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Expats Owning and Operating a Business in Saudi Arabia

Author: Jim Newham
Submitted: December 2015

Saudi Arabia was ranked 49th out of 189 territories in the World Bank Group’s 2015 Ease of Doing Business survey, and is overall a good country in which to do business. However, the country’s ranking for starting a business was a mediocre 109th, a figure that has been falling in recent years. Hence for best results, make sure to do thorough research and start planning well in advance!

As may be expected, starting a business in Saudi Arabia is restricted in several ways. Firstly, as an expatriate, you are not permitted to run your own business. Any company you do set up will almost inevitably require a Saudi partner, which will tie you down in some ways.

Expanding into Saudi Arabia involves creating an establishment in the country. The government want to tie you down. It is, probably more than elsewhere, important to research the business culture and general culture of the country.

Immigration Matters

Before you can start your own business in Saudi Arabia, you need to ensure you have the legal right to live and work there. Normally you will need to acquire a residence permit (commonly referred to as an iqama) before you can operate a business in the country. For more information on iqamas and immigrating into Saudi Arabia in general, see our Immigration section.

Sponsorship

In Saudi Arabia, it will also be necessary to obtain sponsorship to enter the country. As your business develops, your relationship with your sponsor will be important. He will be able to help you with questions you have about your business in the country, etiquette and such matters. Finding the right sponsor with a good reputation and contacts may take some time. It is very important to keep on the right side of your sponsor as well.

Business Plan

To help prepare for the launch of your business into the competitive Saudi Arabian market, it is essential to create a high-quality business plan. First, make sure you have a clear view of what it is you want to do, and how feasible as business idea this is. You will need to research related businesses that already operate in the local area and determine your potential customers and partners.

Additionally, you should think through your best financing options. The money will usually have to come from your home country or elsewhere, as you will it hard to attract find funding from within the Kingdom. Once you have completed your research, you should be able to fill out a business plan to around 3-5 pages. This should set out your business objectives, target market and commercial strategy, and include financial projections and potential obstacles. For more guidance on how to write business plans see this Enterprise Development Services webpage.

Legal Structure

Another important step is to decide which legal structure your business will adopt. The legal structure you choose will determine the benefits you will enjoy and the nature of your legal, financial and tax obligations. The two most common business structures in Saudi Arabia are the limited liability company and joint stock company. As mentioned above, foreigners are not permitted to set up business as sole proprietors in Saudi Arabia.

Partnership

There are two types of partnership in Saudi Arabia: general partnership (sharikat tadhamou) and limited partnership (sharikat tawsiyah bel-ashom). Both require at least two members, and the main difference between them is that liability is limited to the original stake in the limited partnership but not in a general partnership.

A limited partnership may have from two to 50 partners. At least one partner must have unlimited liability, and starting capital of at least SR1 million is required.

Limited Liability Company

The most popular Saudi company structure among expats in the limited liability company (LLC). This is always private and must have at least two members, each of whom has limited liability. The minimum starting capital for an LLC is SR500,000, and shares are non-negotiable. An LLC can be wholly owned by foreign individuals or entities, though most have Saudi partners.  

Joint Stock Company

The Saudi version of the corporation is the sharikat al-mossahamah, normally translated as ‘joint stock company’. It requires a minimum of five founders; these may be individuals or entities. The minimum start-up share capital is SR2 million, or SR10 million for companies with shares open to the public. The minimum share price is SR50, and up to 50% of the shares may be allocated to non-voting preferred shares. There should also be a board of directors of a minimum of three people, each of whom must own at least 200 shares.

Setup and Registration

Once the above stages are complete, you should be ready to set up your company. This will involves a level of bureaucracy that you will come to expect from the Kingdom. It is therefore imperative to engage a lawyer, as he will be able to cut through the red tape on your behalf.

You will need to register your business at the companies department of the Ministry of Commerce and Industry. Next, you will need to open a bank account and obtain a business location licence. Note that setting up a joint stock company may additionally require a royal decree. Next, all businesses have to register with the Minister of Labour, General Organisation for Social Insurance and Department of Zakat [Islamic tax]. To read more about tax for expats in Saudi Arabia, see Taxation. For more information about setting up a business in Saudi Arabia, see this Doing Business webpage .

Employing Staff

If you want to employ someone (including yourself) to work in your business you will have to register as an employer. As employer, you will have to ensure that your business complies with Saudi labour regulations. You should familiarise yourself with different types of contracts, minimum wage requirements, equal opportunity policies, work permits, insurance payments and recruitment options. Note that if you employ freelance workers, you will not have so many legal obligations as they will be liable to pay their own tax and insurance.

 

 

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