Doing Business in Saudi Arabia - International Franchise Association

capital requirement in projects established in specified areas, in export projects or those which
require considerable technical experience. Limited liability companies must have at least two,
but not more than fifty shareholders. The Ministry of Commerce and Industry must approve
formation of all joint ventures.
Most foreign companies prefer to establish a limited liability company (LLC) because it is simple
to incorporate and manage. Limited liability companies can be owned 100% by foreign investors
or have a mixed ownership. Licenses should be obtained from the Saudi Arabian General
Investment Authority (SAGIA). Foreign companies may qualify for a favorable tax treatment or
other economic incentives from the Saudi Government, especially if Saudi investors join in the
newly formed company’s capital.
According to Article 52 of the Company Law, the establishment of a joint stock company
generally requires an authorization from the Minister of Commerce and Industry after reviewing
a proposed company’s “feasibility” study. The law requires the authorization through a Royal
Decree based on the approval of the Council of Ministers for the formation of any joint stock
companies with concessions, undertaking public sector projects, receiving assistance from the
State, in which the State or other public institutions participate, or for joint stock companies
engaging in a banking business. In general, the provisions applicable to the administration of
joint stock companies are more detailed than those applicable to limited liability companies.
The Investors Service Center (ISC) at the Saudi Arabian General Investment Authority (SAGIA)
oversees all matters related to foreign investor licensing and registration process. The ISC is
intended as a one-stop shop that will assist foreign investors and minimize lengthy procedures.
Another very significant change in the Foreign Investment Act is the reduction in the corporate
tax rate for foreign companies with profits in excess of $26,000 a year. It lowers the maximum
rate from 45 to 20% and allows companies to carry forward corporate losses for an unspecified
number of years.
Depending on the nature of the foreign investment, the Saudi Arabian Standards Organization
(SASO) may be involved. SASO is the Saudi authority for establishing product standards for
imports and locally manufactured goods. The Communications and Information Technology
Commission (CITC) also has authority on imported telecommunications and IT products and
services. Recently, the CITC has taken a more proactive role and has published a number of
specifications relating to various products and services within its jurisdiction.
The Saudi Industrial Development Fund (SIDF) may be engaged to provide up to 50% financing
for approved industrial projects, and payback period could be up to 15 years. Market
intelligence also is available through the SIDF for prospective investors.
Other Saudi Arabian Government entities that may be involved in the process include the
Ministry of Foreign Affairs (visas), the Ministry of Interior (residence permits and industrial safety
and security approvals), the Royal Commission for Jubail and Yanbu (if the project is in those
industrial cities), the General Organization for Social Insurance (social insurance and disability
payments for Saudi employees), and the General Organization for Technical Education and
Vocational Training (training programs for Saudis).
Selling to the Government Return to top
In 2001, the Saudi Council of Ministers repealed a 25 year-old decree requiring foreign
contractors to have a Saudi agent in order to bid for contracts. Under the new decree, foreign