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Setting up a business in KSA

By Lujain Al Yousef, Associate, and Abdullah Alanezi, Partner.

Over the years the Kingdom of Saudi Arabia (KSA) has become a place of interest for many investorsaround the world. For businesses wishing to expand into international markets, KSA is the perfectchoice. It is an economically stable country with a constant increase in the domestic market and the facilities provided by the Saudi government to foreign investors. Setting up a business in a foreign country is always accompanied with a huge risk caused by the non-familiarity of laws, regulations and procedures followed in said country. Therefore, before setting up your company in KSA, it is always better to appoint a local representative to assist with the required formalities.

Types of companies available for foreign investors: - A limited liability company (LLC): LLCs in KSA has no minimum capital, to it may deposit theamount of capital as they see fit. A manager or a managing board must be partners appointed duringthe formation stage and once an LLC is established the appointed management team is responsible to publish the company’s articles of association (AOA) as specified by the competent authority. - A joint stock company (JSC): There are two types of JSCs in KSA, a closed JSC, and a public trading JSC (listed in the capital market for trading of the public). As for capital, the companies’ regulations require a minimum capital of Riyals 500,000. The management of a JSC must be conductedthrough a board of directors with a minimum of three members and a maximum of 11 members.Recently KSA has implemented mandatory corporate governance regulations for listed JSCs in theSaudi Capital Market. It ensures the best practice with protection of rights for all shareholders, equalityof treatment, and transparency and accountability towards the public and all shareholders.

- A branch of a foreign company (Branch): this type limits the investors activities to be practiced inthe Saudi market to the same activities practiced by the company in its mother country. It is not considered as an independent legal entity and its liability could extend to the headquarters of the branch.

Another important aspect to investing in KSA, is to determine the activity an investor wishes to practice.The procedures followed differs based on the activity practiced. In KSA, the Saudi Arabian General Investments Authority (SAGIA) is the competent authority for licensing foreign investors. SAGIA hascategorised the activities into four categories, the services activity, industrial activity, contractual (constructions) activity, and the commercial activity. Each activity requires to be licensed by SAGIA and in some cases other governmental authorities such as the Ministry of health, the Ministry of Culture and Information, etc.

One of the significant efforts made by SAGIA to facilitate the investments of foreign businesses in KSA was to issue a temporary license for investors in the construction activity. This temporary license allows the investor to apply for governmental tenders without having an existence in KSA, once the tender iswon, said investor may apply for a permanent license, or another temporary one for the duration of theproject of the tender.

Once a SAGIA license is issued, foreign investors must apply for the issuance of a commercial registration certificate with the Ministry of Commerce and Investments (MOCI) which requires the deposit of the company’s capital into one of the local banks. Also, apply for a membership with theSaudi Chamber of Commerce (COC). Once all of the above is obtained a company will be fully registered in KSA. There are other governmental authorities the company must register with after thecompletion of the formation process, such as, the Ministry of Labor and Social Development, theGeneral Authority of Zakat and Tax, the General Organisation for Social Insurance, and the Ministry of Municipal and Rural Affairs.

As we can see from the above, registering a company in KSA could seem as a complex process, butwith the correct assistance from local experts it will run smoothly and an investor will easily get licensed within a month or two.

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