Do you want to start a business in Saudi Arabia as a foreigner? If YES, here is a complete guide plus legal requirements for starting a profitable business in Saudi Arabia with no money.
Okay, having provided an in-depth analysis of the 50 best small business opportunities in Saudi Arabia and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Saudi Arabia. So put on your entrepreneurial hat and let’s proceed.
Why Start a Business in Saudi Arabia?
Statistics shows that Saudi Arabia is amongst the top twenty economies in the world hence they are part of the G20. Saudi Arabia has the largest economy in the Arab world.
Saudi Arabia’s economy is dependent on oil as the country has the second-largest proven petroleum reserves, and it is equally the largest exporter of petroleum in the world. It also has the fifth-largest proven natural gas reserves and is considered an “Energy Superpower”. With a total worth of US$34.4 trillion, Saudi Arabia has the second most valuable natural resources in the world.
When it comes to the ease of doing business, Saudi Arabia is ranked 92 among 190 economies of the world according to World Bank rating but that does not mean that the country is not friendly to investors. In 2016 the Saudi Government launched its Saudi Vision 2030 to reduce the country’s dependency on oil and diversify its economic resources.
Entrepreneurs are encouraged by the authorities to start their business in Saudi Arabia. Export and manufacturing industries usually receive great support from the government, especially as it concerns the acquisition of land on which to construct a factory.
If you set up such a business in a free trade zone, of which there are several in the region, it’s granted exemption from import and export duties, commercial taxes, building and property license fees, land tax and restrictions on the transfer of capital invested in the zone.
If you are interested in starting a business in Saudi Arabia, you must be ready to meet the very strict rules and regulations of the country especially if you are a foreign investor. Here are the steps you are expected to follow if you want to start your business in Saudi Arabia;
Starting a Profitable Business in Saudi Arabia as a Foreigner – A Complete Guide
Step One: Choose an Industry and the Type of Business you Want to Establish
The first step to take if you want to start a business in Saudi Arabia is to choose an industry and the type of business you want to do.
In making your choice of an industry and the business type you want to start in Saudi Arabia, you should be aware that there are restrictions on the businesses a foreigner can establish in the country and it is dependent on your nationality, the headquarters of the parent company if you intend establishing the branch office of a company, and the presence of existing trade agreements or relationships.
For example, if you are interested in engaging in sales and distribution as a commercial agent, please note that you can only make direct sales to the private sector from outside Saudi Arabia, and it is recommended to employ a Saudi agent or distributor.
Saudi law does not allow an alien business to operate as a commission agent in any part of their country. Wholesale, retail trading and distribution is subject to a minimum foreign investment of 20 million SR with a 25 percent local partner.
Step Two: Choose a Name for Your Business
The next step to take on your quest to starting a business in Saudi Arabia is to choose a name for your business. Before you settle for a name for your business, it won’t cost you anything to go online and check out the names of the leading brands in the industry you intend starting a business in so as to be properly guided when choosing your own name.
Step Three: Understand the Corporate Law in Saudi Arabia
Another important step that you need to take if you want to start a business in Saudi Arabia is to ensure that your study and understand the corporate law of the country. It might interest you to note that corporate law in Saudi Arabia is similar to what is obtainable in western countries, in that businesses can be run as limited liability operations, private companies or other types of concern.
You can actually get guides from Local Chambers of Commerce. They can actually give you the needed advice about start-ups and nominate profitable newcomers to the region. Partnering with Local Chambers of Commerce will earn you their support. You can contact a Local Chambers of Commerce in Saudi Arabia with any of the address listed below;
- Council of Saudi Chambers of Commerce and Industry, PO Box 16683, Riyadh 11474, Kingdom of Saudi Arabia (Tel. 966-1-405 3200)
- Eastern Province Chamber of Commerce, PO Box 719, Dammam 31421, Kingdom of Saudi Arabia (Tel. 966-3-857 1111)
- Federation of GCC Chambers, PO Box 2198, Dammam 3145, Kingdom of Saudi Arabia (Tel. 966-3-826 5943)
- Jeddah Chamber of Commerce and Industry, PO Box 1264, Jeddah 21431, Kingdom of Saudi Arabia (Tel. 966-2-651 5111)
- Riyadh Chamber of Commerce and Industry, PO Box 596, Riyadh 11421, Kingdom of Saudi Arabia (Tel. 966-1-404 0044).
Step Four: Write a Workable Business Plan
In Saudi Arabia, you cannot register a new business in the country without submitting your business plan for screening. Apart from that, to successfully run a business, you need to have a good and workable business plan in place.
A Business plan is the blue print that is needed to successfully run a business. With a workable business plan in place, you will reduce the trial and error approach of doing business. You will be able to manage your business with purpose and precision; you will know what to do per time and how to handle challenges, growth and expansion.
So if you want to start your own business in Saudi Arabia, you are required to write a detailed business plan that can pass reality test when subjected to it; you should work with the facts, figures and other indices in the industry as it applies to the location you intend establishing your business.
Your business plan should outline how you intend to manage your business. The rule of thumb in writing a business plan is to try as much as possible to be realistic and never to over project when putting figures on income and profits. As a matter of fact, it is safer to underestimate when writing a business plan so that you won’t be so disappointed when reality sets in.
Step Five: Partner with a Citizen or a Local Company
The law in Saudi Arabia does not permit a foreigner to start a business in Saudi Arabia without the input of a citizen or a local company as part of the board of your new business. The law requires that you have a local partner who holds the majority interest and can therefore control the business to the point of terminating the business if they are not satisfied with any action of the company.
The local partner, be it a company or an individual, doesn’t need to contribute to the start-up investment or participate financially at all. As with self-employment, there are various ways that a partner can be remunerated. The local partner requirement is currently under review in some states, so as to encourage and attract more foreign investment cum investors who are interested in starting a business in Saudi Arabia.
The alternative of starting a new business in Saudi Arabia is to buy a going concern, which is a more straightforward process, as it doesn’t involve lodging capital, obtaining sponsorship / partnering with a citizen or registration; all you have to do is agree to a price and transfer the ownership of the business.
Step Six: Choose a Business Form (Structure) for Your Business
Before choosing a business form, it is important that you look through the pros and cons of each of the business forms. Interestingly, in Saudi Arabia, there are only three types of business forms available to foreign companies.
Each of these business forms has its own unique advantages and disadvantages, and they are restricted to operate within a scope of business activities, registration requirements and minimum capital requirements. In most cases, these requirements are dependent on the degree of commitment a company has to Saudi Arabia, and the proposed business activity.
The different business entities in Saudi Arabia are;
- Limited Liability Company (LLC):
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 it 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.
Please note that 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. A limited liability company can also sponsor its employees for residency purposes.
- Branch Office:
Another form of business entity that can be registered in Saudi Arabia is Branch Office. Foreign companies may register a wholly foreign-owned Saudi branch office, as long as they apply and obtain the necessary business approval and 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. 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.
A branch office is permitted by law to 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.
Despite the fact that branch office is 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. Please note that you are required to deposit a minimum capital of 500,000 SAR for this.
- Representative Office:
The law in Saudi Arabia 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. 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).
Please note that in Saudi Arabia, a Technical and Scientific Office (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.
There is another option that is available to a foreigner who wants to start a business in Saudi Arabia and it is known as;
- Outsourcing Employment Through a GEO Employer of Record Service:
You can settle for this business option if the company is looking towards setting up an office in Saudi Arabia quickly, or the company wants to work within a defined budget or the company wants to limit its initial commitment in Saudi Arabia or the company needs help with tax, employment, immigration and payroll compliance in Saudi Arabia.
Please note that if the company has plans to hire staff in Saudi Arabia, they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.
Step Seven: Register Your Business Name
Once you are able to dutifully carry out all the steps listed above, then it shows that you mean business, then you can go straight ahead to register your business name. Of course, you would have done the necessary business name search that will ensure that you are not settling for a name that is already in their data base.
If you don’t want someone to register your business name, then you should be fast about registering the name. As regards your registration and licensing requirements, you should visit your state government office to get the process started.
When you successfully register your business name, you will be issued with a Business Number, registered business name and other necessary business permits and license.
After you must have successfully registered your business, you must show the Ministry of Commerce that you have a substantial sum of money to invest. The required sum varies between the states (it’s between $10,000/£6,500 and $50,000/£33,500 in most cases) and is regarded as a guarantee against liabilities even though you are permitted to withdraw the money when you have need for it.
Step Eight: Purchase the Needed Business Insurance
The rule of business engagement in Saudi Arabia and in most countries of the world is that, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is important to create a budget for insurance and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your business.
You might want to consider buying some or all of these insurance policy covers for your business; General insurance, Health / Medical insurance, Liability insurance, Workers Compensation, Overhead expense disability insurance, Business owner’s policy group insurance and Payment protection insurance.
Step Nine: Lease or Rent and Ideal Office Location
Another important step to follow when establishing a business in Saudi Arabia is to choose an ideal location for your office. When it comes to renting an office facility in Saudi Arabia, the nature of the business you want to do should serve as a guide and you would need to seek advice as it relates to zoning arrangement in the location.
Besides, you would need your business license and permit as part of the documents to be tendered before any landlord or realtor will sign any leasing agreement with your business.
Step Ten: Open Your Doors and Start Welcoming Customers
If you have been able to successfully carry out step one to nine, then you have indeed come a long way and it shows that you are truly ready for business. You cannot generate sales from your products or services if you do not open your door for business. In essence, the last step to take when starting a business in Saudi Arabia is to ensure that you open your door for business; launch out with a bang so as to attract people in your neighborhood who are your first target market.
In conclusion, it is important to state that this article only covers basics steps of starting a business in Saudi Arabia and there are other legal issues as well as accounting requirements such as setting up accounting procedures, getting acceptable software apps, obtaining necessary business or trading licenses and notifying regional authorities that is not covered here but are also important procedures when it comes to starting a business in Saudi Arabia.
We will advise that you consult with a good lawyer before you even start the process of registering a new business in Saudi Arabia. An experienced lawyer will guide you through the registration complexities. This applies whether you’re opening a small business or a conglomerate. Good luck as you start your business in Saudi Arabia.