Street,
Dammam-32241 Saudi Arabia