Different Saudi Arabian entities
CLA Consultants Group assists our Clients’ with Saudi Arabian company formation. The most common entity used by foreign investors is the limited liability company. This web page will help your Firm determine the optimum corporate structure for your Saudi Arabian business.
The Regional Headquarters company
- Investors wishing to bid on fully or partly owned government contracts will need to establish a regional headquarters (RQH) within Saudi Arabia. Multinational companies such as Apple, Google, Microsoft, Siemens, and Pepsico have already bought into the regional headquarters program.
- The RHQ can be a branch office or a limited liability company. Companies with an RHQ license can benefit from substantial tax exemptions, including a 30-year corporate income and withholding tax exemption and a 10-year exemption from Saudization requirements.
- After company formation, the RHQ must meet economic substance requirements including i) having adequate premises in Saudi Arabia and ii) holding board meetings in the Kingdom and iii) incurring operational expenditure proportionate to its activities. A Saudi Arabian physical office will serve as the central command for strategic and managerial functions across the region. The RHQ must employ at least 15 full-time employees within the first year, including at least three high-level executives.
- During company formation, our Client must obtain an RHQ license through MISA. The RHQ license has an annual fee of US$ 266 and a one-time service fee of US$ 2,700. To secure this license, it is necessary to submit a business plan outlining the intended scope of operations and investment plans within the region. This plan should demonstrate the strategic importance of Saudi Arabia as a regional hub and the value the RHQ will bring to the Kingdom.
- To qualify as an RHQ, the Saudi Arabian entity must conduct strategic and management functions such as i) budgeting and ii) business planning and iii) regional strategy reviews and iv) regional market monitoring and v) operational and financial reporting. An RHQ cannot engage in commercial activities, which must be carried out by a separate entity holding the proper operating licenses (e.g. services, trading, etc).
The Saudi Arabia limited liability company - LLC (شركة ذات مسؤولية محدودة)
- An LLC is the preferred legal entity of our multi-national Clients’. That said, registering an LLC for foreign nationals is challenging and time consuming and it requires the approval of MISA.
- During company formation, MISA generally requires foreign LLCs to have a minimum paid-up share capital of SAR 500,000. In most cases, this does not need to be deposited in a local bank. It merely appears on the balance sheet of the business and can be used as future working capital.
- A minimum of one shareholder and one director is required for company formation. There is no requirement to publicly disclose the identity of directors and shareholders. No requirement for a local corporate secretary.
- A Saudi Arabian LLC can be managed by a General Manager (GM) or Board of Directors. The manager typically runs the day-to-day business of the company including i) representing the company vis-a-vis third parties and ii) entering into contracts in the ordinary course of business and iii) hiring or appointing employees or independent contractors. The manager only has the authority stipulated in a company’s M&AA issued by the shareholder(s). The GM needs to be a KSA resident, with an Iqama residence visa.
- After company formation, the limited liability company can only engage in the business activities described under the approved Commercial Registration.
- The principal duty of the LLC shareholder(s) is to attend an annual general assembly meeting with an agenda that includes i) the discussion of the auditor’s and management reports relating to the company’s activities and financial position and ii) approval of the audited financial statements for such year and iii) decision on profit distribution and iv) appointment of the next auditor.
The Saudi Arabia GCC branch company (فرع لشركة أجنبية)
- Foreign companies can set up a Saudi Arabian branch office to carry out trading activities. The branch business activities must match those of the parent company. The Saudi Arabian branch can only engage in commercial activities within the license scope including i) participate in private sector contracts and ii) sponsor foreign employees for residency and iii) open a corporate bank account and iv) invoice customers and pay suppliers.
- During company formation, a minimum paid-up share capital of SAR 500,000 must be deposited to a local Saudi bank. The capital in a branch simply serves as a security for the Saudi Government. A Saudi Arabian branch does not have a separate independent legal personality, therefore the parent company is exposed to litigation risk from business activity in the Kingdom. Unlike an LLC, the paid-up capital of a branch does not limit liability.
- Incorporating a Saudi branch is initiated through the Ministry of Investment of Saudi Arabia (MISA). Thereafter, the Ministry of Commerce and Industry issues the Commercial Registration for the branch. Given that all the required parent documents should be translated into the Arabic language for filing with the authorities, the procedure for setting up a branch of a foreign company normally takes at least six months.
- For corporation tax purposes, a branch is treated in the same manner as a 100 percent foreign-owned LLC.
- To carry out the branch’s management and administration, it is necessary to appoint a legal representative resident in Saudi Arabia.
Technical and Scientific Office (TSO)
- A foreign-owned entity may obtain a technical and scientific services office license from MISA. This office may provide technical and scientific support to the parent company’ including i) conduct market surveys and ii) undertake product research and iii) provide technical support to the parent company’s Saudi Arabian agent or distributor. TSO’s are prohibited from directly or indirectly engaging in commercial activities in Saudi Arabia.
- TSOs do not have minimum capital requirements.
Establish a Joint Venture (JV)
- A Joint venture company is a strategic alliance between two or more business parties to form partnerships to share the markets, properties, assets and overall profits and losses. Foreign partners in a Saudi Arabian joint venture company may own 100% equity shares or allow a Saudi local partner to own 50% or more. The local shareholder may contribute financially, by way of technical skills or local connections and reputation.
- Shareholders’ agreements are permitted and enforceable, provided their terms are in compliance with Shari’a and the KSA Companies Law. The contract for the venture should state the i) rights and liabilities of partners and ii) method of dividing earnings and losses.
The Saudi Arabia agency agreement - (اتفاقية وكالة)
- The commercial agency agreement is not a legal entity, but the quickest and cheapest way to penetrate the Saudi market. Without the need to secure a MISA foreign investment license, the commercial agency agreement allows foreign investors to conduct business in Saudi Arabia through a local agent (also called commercial agent).
- The commercial agency agreement must be registered with the Ministry of Commerce and Industry. The commercial agent appointed is then responsible for representing, promoting and selling of goods and services on behalf of our Client, and under terms and conditions listed in the agency agreement.
- CLA Consultants Group advises our Clients to i) fully understand the risks associated with this strategy and ii) proceed with a Commercial Agency agreement as a temporary solution to “test the waters” in KSA.
The Saudi Arabia joint stock company - JSC (شركة)
- A joint stock company is a business type suitable for foreign investors interested in setting up large-scale business operations in the kingdom. This company formation structure is popular with multinational companies or companies that are already publicly listed on overseas stock exchange markets. Certain industry types such as banking, insurance and financial services must be carried out using a JSC.
- The minimum share capital required is US$134,000 (SAR500,000). During the company formation process, 25% of the paid-up share capital must be deposited to the corporate bank account; and the balance must be paid within 5 years.
- The Saudi joint stock company must appoint a minimum of 2 shareholders and 3 directors, whom can be of any nationality. The shareholder register must be lodged with the Ministry of Commerce (MOC) and regularly updated. Key corporate authorities include the shareholders, board of directors, and executive management, with specific duties and responsibilities outlined.
- The Saudi Arabian joint stock company must appoint an auditor and must submit annual audited financial reports.
The Saudi Arabia limited partnership (شراكة محدودة)
A Saudi Arabian limited partnership requires only one director and two partners of any nationality and residency for the registration process. Amongst partners, there must be one general/managing partner and one limited partner. There is no minimum capital for the registration of a limited partnership.
Table of comparison between the most common business entities in Saudi Arabia
Table of comparison of other types of entities in Saudi Arabia
Frequently asked questions
Is Saudi Arabia company setup easier for GCC nationals?
Yes. GCC nationals find it easier to setup a Saudi Arabia LLC and GCC companies can setup a branch in Saudi Arabia. Saudi Arabia company setup is more challenging for Clients from outside the GCC.
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