Regulations and Requirements for setting up a Company through SAGIA
It was challenging to set up business in Saudi Arabia until 2018 brought a new era by bringing about many changes to the rules and regulations of the country making it easier for people to set up their businesses. The time taken to process a business license in Saudi Arabia has been reduced by about 92 percent to encourage further investments.
The Saudi Arabian General Investment Authority (SAGIA), launched in 2000, is the country’s foreign investment license provider. SAGIA is established to provide a quick and smooth company registration, investment application and business setup in Saudi Arabia. SAGIA has reduced the processing time significantly. Only financial statements and certified commercial registration need to be submitted by the businesses to the investment authority for licenses to be issued. Foreign investors can open marketing, sales, and administration offices to complement industrial or non-industrial projects.
There are three types of business forms available to foreign companies in Saudi Arabia. Each of these business forms has its own distinct advantages and disadvantages, as well as different requirements for registration and minimum capital. In most situations, these requirements are dependent on the degree of commitment a company has to Saudi Arabia, and the proposed business activity.
I. Limited liability company (LLC):
To establish an LLC, the minimum capital investment required is Saudi Riyal (SR) 500,000. The LLC must have a minimum of 2 and maximum of 50 shareholders. If there are more than twenty partners, “Board of Controllers” must be established by the company. The shareholders are liable for the debts of the limited liability company only to the extent of their capital shares. A Saudi partner is not mandatory as there is no legal limitation on the percentage of foreign ownership. The LLC must have an auditor.
Steps for Registration:
1. Reserve a Company Name
An approved name must be reserved at the Ministry of Commerce and Industry before registering a company. The name reservation is valid for a period of two months and can be done online on the website of the Ministry of Commerce and Industry.
2. Apply for Investment License at SAGIA
The first requirement for establishing a Saudi company with foreign shareholders is obtaining an investment license by submitting an application to the SAGIA. The time taken for this step is around three to four weeks, costing about SR 2000.
The following documents are required to be submitted:
- Completed standard license application form signed by the applicant, inclusive of an authenticated declaration that the applicant has reviewed the Foreign Investment Regulation and its Implementing Rules.
- Authenticated resolution of the applicant’s board of directors to incorporate an LLC in Saudi Arabia.
- Authenticated copy of the applicant’s articles of association and certificate of incorporation.
- Authenticated copy of the applicant’s balance sheet for a period of two years preceding the year of application.
A complete copy of the passport as well as four passport-size photographs of each person listed in the applicant’s articles of association and the company’s proposed manager.
3. Draft and approval of the Articles of Association (AOA) and the local incorporation documents.
4. Legalize and Notarize the Documents
Once the AOA has been approved, it needs to be executed and legalized before a notary public by the company or the authorized representative.
5. Publication in Official Gazette
After having the company documents approved and notarized, the company name and a summary of the AOA must be published by the company in the official gazette.
6. Opening of a Bank Account
A bank account can be opened after completing the aforementioned steps. Shareholders can obtain certification stating that the capital has been deposited by transfer of the share capital.
7. Establishing an Office and Register in Commercial Registry
The office space is for carrying out the activities of the company and also for registering the address that will help to obtain municipality license issued by the Ministry of Labor and GOSI (General Organization for Social Insurance). Once all the paperwork is sorted, and the office and bank account are established, the final registration is submitted to the Commercial Registry at the Ministry of Commerce and Industry. Certain activities still need licenses and certificates from the Chamber of Commerce, which is another mandatory document required along with the Commercial Registration.
8. Register for Taxes and Social Insurance
Registration for Tax is completed at the Department of Zakat and Income Tax (DZIT). The Zakat aspect is a religious wealth tax and is assessed based on taxable income and certain assets. For the registration of social security insurance, the employer must open a file with the GOSI. The employer and the employee will be registered with the organization’s two branches- the Pension Fund and the Industrial and Illness Fund (Occupational Hazards Fund).
By obtaining the required license, a foreign company may register a wholly foreign-owned branch office in Saudi Arabia.
A Branch is not legally distinct from the foreign business itself, so the business activities of the Branch will be limited to those of the foreign business, and the foreign business will be liable for the debts and other liabilities of the Branch. The minimum capital requirement is usually SR 500,000.
Branch office registration follows the same procedure as the registration of an LLC, except that there are no Articles of Association to be approved. Although a Branch does not have to draft the local incorporation documents, it needs to have the documents of the parent company legalized to prove the legal existence of the company.
III. Representative Office
Technical and Scientific Offices (TSOs) are liaison offices for a manufacturer to provide technical support via a distributor to the local market. Temporary Company Registrations (TCRs) are short-term general businesses established for specific government contracts. These forms are generally limited in their activities. A TSO serves only as a liaison between a foreign company and the local market (and a Saudi distributor). TSO's activities are limited to providing technical assistance and information to the users and distributor regarding market, products and technical research in connection with the products. A TCR only performs the contracted work operations but does not engage in any other general promotion or solicitation of its business.
The process for registering as a TSO requires the foreign company and a Saudi distributor to enter into a distributorship agreement. Before licensing and registration can be completed, the distributor must write a letter supporting the establishment of the TSO. For registering as a TCR, after a government contract is established, the company must obtain a Temporary License from SAGIA before formally filing for a TCR with the Ministry of Commerce and Industry. In general, the registration process is similar to that of a branch for both TSO and TCR. There is no minimum capital for TSO as well as TCR.