One of the largest and most diversified economies in the Middle East is Saudi Arabia. They have a thriving private sector and also a strategic location that connects Africa, Asia, and Europe. This kingdom offers many opportunities for entrepreneurs who want to expand or start their businesses. It is important to note that there are some challenges and regulations that have to be considered when opening in business in Saudi Arabia.
In this article, we will provide you with an essential guide on how to start a business in Saudi Arabia. You will see all the main aspects to be able to understand them. Among them, the legal framework, the tax system, business culture and the best sectors to invest. In addition, we will share some recommendations so that entrepreneurs can be successful. By the end of this article, you will have a clear idea of what it takes to start a business in KSA. In particular, you will have solutions on how to solve possible obstacles.
Introduction to Saudi Business Landscape
In the current global economic landscape, Saudi Arabia emerges as one of the most important players. With a GDP of 1.1 trillion dollars by 2022, it has immense business potential. In this way, apart from its great oil wealth, the 2030 vision plan alters the current dynamics. Thanks to this, Saudi Arabia is trying to achieve less dependence on oil.
This plan encourages the country’s economic activities to be more diverse. In addition, aspects in the public sector will have remodeling such as education, health, infrastructure, tourism and recreation. In this way, the changes are expected to reshape the country’s business landscape. Thus leaving a large number of opportunities for investments in the country.
Currently, starting a business in Saudi Arabia is a great opportunity for foreign investors. Thanks to the government’s plans with Vision 2030, they have introduced many incentives for foreign investment. In this way, doing business in Saudi will provide you with many benefits that will be described throughout this article.
Why Choose Saudi Arabia for Business
Among the 144 countries that were examined by the World Economic Forum, Saudi Arabia ranked 24th. Additionally, it took the second-highest spot among the 20 largest emerging market economies. At the same time, it managed to be the largest economy that can be found in the Gulf Cooperation Council region better known as the GCC.
On the other hand, they recognize this country for its great macroeconomic stability and low debt. In addition, it has a strong budget surplus. In this way, it has managed to place itself in the global spotlight due to its great modern institutional framework. Which is very beneficial to start a company in Saudi Arabia.
Therefore, Saudi Arabia is building strong institutions. Furthermore, they do this by reducing administrative burdens, which is the most notable progress. Oil and gas continue to be the most important sector that contributes to the country’s GDP In this way, you can find some of the largest projects in the world in Saudi Arabia.
Key Industries and Opportunities
In 2022, Saudi Arabia’s economy was the largest in the entire Middle East. In addition, it continues to seek even greater growth with the aspirations of Vision 2030. However, if you want to take advantage of the great opportunities that the country offers, you must understand the business landscape.
In this way, you can start the best business in Saudi Arabia Saudi Arabia provides many opportunities for new investors. For this reason, they made great progress in the World Bank’s Ease of Doing Business report. Occupying 62nd place among 190 countries in the 2020 edition. This demonstrates the government’s commitment to making it one of the best investment centers in the world.
The country offers a large number of opportunities in different business sectors, where you find:
Renewable energy: It is one of the sectors with the most opportunities because Saudi Arabia is aligning its energy policy with sustainable practices. An example is that it plans to generate 50% of its electricity through renewable energy.
Hospitality and tourism: Tourism is expected to become a key driver of the UAE’s diversified economy. With the goal of contributing 10% of the GDP by 2030 and having 100 million visitors annually.
Technology, information and communication: The size of this sector amounts to SAR 154 billion or in other words 41 billion dollars. In this way, it constitutes 4.1% of the country’s GDP. Thus, new investments make it an ideal sector for new companies.
Real Estate: Saudi Arabia’s real estate market is estimated to grow to a market value of SAR 352 billion by 2028. This will open up new opportunities for companies and investors in this sector.
Business Entity Types and Legal
If you are a foreigner and wondering how to start a business in Saudi Arabia, you should first read the following. The first thing you should do is decide on one of the commercial forms that are provided for in local legislation. In addition, the registration and operation of companies in the country is established in its new business regulations.
Different types of companies have a set of advantages and obligations and investors have to choose a legal form. Therefore, you should review the new business regulations to learn more about the types of business in Saudi Arabia.
Additionally, you must know about the business law in Saudi Arabia so that your company can operate legally. Next, we will look at some important details about company formation and the most common types of companies.
Limited Liability Company (LLC)
You find that the most common commercial form for establishing a company is the Limited Liability Company. The LLC can have only one shareholder and one director. In this way, one of its most important advantages is that the shareholders are responsible for the debts of the respective business; this only to the extent that they participate in the capital of the company.
There are two types of LLC, public and private, where the private one is the most used. All this because the registration procedure is faster and simpler. On the other hand, the LLC must have at least one shareholder, which can be a corporation or a natural person, as well as at least one director.
However, when the number of shareholders exceeds 20, they must appoint a board of directors. In addition, if the minimum number of shareholders is 3, there must be a supervisory board that supervises the activities of the director. It is important to note that the maximum number of partners that this business form can have is 50 partners.
Foreign Investment and Ownership
Foreign direct investment has made an important contribution to the economy of Saudi Arabia. For the third quarter of 2022, the Ministry of Investment reported the entry for this type of investments of SAR 7.2 billion. In this way, it becomes a large increase if you compare it with the year 2021.
In the world investment report made by the UN conference on trade and development; He detailed that the inflows from foreign direct investments in Saudi were very solid.
This occurs thanks to the wide range of sectors that have been attracting increasing inflows of these investments. Recently, the government launched a special economic zone program. In this way, the program will focus on investment sectors that are not conventional. Among these you can find renewable energy, cloud computing, mining, digital economy, etc.
For these reasons, you find Saudi Arabia a very attractive destination for foreign investment. Furthermore, thanks to its reforms, continuous investment in structure and economic plans, it is one of the best places to invest in the world.
Business Licensing and Registration
In Saudi Arabia, companies must be registered in order to do business. Additionally, they must have a good plan and vision. According to the regulations for new companies, there are five forms of companies that can be established in the country. Then, depending on the type of company you choose will determine the requirements.
If you want to register an LLC, investors must go to SAGIA to obtain their foreign capital investment license. This must be done before you register your company with the Ministry of Trade and Industry. Obtaining your business license in Saudi Arabia is a simple process that requires 5 business days. In addition, it has a fee of SAR 2,000 and can be extended up to 15 years.
Once you have obtained your commercial license, you can now start the registration process and must follow certain steps. Below are the steps to register an LLC.
- Choose the company name in Saudi Arabia.
- Carry out the presentation of the statutes and notarization.
- Opening a bank account.
- Obtain the commercial location license from the municipality and post office registration.
- Pay the registration fee.
- Obtain the registration certificate
- Pay the chamber of commerce membership fee.
- You must register with GOSI
- Lastly, you need to register with the Zakat Department
It is important to note that the steps for registering other forms of business are similar.
Corporate Taxation
In KSA there are different taxes that entrepreneurs must pay. The first thing is the corporate tax. This is considered an income tax that only takes into account the income received by the company. Furthermore, only foreign companies are responsible for paying this tax.
There is Saudi income tax law, which is subject to the following:
First aspect: Resident capital companies with shares owned indirectly or directly by Saudi or non-GCC persons and by persons operating in the production of hydrocarbons and oil, except for the following.
- First, the shares owned by a resident capital company that is listed on the Saudi stock market were acquired for speculation. Of course, through capital markets trading.
- Any foreign resident natural person carrying on business activities in KSA.
- People who are dedicated to the production of oil and other hydrocarbons.
Second aspect: Foreign residents are natural persons who carry out activities in Saudi Arabia.
Third aspect: Any person who is dedicated to the production of oil and other hydrocarbons.
On the other hand, there is an income tax rate for companies. This is 20% of adjusted net earnings. You should know that Zakah is charged on top of the company’s Zakah at 2.5%. Furthermore, the Zakat base represents the net worth of the entity calculated for Zakat purposes.
Finally, in KSA there are no capital taxes. Just as there are no stamp duties or payroll taxes. Furthermore, there is also no tax on real estate taxes, but Zakat can be paid. That is the religious tax.
Saudi culture and protocol are very different from other countries. Especially from Westerners. It is extremely important to know and respect the religious, social and legal norms that govern life in KSA. This is for both residents and visitors. Some key aspects of Saudi culture are the importance of family, the role of Islam and tribes.
People who wish to do business in Saudi Arabia have to know how to navigate its culture and protocol. That is why you have to take into account the following aspects and characteristics.
Understanding Saudi Arabian Culture
The culture of Saudi Arabia is one of the most diverse and richiest in the world. It is based on the Islamic religion, Arab tradition and the influence of other civilizations that have interacted with the kingdom throughout history. Saudi culture is reflected in its art, architecture, cuisine, clothing, music, literature and values. To better understand the culture of Saudi Arabia, it is important to know some key aspects. For example, respect for social norms, the importance of hospitality and the diversity of regions.
Evil eye belief: In KSA there is a strong evil eye belief. According to believers, one’s misfortune is caused by another’s envy, which is believed to be a curse. By praising something too much you can make some citizens fear the evil eye. Also, when people say “Mashallah”, meaning may God bless them, it is a way to protect themselves from the evil eye.
Rejecting or accepting offers: In KSA, people often make the same offer several times. It is often polite to reject gestures initially. But accept them once the person insists a lot. This is an exchange that allows the individual offering to show transparency and humility to the recipient.
Make offers: You have to make sure you offer everything several times in return. If you only make an offer, you may get a negative response. The reason is not necessarily that they do not want it, it may be out of modesty and courtesy. But what can happen is that you lose business for not offering twice.
Compliments: Use caution when complimenting any items in a Saudi person’s home. The reason is that he may feel that he has an obligation to offer it to you as a gift.
Business Customs and Etiquette
In Saudi Arabia, business etiquette reflects society at large. That is, they are conservative, yet they are unequivocally hospitable. Foreigners who have done business in Saudi Arabia know that there are family issues.
Below, you will see all the different aspects you need to know before doing business in Saudi Arabia.
Greetings: A handshake is considered a standard greeting as a first contact between men in Saudi Arabia. To greet a woman, she is expected to extend her hand before offering the gentleman’s. Otherwise, keep your hand at your side. It is important to greet everyone in the room with a handshake.
Of course, you have to start with the highest ranking people in the room and then by seniority. That is, you have to know the hierarchy beforehand.
Timekeeping: Office environments in Saudi Arabia, while business-like, tend to be cordial and flexible affairs. Most likely, they do not have an agenda or take minutes. That is, do not take it personally if they cancel the appointment or start late. The Saudis place little value on punctuality.
Small Talk: In KSA, there is a lot of talk about small talk, especially those in the initial stages. Well received topics are family discussions, art, business, culture and sports. Additionally, you have to be generous about your opinions on Saudi history, culture, and achievements.
Body language: When talking about the commercial aspect of negotiations, the Saudis’ thinking is difficult to interpret. Communication is basically body language and other non-verbal signals. Trade agreements are not usually rejected verbally.
Funding Opportunities and Challenges
KSA is a country that offers great opportunities for entrepreneurs who want to explore a growing market. And not only that, it is a diversified market that attracts pure positive things for entrepreneurs. However, this implies different cultural, logistical and legal challenges that must be considered before starting a business activity in the country.
In this section, some profitable business ideas in KSA are presented. In addition to some recommendations to adapt to Arab business protocol and culture. Finally, you will see the comparison between the advantages and disadvantages for companies that want to operate in Saudi Arabia.
Government Incentives and Support
In order to make Saudi Arabia’s economy grow in such a way, the government has provided the businessman with different incentives. Among these you find:
Business incentives: 100% foreign ownership of companies and assets, including their land. Furthermore, there are no restrictions on the repatriation of profits and capital. Moreover, there is no VAT, income tax, personal income tax and property tax.
Financial incentives: They have invested up to US$320 million in long and medium-term loans from the SIDF. Additionally, loans are available for upgrading or establishing manufacturing facilities in the country. The SIDF also provides advice to industrial companies on financial, technological, administrative and marketing issues.
Common Challenges for Foreign Businesses
The Kingdom of Saudi Arabia (KSA) provides many opportunities for foreign companies. However, doing business in Saudi Arabia also presents unique challenges. It is important to be aware of these challenges and addressing them head-on can help you increase your chances of establishing a successful business.
Next, we will show you the most common challenges and the most practical way to solve them if you want to do business in Saudi Arabia.
Not knowing the culture or customs: Before doing business in Saudi Arabia and hiring staff you have to have a solid knowledge of the local culture. KSA has a rich Muslim heritage and its religion plays a central role in its culture. It is important to know that Islamic law is the law that governs the nation.
Understanding the role of hierarchies: Dignity and respect are important factors in KSA culture today. It is true that the vast majority of Western cultures tend to be more casual and informative. But in Saudi Arabia young people are expected to show respect to their elders. That is, use appropriate titles and demonstrate an appropriate level of deference. You have to take into account that the hierarchical structure also carries over to the business world.
Business Etiquette: Everyone wishing to do business in Saudi Arabia needs to be aware of the differences in business etiquette.
Different work weeks: Generally, work weeks are Monday to Friday, but this is not the norm in KSA. Work weeks in Saudi Arabia begin on Saturday and end on Wednesday. That is, Thursdays and Fridays are the traditional days of rest.
Wrapping Up Your Saudi Arabian Business
Saudi Arabia is a country that offers immense opportunities to entrepreneurs, both local and foreign. This is due to the great benefits that entrepreneurs have when starting their business in Saudi Arabia. Among the advantages that the country offers, you can find tax benefits and in this case foreign investors have a minimum personal income tax liability.
In addition, you find that Saudi Arabia seeks to position itself as the global technology center of the future. Thus, in order to achieve this, it has launched a set of important initiatives. In fact, these initiatives have considerably increased the contribution of technology to the country’s GDP and have created more than 25,000 new jobs.
As mentioned throughout the article, Saudi Arabia is seeking to expand its economy beyond oil and gas. For this reason, the government has invested a lot to support different companies in various sectors. In this way, they seek to achieve a stronger, broader and safer economy.
