Company formation for foreigners in Saudi Arabia is one of the most important investments that the Kingdom seeks to attract.
These investments contribute to the growth of the national economy.
These investments are called foreign investments, which are the employment of foreign capital in activities authorized by Saudi regulations.
In this article, we will explain in detail how to establish these companies in accordance with the Kingdom’s regulations.

Company formation requirements for foreigners in Saudi Arabia

Establishing companies for foreigners in Saudi Arabia is a type of foreign investment.
Whether this investment is completely foreign or with a Saudi partner.
The incorporation is done by preparing an incorporation contract for the new company in accordance with the requirements for establishing commercial companies in the Kingdom.
Such as the procedures for approving the contract from the Ministry of Commerce.
Signed by the authorized partners in front of a notary public and the issuance of the commercial register.
Specific conditions are also required to accept the investment application in the Kingdom, such as:

1. Capital

For example, capital according to the Foreign Investment Law in:

• funds,
  Securities.
• Profits from foreign investment that contribute to capital appreciation, expansion of existing enterprises or the establishment of new ones.
  or the expansion of existing projects or the establishment of new ones.
• All investment-related machinery, equipment, supplies, and equipment.
  spare parts
  Means of transportation or production supplies.
• All moral rights such as:
  licenses.
  intellectual property rights.
  management skills
  production methods and know-how.

2- Investment license

It is obtained through the Ministry of Investment Saudi Arabia.
To obtain it, the foreign capital must be wholly owned by a foreign investor or in partnership with a Saudi investor.
All investment activities are open to foreign investors in Saudi Arabia, except for activities that are excluded from foreign investments for security, ideological, social and health reasons.
Social and health reasons.
Among the most prominent activities excluded from establishing companies for foreigners in Saudi Arabia:

• Industrial activities that include petroleum exploration.
  their exploration
  equipment manufacturing.
  military clothing and apparel, and explosives manufacturing.
• Activities related to the services sector, including military catering, investigations, and security.
  Real estate investments in Makkah and Medina.
  Tourist guidance services for Hajj and Umrah.

There are two types of investment licenses:

1- Business license with a Saudi partner

It is a service provided on the e-services portal when establishing companies for foreigners in Saudi Arabia with a Saudi partner.
It is done by submitting a business license application with a Saudi partner on the portal.
If the Saudi partner is a natural person, the data of the national ID, privileged residency, or residency of the Saudi partner is entered.
If the Saudi partner is a legal entity, the Saudi partner’s commercial registration data is entered.
In order to obtain this service, the following documents are required:

• A copy of the commercial register of the establishment, provided that it is certified by the Saudi Embassy.
• A copy of the national ID if the partner is a natural person with one of the GCC nationalities.
• The foreign company’s financial statements for the most recent year.
  provided that they are certified by the Saudi Embassy.

It is also required that the Saudi partner’s share in the company to be established must be at least 25%.

2. Foreign business license

It is a service provided on the e-services portal when establishing companies for foreigners in the Kingdom of Saudi Arabia without a Saudi partner.
When submitting the license application, the following documents are required:

• A copy of the establishment’s commercial records in 3 regional or international markets.
  It must be certified by the Saudi Embassy.
• Financial statements for the most recent year.
  provided they are certified by the Saudi Embassy.

In order to obtain a license, the following is required:

• The presence of at least 3 regional or global markets for a foreign company wishing to establish a company in the Kingdom.
• The minimum founding capital of the company must be SAR 30 million.
• The percentage of Saudis employed as determined by the Ministry of Human Resources and Social Development in the first five years.
  in addition to assuming ongoing leadership positions.
  The company also commits to train 30% of Saudi employees on an annual basis.
• The company must choose one of the following two options
  Invest a minimum of SAR 300 million (capital included) over a period of five years from the start of obtaining the license, or invest a minimum of SAR 200 million (capital included) over a period of five years from the start of obtaining the license.
  or invest at least SAR 200 million (capital included) over five years from the start of the license in addition to fulfilling at least one of the following requirements:

1- The financial fee for issuing the license shall be 2000 Saudi Riyals for each year with a maximum of 5 years.

2- The financial fee shall be SAR 10,000 for the subscription for the services of the Investor Relations Centers at the Ministry of Investment in the first year.
The fee for each subsequent year shall be sixty thousand Saudi riyals.

Investors in the Saudi system

Licenses are issued to establish companies for foreigners in Saudi Arabia either for a business owned by a Saudi investor and a foreigner, or a business owned by a foreign investor without a Saudi partner.
or an establishment owned by a foreign investor without a Saudi partner.
According to the text of Article 5 of the Foreign Investment Law.
Investors in the Kingdom of Saudi Arabia are either natural or legal persons and we will explain the difference between them below:

1- Natural person

A person who does not hold Saudi nationality at the start of their investment activity in the Kingdom.
or at the time of submitting the investment application.
This is the time when the application is submitted or the activity begins.
even if the person had citizenship before that.

A natural person is considered a foreigner as long as he or she has not acquired Saudi nationality.
even if he fulfills the conditions for obtaining it.
He must fulfill several conditions in order to benefit from the advantages of establishing companies for foreigners in Saudi Arabia.
These conditions are:

• The natural person must have capacity.
  Because capacity is the basis for professional investment activities.
  Therefore, a natural person must be of the age of majority, which is 18 years old.
• The investor’s good track record.
  The investor must not have any final judgments issued against him for violations of the provisions of Saudi regulations, or any financial or commercial violations, whether in Saudi Arabia or other countries.
  or any financial or commercial violations, whether in the Kingdom of Saudi Arabia or in other countries.
  The exception to this is if he has been rehabilitated after being sentenced to a penalty that violates honor or honesty.

2. Legal person

A legal person is a company whose partners do not all hold Saudi nationality.
Some of the most prominent forms are:

• Companies based on joint ownership between a Saudi investor and a foreign investor.
  It is a long-term agreement between them to establish a company to practice an activity in the Kingdom.
  Both parties have the right to manage this company.
  The participation is either a share in the capital or the provision of technical consultations, human expertise, supplies and the like.

A partnership may take place when a foreign investor buys a stake in an existing national company.
resulting in a co-investment company.

• Wholly Foreign Owned Companies.
  These are companies that are fully owned by the foreign investor.
  This type is not favored by many countries because it gives the foreign investor full power and control over the management of the company.
  which ultimately leads to economic domination by the foreign investor.
• Multinationals.
  These are companies that have several projects in more than one country around the world.
  They are characterized by large-scale projects.
  These companies play a large and important role in increasing foreign direct investment flows around the world.
  This is done through their merger with companies and institutions of economic countries.

The basics of investing in Saudi Arabia

The Kingdom of Saudi Arabia seeks to attract many foreign investors.
through the facilities and advantages it offers them, whether in the field of establishing companies for foreigners in the Kingdom of Saudi Arabia or in other areas of investment within it.
Among the most important investment bases established by the Kingdom:

• Achieving equality for all investors.
  whether they are Saudi or foreign.
• Protecting the property of the investments.
  in accordance with the regulations of the Kingdom of Saudi Arabia.
• Working on the sustainability of investments.
• Dealing transparently with investor complaints.
• Granting investment incentives according to clear criteria.
  appropriate and without discrimination between investors.
• Compliance with labor regulations
  environmental health and safety.
  This ensures that Saudi and foreign investors comply with these regulations.
• Facilitating the participation of non-Saudi employees in activities related to foreign investments.
  By facilitating the procedures for them to enter the Kingdom with their families, in addition to facilitating their residency procedures.
• Localization and transfer of science and technology resulting from foreign investments in the Kingdom.
  in accordance with international obligations.

Company formation for foreigners in Saudi Arabia – Provisions 

According to the corporate system Saudi Arabia and without prejudice to any agreements between the Kingdom and certain countries.
The following provisions apply only in cases of establishing companies for foreigners in the Kingdom of Saudi Arabia.
provided that these companies carry out their activities within the Kingdom:

• The foreign company shall exercise its activity and business inside the Kingdom of Saudi Arabia through a representative office or branch and the like.
  Provided that this is in accordance with the Foreign Investment Law and the Saudi regulations related to companies and foreign investment.
  This branch or representative office shall be the home of the company in all matters related to its activity and business in the Kingdom.
• The foreign company’s branch or representative office must put its address in the Kingdom.
  the company’s full name and head office address on all papers, documents, and prints.
  documents and publications.
• The branch registration application must contain the start and end date of the branch’s fiscal year.
  The preparation of financial statements for its activity in the Kingdom of Saudi Arabia must be based on its accounting standards.
  These documents and the auditor’s report must be filed within six months from the end of the branch’s fiscal year.
• If the foreign company carries out its activities before completing the procedures for licensing and registration in the commercial register.
  or exceeds its licensed business.
  The liability for this violation is solidarity between all those who committed it.
• If the business for which the company was established for foreigners in Saudi Arabia is carried out.
  and the company’s existence is contingent on their execution.
  The company will be registered in the Commercial Register on a temporary basis until the end of the execution of the works.
  The company is then deleted after the liquidation of the rights and obligations resulting from the establishment of the company.
  However, the company may be continued after fulfilling the necessary requirements in this case.

Investment requirements in Saudi Arabia

According to the Investor’s Guide, specific requirements must be met in order for foreigners to incorporate in Saudi Arabia.
These requirements are:

1. Investment License

A foreign investor can apply for a license to establish a limited liability company.
Single Person Limited Liability Company.
joint stock company
A branch of a foreign company or a professional solidarity company.
The Ministry of Investment is responsible for issuing this license, for which the following documents are required
Commercial register of the company – financial statements for the last year.
Both the commercial register and financial statements must be certified by the Saudi Embassy.

2- Signing the company’s articles of incorporation

Signing a company incorporation contract is one of the requirements for foreigners to set up a company in Saudi Arabia.
However, if the company opens a branch in Saudi Arabia.
a decision to open a branch of a foreign company is required for the issuance of the commercial register.
without the obligation to document a new articles of incorporation.
The Ministries of Justice and Commerce and Industry are responsible for signing the articles of incorporation.

3. Commercial Registry

The Ministry of Commerce and Industry is responsible for issuing the Commercial Register.
For its issuance, the following are required:

• The commercial register of the parent company.
• Decision to open a branch of the company in Saudi Arabia (which is the decision of the partners to open a branch of a foreign company).
• Notarized Articles of Incorporation.
  in the case of a new company.
• The decision to appoint the General Manager.
• Proof of identity for both the general manager and the owners.

4- Opening files for the organization

This is done by opening a file in each of the following entities:
The General Authority for Zakat and Income.
Ministry of Human Resources and Social Development (Ministry of Labor) and the General Organization for Social Insurance.

5. Issuance of the General Manager’s Visa

The General Manager visa is issued through the Ministry of Human Resources and Social Development (Ministry of Labor).
It requires an appointment decision and proof of identity for the general manager.

The basic elements of foreign investment are also required:Licensing and foreign investment procedures

As we have already explained.
In order to start any foreign business activity in the Kingdom, it is necessary to obtain a foreign investor license.
The General Authority for Investment (GAFI) is the competent authority and the license can be obtained through its official online portal.

Foreign Investment Financial Regulation

• Corporate income tax:
  This is applied to foreign ownership of companies based in Saudi Arabia at a rate of 20%.

• Zakat tax:
  It is applied to the headquarters of companies in the Kingdom at a rate of 2.5% of the zakat base.
• VAT.
• Participation of Saudi employees in social insurance.

International Trade Agreements

Saudi Arabia is a member of the World Trade Organization (WTO).
Gulf Cooperation Council and the Greater Arab Free Trade Area.
On the other hand, the Kingdom has signed bilateral treaties with 29 countries to avoid double taxation of income and capital.
and with 23 countries to promote and protect investments between them.

Benefits of Company formation for foreigners in Saudi Arabia

The company formation for foreigners in Saudi Arabia entails many advantages that reflect positively on the national economy and the foreign investor.
We will explain in detail these advantages for both the Kingdom and the foreign investor.

1- Kingdom-specific benefits

Company formation for foreigners in Saudi Arabia has the following advantages:

• Identify new technologies in industrial activities.
  thereby transferring and localizing these technologies in the Kingdom.
• Multiple sources of income in the Kingdom.
• Increase the technical and managerial skills of Saudi human resources.
• Providing capital.
• Increase employment opportunities.
• Improving the standard of living of citizens.
• Raising the efficiency of national production and increasing its competitiveness in local and global markets.
• Encourage spending on research and development activities.
  thereby boosting the economy and keeping pace with developments.

2- Investor benefits

Company formation for foreigners in Saudi Arabia has the following advantages:

• Equality between national and foreign enterprises in terms of benefits.
  incentives and guarantees.
• Availability of administrative and credit facilities.
• Tax and customs exemptions.
• Political and economic stability.
• Availability of resources.
• Ease of accommodation and transportation.
• Guarantees to protect foreign investments through legislation or international agreements.
• Fair settlement of investment disputes.

Thus, we have explained in a detailed and simplified manner how to establish companies for foreigners in the Kingdom of Saudi Arabia, in addition to explaining the importance of foreign investments and their benefits for both parties.
In addition to explaining the importance of foreign investments and their benefits for both parties.
For more information, you can contact Invest Global, where the company includes a group of consultants specialized in the field of company formation.

Sources

• Ministry of Investment.
• The legal foundations supporting foreign investment in Saudi Arabia according to Vision 2030.
• Foreign investment in Saudi Arabia under Saudi Vision 2030.