What is Company Incorporation Process in KSA: The foreign or GCC nationals who want to invest in Saudi Arabia need to know about the company registration process, legal requirements like Saudi taxation, minimum paid up capital, prohibited business activities for foreigners, and about free economic zones of the Kingdom. In this article we have discussed about all the required steps for company formation in KSA including
company name registration, articles of association (AOA), certificate of registration (CR) & tax number, municipality registration, registration at Chamber of Commerce, Foreign business investment license, etc.
What are Free Economic Zones to Attract Investments in Saudi
Investors in the Kingdom’s businesses should know about the importance of Saudi free economic zones before going through the company incorporation process in KSA. The Kingdom of Saudi Arabia (KSA) has declared the launch of its first ever economic free zones or special economic zones in April 2021 to raise the Kingdom’s economic development to achieve the targets set in Saudi Vision 2030.
The government has introduced two types of free zones, in economic and industrial activities, to attract foreign direct investment (FDI). The industrial free zones are kept mostly for manufacturing industries, while the economic free zones are brought out for basic economic activities like education, healthcare, science, research, agriculture and logistics, etc.
Purpose of Economic Free Zones in KSA
The basic objectives of creating free economic zones in Saudi Arabia are 19-fold increase in foreign direct investment and competition with the Gulf Cooperation Council (GCC) member countries, mainly with Dubai. The free economic zones in the GCC have emerged as the most important vehicle to attract FDI, UAE is one of them where over 40 economic free zones are working for global business entities in diverse fields. The other purpose of free zones is to diversify the Kingdom’s economy and reduce its dependence on oil and gas through the utilization of non-oil resources.
Advantage of Saudi Free Economic Zones for Investors
The features and advantages of Saudi economic free zones or special economic zones, mainly the Integrated Logistics Bonded Zone (ILBZ) located near the King Khalid International Airport in Riyadh. are the followings:
- No restrictions on foreign borrowing.
- No restriction on repatriation of profits and dividends
- Complete ownership of companies on all assets including intellectual property.
- 100% foreign ownership of the company will be permitted.
- Withholding tax relief related to non-residents’ activities.
- Restriction free customs and import
- 0% corporate income tax on the income earned from carrying on their specific activities for up to 50 years.
- No indirect taxes (VAT and customs) on the transportation of goods into or within the free zone under a customs duty suspension arrangement, while VAT and customs rules will be applicable normally if goods are removed from the zone.
- Famous Saudi economic cities are Knowledge economic city, Jazan economic city, and Prince Abdulaziz Bin Mousaed Economic city.
Features of Industrial Free Zones in KSA
The industrial cities in Saudi Arabia were built during the 1980s and thereafter transformed into great economic zones. At present 28 industrial cities declared as industrial free zones have the following features or advantages for investors:
- It allows 100% foreign ownership of a company.
- Offer tax exemptions and low tax rates.
- Custom duty is exempted on raw material and equipment.
- Easy availability of loans up to 75% of the capital.
- Period of repayment loans is extended up to 20 years and low land lease.
- Saudi industrial cities are Yanbu and Jubail and major petrochemicals, fertilizers, steel, iron and chemical manufacturing facilities are located here.
What Legal Requirements to Know Before Company Incorporation in KSA
Any foreign investors should know some business related facts before starting a company incorporation process in KSA which are related to the Saudi tax system, permitted business activities in the Kingdom, and minimum capital requirements given below.
What is Tax Structure in Saudi Arabia
There is no personal income tax on income earned by individuals and employees in Saudi Arabia. But there are three types of taxes levied on the business firms based on the shareholding structures.
- 20% Corporate tax is applicable on all registered companies including companies and branches owned by foreign investors.
- The Saudi and GCC nationals are required to pay a 2.5% religious tax (Zakat).
- Business entities who make payments to foreigners are liable to withholding taxes as 20% for management fees, 15% for royalties, and 5% on payments for rent, airline tickets & freight, international telecommunications services, etc.
Corporate Taxation Basis in Saudi Arabia
- Tax is imposed on the net adjusted profits of companies.
- Non- Saudi and non-GCC nationals’ incomes earned from interest are taxed.
- The profits’ share attributable to interests owned by non-Saudi / non-GCC nationals is subject to income tax.
- The profits’ share attributable to interests owned by Saudi or GCC nationals is subject to Zakat ( Islamic religious levy).
Prohibited Business Activities for Foreign Investors in KSA
100% foreign investment or to establish a 100% foreign owned firm in KSA is allowed in the service sector. While there are some prohibited business activities for foreign investors should be aware of before company incorporation process in Saudi as given below:
- Business operation in security services and investigation agencies.
- Manufacturing of defence and military equipment including uniforms and related devices.
- Brokerage activities in real estate.
- Operation related to drilling and exploration of oil and gas.
- Business activities related to fisheries.
- Real estate business in Medinah and Makkah.
- Businesses in printing and publication.
Minimum Paid Up Capital Requirement for Company Set Up
Based on business activities, the minimum paid-up capital is required for different company incorporation process in KSA, like:.
- Foreign investor’s LLCs require a minimum of SAR 500,000 capital.
- Minimum SAR 30 million capital for 100% foreign commercial businesses with an assurance for a minimum SAR 200 million investment in the first 5 years.
- SAR 7 million and at least SAR 20 million contribution from the foreign investor in Commercial business with 25% Saudi Partner.
- A minimum SAR 30 million in service & property investment and real estate business.
- SAR 20 million in trading business.
- A minimum SAR 500, 000 in Service and transport sectors.
- At least SAR 25 million capital for the agriculture sector.
- A minimum SAR 500,000 capital for contracting business.
What is the Company Incorporation Process in KSA?
To meet the target set in Saudi Vision 2030 with its policy reforms, the Saudi government is non stop pursuing its privatization initiatives and striving to make the company incorporation process in KSA easier and more convenient. As a result an investor can complete company registration in Saudi Arabia and start their businesses within six to nine months. There are 3 stages of the company incorporation process in Saudi Arabia like Pre-incorporation, Incorporation, and Post Incorporation stages.
A. Company Pre-incorporation Process Stage
The Pre-incorporation stage is the planning and strategy making phase of the company incorporation process in KSA. During this phase, attention is given on the consideration of business type, paid-up capital and license requirements and other considerations given below:
- Deciding the name of a business entity or company.
- Selecting the business type like LLC, JSC, Branch Offices or other types.
- Preparing and collecting documents like Business License, Article of Association (AOA), Certificate of Incorporation, Board Resolution, Power of Attorneys, etc.
B. Company Incorporation Process Stage
Once the investors have planned and reviewed everything, the company incorporation process in KSA can be started with working on different documents and steps to optimize the time duration. The various steps involved in Saudi company registration are as follows:
1. Application for Business Investment License
All non-Saudi and non-GCC foreign investors are required to apply for an investment license to the Ministry of Investment of Saudi Arabian (MISA) earlier as Saudi Arabian General Investment Authority (SAGIA). In the application form the nature and size of the investment activity including required financial information on the company’s businesses should be given clearly. The MISA will then issue a pre-approved certificate confirming for the company incorporation process in KSA with 100% foreign ownership or as per case is appropriate.
2. Registration of Company Name
The name of the business entity for the company incorporation process in KSA must be reserved with the Unified Centre. And the name of the company must get approved before submitting articles of association, the deed of establishment, and incorporation forms.
3. Submission of Articles of Association (AOA)
The article of association (AOA) for company incorporation in Saudi will need to be submitted to the Ministry of Commerce and Investment (MOCI) for approval. Once the AOA is approved, the document needs to be notarized to register for commercial registration certificate and tax number, and thereafter the Articles of Association with a company name is published in the Saudi newspaper.
4. Application for Certificate of Registration (CR) & Tax Number
The complete company registration application for certificate of registration (CR) is submitted to the Saudi Arabia Ministry of Commerce and Industry (MOCI). The Certificate of Registration (CR) is approximately issued in 6 weeks. The company does tax registration within the 3 weeks of issuance of CR by MOCI.
5. Municipality Registration under MERAS
MERAS is a government program to speed up the business setup process for foreign company registration in Saudi Arabia.It is managed by Saudi Business Centre. The company can register with the local municipality under MERAS by giving the address of a physical office.
Under the MERAS program, the registered company can notarize the Articles of Association (AOA) online, register with the Ministry of Labor and Social Development (MLSD), the General Organization for Social Insurance (GOSI), and the General Authority of Zakat & Tax (GAZT), etc.
6. Creation of Company Seal
Seal of the company to be created with the CR number and company name which is required for contractual agreements, shareholders and management resolutions, Government documents, Official letters and notices.
7. Registration of Company at Chamber of Commerce
All business entities seeking company registration in the KSA are required to submit the certificate of membership obtained from the Chamber of Commerce and Industries (CCI).It has to be done within 30 days of obtaining the certificate of Registration (CR) from the MOCI.
8. Opening of Company Bank Account
The business entity needs to open a local bank account within 90 days of issuance of the commercial certificate for depositing the required paid up share capital.
9. MISA Foreign Business Investment License
On successful submission of all required documents like the CR, Tax Registration, Municipality Registration License and Bank’s Share Capital deposit letter and approval, MISA issues foreign business investment license and allows the company to sign contracts, issue invoices and hire employees.
C. Post-incorporation Process
Once the company incorporated process is completed, the following activities need to be initiated for closing the entire process of company formation in Saudi Arabia, for example:
1. Employment Visas for Saudi Arabia: Foreign nationals need a Saudi employment visa to be appointed as the bank signatory of the company’s corporate bank account.
2. Conversion of the company’s bank account to a corporate bank account: After completing all of the above processes the simple bank account can be converted into a corporate bank account.
Contact us to discuss more about how to incorporate a company in Saudi Arabia. Our team of legal experts at F. Al Tamimi Law Firm will revert within the next 24 hours.
FAQs on Company Incorporation Process in KSA
Q. How can I incorporate a company in Saudi Arabia?
Ans. A company is incorporated in Saudi Arabia by reserving company name, preparing article of association, applying for certificate of registration (CR) & tax number, municipality registration, registration at Chamber of Commerce, MISAForeign business investment license, etc
Q. What are the legal documents required to register a company in KSA?
Ans. The legal documents for company formation in Saudi are reserved company name, article of association, certificate of registration, tax number, bank account number, municipality registration license, etc.