Doing Business in Saudi Arabia: A Guide for Foreign Companies

This is the complete guide to the laws, customs and taxes for foreign companies doing business in Saudi Arabia, to help you seize the opportunities of the Vision 2030 industrial strategy. 

30th May 2024

The Kingdom of Saudi Arabia is at a crossroads, and it wants the world to know.

Since oil was first struck beneath Dammam in 1938, the desert kingdom’s petro-exports have kept the world’s lights on (and the US dollar afloat). But as decarbonisation shoots to the top of governments’ agendas, the ruling House of Saud knows it will have to expand its economic base to keep foreign investors interested in doing business in Saudi Arabia.

This is the basis of the Vision 2030 programme. This hyper-ambitious economic diversification programme has put KSA in the sights of foreign investors far beyond the energy sector.

Gigaprojects like NEOM are attracting the most attention. But beyond the science fiction-esque renderings of huge, hive-like megacities blooming in the desert, the whole economy is being remoulded in Crown Prince Mohammed bin Salman’s image. Almost every industry is being showered with investment in order to hit some very bold new targets.

Saudi Arabia’s business environment in 2024

Here at the halfway point of Vision 2030, it’s probably best to forget most of what you thought you knew about the Saudi economy.

The diversification programme is quickly creating new incentives for sectors once sorely underrepresented in the KSA. These include renewable energy, as well as tourism, entertainment and manufacturing.

The country’s business landscape is being reconstituted from the top down. A plethora of reforms have improved the ease of doing business and reduced the tax burden on domestic and foreign investment in Saudi Arabia.

Top Business Opportunities in Saudi Arabia

While the Regional Headquarters (RHQ) scheme provides major sweeteners for foreign companies of all stripes, a few sectors offer particularly high rewards. Companies in these industries will find doing business in Saudi Arabia’s new economy easier than ever before.

Renewable energy

Nothing symbolises the Saudi economy’s realignment better than the runaway growth of the renewable energy sector. Renewable capacity hit 3GW in 2023, up from 0.02GW in 2015 – a compound annual growth rate of 82.4%

The government’s King Salman Renewable Energy Initiative (KSREI) has guided this sustainability boom.

The KSREI seeks to reach 130GW of renewable capacity by 2030, harnessing both wind and the plentiful desert sunlight. This number has evolved from an initial target of 9.5GW.

Development of the 300MW Sakaka solar plant and 400MW Dumat Al Jandal wind farm will be crucial in achieving this goal.

The Kingdom also plans to build to a green hydrogen plant as part of NEOM.

To accelerate decarbonisation, the Saudi government is lowering the entry barriers for foreign players in the renewable sector. Companies can access loans through the Mutjadeda program, while the Renewable Energy Project Development Office offers a range of subsidies.

Tech

Country-wide digital transformation is a major plank of Vision 2030. The state is rolling out fibre optic, 4G and 5G coverage at speed, while data centres are springing up. This digital infrastructure should make doing business in Saudi Arabia much faster and smoother.

Developing a homegrown technology sector is another strategic aim, and Riyadh is fast becoming a tech hub. The ICT market is now valued at USD 46.30 billion, with the startup ecosystem topping USD 11 billion in 2022 and attracting USD 972 million of funding in 2022.

Foreign startups can tap into a USD 200 million fund and a range of incubators and accelerators. A special entrepreneurial licence also exempts startup founders from an annual SAR60,000 levy on investors.

Entertainment and tourism

A sector that was nearly non-existent a few years ago is now a key area of focus. The Kingdom’s National Tourism Strategy targets 100 million visitors annually by 2030, with 10% of GDP projected to come from tourism.

In 2019, Saudi Arabia launched an e-visa designed to make travel much easier. The government has also sanctioned several ambitious projects, such as the Red Sea Project and Qiddiya Entertainment City, to make the Kingdom a global tourism destination.

The Public Investment Fund (PIF) has also launched a USD 3 billion venture to turn the mountainous Asir region into a tourist hub.

Logistics and infrastructure

Vision 2030 seeks to exploit the Kingdom’s strategic location at the crossroads of Asia, Africa, and Europe to become a key node for global logistics.

New ports like the King Abdullah Port have joined the ranks of the world’s fastest-growing container hubs. Existing destinations are being refitted with cutting-edge AI and analytics technologies. Roads and railways are being upgraded and customs processes streamlined.

The National Transport and Logistics Strategy seeks to develop 59 logistics zones, including the centrepiece Special Integrated Logistics Zone at Riyadh’s King Khalid International Airport. These special zones offer customers light-touch regulation and duty-free imports of raw materials.

Healthcare and Life Sciences

As part of Vision 2030’s ‘vibrant society’ pillar, the state aims to raise average life expectancy from 74 to 80 years. This goal revolves around two instruments: the Health Sector Transformation Program (HSTP) and a major investment drive in the Life Sciences.

The HSTP is expanding the private sector’s role in healthcare provision through public-private partnerships (PPP).

The government’s goal of extending a unified digital medical records system to 100% of the population should encourage foreign telemedicine and e-health providers to enter the market.

In 2021 alone, the KSA poured USD 3.9 billion into biotechnology research and development. The burgeoning sector needs private venture funding from around the world to achieve its next growth phase.

Saudi Arabia’s human resources

No discussion about Saudi Arabia’s economic transition would be complete without mentioning its most valuable resource – its people.

Saudi Arabia has the blessing of youth, with an average age of 29. The Saudi government has made the most of this demographic gift, investing heavily in education and skill development. Initiatives like the ‘Tatweer’ project for educational development and the King Abdullah Scholarship Program, which sponsors thousands of students for overseas study, have cultivated a skilled workforce.

Labour force participation currently sits at 61.7%. Though still a strictly religious society, 37% of women are now in work, rising to 50% of women between the ages of 15 and 24.

The Kingdom’s young population and widespread technical education have made it a leader in digital skills.

Foreign employers doing business in Saudi Arabia will have little trouble recruiting willing and able staff from among the native population.

Understanding Saudi business culture

Saudi Arabia has a distinct business culture that foreign companies need to understand to do business successfully. This culture is deeply rooted in the country’s history, traditions, and Islamic faith.

Let’s run through the basics of a Saudi business meeting.

Background business etiquette in Saudi Arabia

Saudi business culture is formal, hierarchical and conducted in a highly polite manner. Saudis are not always direct communicators and may avoid giving direct ‘no’ answers.

Saudis prize personal relationships and mutual respect as the essential bedrock of business. Therefore, investing time in building strong relationships with your Saudi business partners will pay off. They won’t deal with someone they don’t trust on a human level.

Regarding dress codes, it is best to stick to formal business attire. For men, suits will suffice. Women will be expected to cover their shoulders and knees, though a headscarf is not mandatory.

You should also account for the country’s strict observance of Islamic practices. For example, almost all Saudis will observe the holy month of Ramadan, during which Muslims fast from dawn to dusk. During this time, the pace of business slows down, and working hours are reduced.

Greetings and communication

Punctuality is expected to be observed, though your Saudi counterparts may arrive late.

You should start by acknowledging the most senior person in the room, greeting him, if a man, with a handshake and a formal greeting of ‘As-salamu alaykum’ (peace be upon you). When greeting women, you should wait for them to initiate the exchange. Then, address your interlocuter by their title, followed by their surname.

You are not typically expected to present a gift. If you do so, it is best to wait until the end of the meeting.

Hospitality is also a significant part of Saudi business culture. Business meetings often start or end with a meal, and it is common to be offered coffee or tea during meetings. It is polite to accept these offers.

Meeting structure

In Saudi Arabia, meetings may not be as structured as you’re used to. It is common for them to start late or be interrupted. Patience is a virtue in the Saudi business world.

Meetings will also typically start with extended small talk. This is just part of the process of building trust.

Negotiations may take longer than expected, as decisions involve several layers of approval in hierarchical order.

While English is widely used, knowing some basic Arabic will can help cement trust and get deals over the line. However, it’s important to note that direct criticism or confrontation is generally avoided in Saudi Arabia.

If you get familiar with these aspects of Saudi business culture, you’ll be able to build successful, long-lasting business relationships.

Regulations for foreign businesses in Saudi Arabia

Regulatory reform is a cornerstone of Vision 2030. The government has pushed through a new framework of regulations to improve the ease of doing business in Saudi Arabia.

Your regulatory obligations will vary according to your sector and the type and size of business you’re trying to set up in Saudi Arabia.

Let’s start by looking at the most general laws relating to foreign businesses.

Foreign Investment Laws

The Foreign Investment Law, overseen by the Ministry of Investment (MISA) (formerly known as the Saudi Arabian General Investment Authority (SAGIA)) outlines the rights and responsibilities of foreign investors. These are the most significant provisions:

1. 100% Ownership: Foreign investors can fully own businesses in most sectors, removing the need for a local partner.
2. Full repatriation of profits: There are no restrictions on foreign investors repatriating dividends, capital and profits
3. Equal treatment: Licensed foreign investors enjoy the same benefits and guarantees as national enterprises
4. Investment Licensing: To do business in Saudi Arabia, overseas investors must obtain an investment licence from MISA. The licensing process includes background checks and project evaluations to ensure alignment with national interests.

The Negative List

To protect its strategic strengths, the Saudi government has closed off certain sectors to foreign investment. These include:

• Exploration, prospecting and production of petroleum substances (excluding mining-related services)
• Military catering
• Security services
• Real estate investment in Makkah and Medina
• Recruitment offices
• Tourist services related to Hajj and Umrah
• Midwifery, nursing, physical therapy
• Fisheries

This list comes under periodic review by the Supreme Council of Economic and Development Affairs.

Corporate legal structures and the Companies Law

Saudi Arabia has recently overhauled its corporate legal framework with the introduction of the new Companies Law in January 2023.

This law aims to modernise the regulatory environment for doing business in Saudi Arabia, attract foreign investment, and align with the Kingdom’s Vision 2030 objectives.

The new law consolidates various corporate forms under a single comprehensive law, providing clarity and consistency for foreign businesses operating in Saudi Arabia.

Company formation

The new Companies Law allows for various legal entity types, including limited liability companies (LLCs), joint-stock companies (JSCs), holding companies, and single-shareholder companies.

Forming a company involves:

1. Choosing a structure
2. Preparing documents
3. Obtaining the right licenses
4. Registering with authorities like the Ministry of Commerce and MISA

LLCs require 1-50 shareholders and sufficient capital for the company’s activities. JSCs need at least 1 shareholder and SAR 500,000 minimum capital.

Corporate governance

The Companies Law and the Capital Market Authority’s (CMA) Corporate Governance Regulations are the main sources of corporate governance rules.

The CMA regulations are mandatory for listed JSCs and cover areas such as board composition, committees, disclosure, and shareholder rights.

Key corporate authorities include the shareholders, board of directors, and executive management, with specific duties and responsibilities outlined.

Directors and managers owe the company statutory duties of loyalty, care, and confidentiality. Breaches can lead to joint liability.

Shareholders enjoy rights like attending meetings, voting, accessing information, and receiving dividends.

Implications for foreign investors

Foreign investors looking to establish professional companies in Saudi Arabia should be aware of the specific requirements and restrictions that apply to their chosen profession. In some cases, foreign ownership may be limited, and local sponsorship may be required.

However, the new Companies Law aims to create a more welcoming environment for foreign investment and streamline the process of doing business in Saudi Arabia.

Intellectual property rights in Saudi Arabia

The KSA’s now-comprehensive legal framework to establish and safeguard intellectual property rights (IPR) has been a major boon for the ease of doing business in Saudi Arabia.

• Trademarks: Governed by the GCC Trademark Law, approved by Royal Decree No. 51 dated 16/07/1435H (05/05/2014G). Trademarks must be registered and are protected for ten years, renewable for similar periods. The Saudi Authority for Intellectual Property (SAIP) handles trademark enforcement matters.
• Copyright Law: Issued by Royal Decree No. M/41 dated 2/7/1424 AH and amended by the Council of Ministers Resolution No. (536) dated 19/10/1439 AH. It protects original works of authorship for the author’s lifetime plus 50 years after their death.
• Geographical Indications (GIs): SAIP has launched a service for the registration of collective marks containing GIs, aiming to protect products with specific geographical origin. Draft regulations for GIs were presented by SAIP in 2020.
• Legal Framework for IP Protection: Saudi Arabia has updated its legal system to strengthen IP protection, including the enactment of the Commercial Courts Law (Royal Decree No. M/93) effective from 16 June 2020, which includes IP disputes. Saudi Arabia is also a member of several international IP treaties.
• Patents: Protected under the Law of Patents, Layout-Designs of Integrated Circuits, Plant Varieties, and Industrial Designs (Royal Decree No. M/27). Saudi Arabia is a party to the Patent Cooperation Treaty (PCT), allowing for international patent applications.

Enforcement of intellectual property rights

The Saudi Authority for Intellectual Property (SAIP) is the government body responsible for registering and enforcing intellectual property rights. It was established to organize, support, sponsor, protect, and promote intellectual property in the Kingdom in accordance with global best practices.

In case of intellectual property rights infringement, the rights owner can file a complaint with SAIP, which has the power to conduct investigations and seize counterfeit goods.

Compliance risks for foreign businesses

Foreign firms doing business in Saudi Arabia must be aware of these laws and protect their intellectual property. This involves applying for patents, registering trademarks and copyrights, and ensuring compliance with all relevant laws and regulations.

Failure to protect intellectual property rights can result in significant financial losses, market share loss, and reputation damage. On the other hand, a strong intellectual property strategy can provide a business with a competitive edge and contribute to its growth and success.

Therefore, it is highly recommended that foreign businesses seek the advice of local legal experts or consultants specializing in intellectual property rights in Saudi Arabia.

• Protection of intellectual property in Saudi Arabia
• How to register and enforce IP rights

Contract law in Saudi Arabia

Contract law in Saudi Arabia is primarily based on Sharia (Islamic law), specifically following the Hanbali school of Islamic jurisprudence. This means that all contracts must comply with Sharia principles, which prohibit elements like riba (usury) and gharar (excessive uncertainty or speculation).

Enacted by Royal Decree M/191 on June 19, 2023, and effective from December 16, 2023, the Civil Transactions Law (CTL) codifies many aspects of contract and tort law. It covers contract formation, performance, termination, and dispute resolution, aligning with international business practices while adhering to Sharia principles.

Parties are free to negotiate and agree on contract terms, but these must not violate Sharia principles. Contracts are binding once signed and can only be amended or revoked by mutual consent or as per the law.

The CTL recognizes force majeure events, allowing for contract renegotiation if unforeseen circumstances make performance excessively burdensome. If no agreement is reached, the affected party can seek court intervention to amend the contract. The Saudi Center for Commercial Arbitration (SCCA) offers dispute resolution services in line with international standards.

Labour laws in Saudi Arabia

Saudi Arabia has reformed its labour market regulations to be more competitive as part of Vision 2030.

These are the labour market rules that foreign businesses will have to observe.

Saudization (Nitaqat):

The Saudization program, known as Nitaqat, requires private sector companies to employ a certain percentage of Saudi nationals based on their industry and size. This initiative aims to increase employment opportunities for Saudi citizens and reduce reliance on foreign workers.

The Labor Law:

The main legislation governing employment in Saudi Arabia is the Labor Law, issued under Royal Decree No. M/51. It covers various aspects of the employer-employee relationship, including contracts, working hours, leave, termination, and end-of-service benefits.

Employment Contracts:

Employment contracts must be in writing and can be either fixed-term or unlimited. Fixed-term contracts are more common for foreign workers, while Saudi nationals may have either type. Contracts should specify key terms such as salary, benefits, and notice periods.

Minimum Wage:

As of 2023, the minimum wage for Saudi nationals in the private sector is SAR 4,000 (approximately USD 1,066) per month. There is no minimum wage for foreign workers.

Working Hours and Overtime:

The standard workweek is 48 hours, with a maximum of 8 hours per day. During Ramadan, working hours are reduced to 6 hours per day or 36 hours per week. Overtime is compensated at 150% of the regular hourly wage.

Job Mobility:

Expatriate workers can now change jobs without their current employer’s consent after fulfilling certain conditions.

Leave Entitlements:

Employees are entitled to 21 days of paid annual leave after completing one year of service, increasing to 30 days after five years. Other types of leave include sick, maternity, and Hajj leave for Muslim employees.

Termination and End-of-Service Benefits: Terminating employment contracts requires a valid reason and adherence to proper procedures. Employees who complete one year of service are entitled to an end-of-service award (severance pay) based on their length of service.

Dispute Resolution:

Labor disputes are handled by dedicated Labor Courts, introduced in 2018 to replace the previous system of Commissions for the Settlement of Labor Disputes. These courts aim to provide more efficient and consistent resolution of employment-related cases.

Anti-corruption laws

Vision 2030 has also involved a stronger anti-corruption legal framework. The Anti-Bribery Law is the primary anti-corruption legislation which prohibits bribery of public officials and criminalises corruption in the private sector.

The Anti-Bribery Law covers both public-to-public and public-to-private bribery. Recent amendments have expanded its reach further into the private sector.

Individuals found guilty of bribery face up to 10 years imprisonment and/or fines of up to SAR 1 million. Companies can face fines and bans from public procurement contracts.

The National Anti-Corruption Commission (Nazaha) is the primary agency responsible for investigating corruption allegations. Other authorities like the Control and Investigation Board and Public Prosecution also have jurisdiction.

To stay compliant, foreign businesses should implement robust anti-corruption policies, conduct due diligence on third parties, maintain accurate records, and consider self-reporting potential violations.

The law does not provide explicit exemptions for hospitality or gifts, so caution is advised.

Multinationals operating in Saudi Arabia should also comply with relevant international anti-corruption laws like the U.S. FCPA and U.K. Bribery Act.

Three steps to start doing business in Saudi Arabia

To start doing business in Saudi Arabia, you’ll need to legally register a company in the Kingdom.

There are three main stages to setting up your business in Saudi Arabia compliantly.

1. Obtain a MISA license

The first step is to obtain an investment license from MISA.

The MISA licence is mandatory for any foreign investor interested in doing business in Saudi Arabia

The application will require you to outline the nature and size of the business activity and key financial information about the company. You need to define:

• The specific industry you are seeking to be active in
• The legal structure for your proposed entity, such as a Limited Liability Company (LLC), Joint Stock Company, or Foreign Company Branch. Foreign investors commonly prefer LLCs.
• Your investment plan, including:
  • Your experience
  • The planned size of your business undertakings
  • Your manpower requirements
  • Benefits for Saudi Arabia’s economy
  • Financial projections
• Your Saudization plan

You must then provide documents that prove the health of your finances. This includes the commercial registration of the shareholding partner plus statements for the last year, both certified by the Saudi Embassy.

MISA typically takes around one or two working days to review and approve the investment license application.

2. Set up a legal business presence

After securing the investment license, you’ll be able to apply for your Commercial Registration (CR). This certificate shows that your company is officially incorporated within Saudi Arabia’s legal structures. To get this, you’ll need to:

• Choose a suitable business structure, such as a Limited Liability Company (LLC)
• Reserve the company name with the Ministry of Commerce and Industry
• Prepare and notarize necessary documents like articles of incorporation, constitution, and personal information of directors and shareholders
• Register with relevant authorities like the Chamber of Commerce

3. Comply with local requirements

Once you have secured your MISA licence and set up your legal entity, you must comply with local requirements and regulations.

These are your most important practical considerations:

• Register with the Zakat, Tax and Customs Authority (ZATCA) for tax purposes
• Open a corporate bank account in Saudi Arabia with the required minimum deposit
• Set up a physical office premise and obtain necessary municipality licenses
• Register with the Ministry of Labor and Social Development (MLSD) to sponsor employee visas
• Register with the General Organization of Social Insurance (GOSI) for mandatory social insurance

Consider setting up a Regional Headquarters (RHQ)

Since 2021, the Saudi government’s Regional Headquarters (RHQ) scheme has incentivised multinationals to make the KSA the centre of their Middle East operations.

An RHQ is now a prerequisite for taking on government-issued contracts and accessing investment from the Public Investment Fund.

The government have also sweetened the deal for businesses with a number of incentives, including:

• Zero tax on qualifying income
• Zero tax on dividend payments
• Exemption from Saudization requirements
• The ability to issue an unlimited number of visas for employees, plus work permits for their dependents
• Waived professional accreditation requirements
• Extensive support from MISA in relocation and paperwork
• Waiver of MISA investor relations subscriptions fees

You can read more about the scheme in our full RHQ explainer here.

Speak to our dedicated Saudi expansion strategists to learn how to set up in KSA quickly, with or without an RHQ.

How to get the right visa for doing business in Saudi Arabia

Foreign nationals require a visa for doing business in Saudi Arabia. The type of visa you apply for largely depends on the nature and duration of your business activities.

Here are the primary Saudi visa options that will cover business-related activities in the KSA, and how you can secure yours:

Saudi Business Visit Visa

This visa is suitable for short-term visits to attend business meetings, conferences, or negotiations. It does not permit the holder to take up employment in Saudi Arabia.

Business visas are typically valid for 30 to 90 days, depending on the specifics of your situation.

There are three steps to getting a Saudi business visa:

Get an invitation letter

To get a KSA business visa, you will need an official invitation from a Saudi company, which must be approved by the Saudi Ministry of Foreign Affairs.

Submit the application with supporting documents

Submit a visa application to the nearest Saudi consulate or embassy, along with the required documentation. This usually includes the invitation letter, passport, photographs, and completed application forms. You can also submit applications by mail, or through an authorised agency.

Pay the visa fee

Pay the applicable visa fee, which varies depending on the type and duration of the visa.

Business visas can be issued as single-entry valid for 3 months or multiple-entry valid for 6-12 months

Saudi Investor Visa

If you are planning to invest in or start a business in Saudi Arabia, you might be eligible for an Investor Visa. This visa allows for full ownership of a local enterprise and real estate in a designated area.

It also grants two residency options:

Temporary residency – this requires a minimum investment of SAR 100,000

Permanent residency – this requires a lump sum investment of SAR 800,000

Getting an investor visa is a more complicated process than getting a Saudi business visa, with more steps.

Prepare your business plan and investment proposal

Before applying for an Investor Visa, you need to prepare a comprehensive business plan and investment proposal. This should detail the nature of the business, the amount of investment, the economic benefits for Saudi Arabia, and job creation for Saudi nationals.

Get your MISA license

The first formal step to doing business in Saudi Arabia is to apply for your MISA licence. You will need to submit your business plan, financial statements, and other relevant documents. MISA will review your application to ensure it meets all regulatory requirements and economic benefit standards.

Register your company

Once your investment license is approved, you must register your company with the Saudi Ministry of Commerce and Investment. This involves submitting various documents, including your investment license, articles of association, and proof of identity.

Submit application with supporting documents

With your investment license and company registration complete, you can apply for an Investor Visa. This application is submitted to the Saudi Ministry of Foreign Affairs, either directly or through a Saudi embassy or consulate in your home country.

The visa application process requires several documents, including:

• A completed application form.
• Passport-sized photographs.
• A valid passport with at least six months of remaining validity.
• The original and a copy of the investment license.
• Proof of company registration.
• Financial proof to support the investment

Pay the visa fee

Pay the required visa fee.

Premium Residency Visa

The Premium Residency Program, sometimes known as the Saudi Green Card, offers a number of visas to high-value investors, entrepreneurs and skilled professionals.

It has two core residency options:

• Limited Duration Residency – can be renewed annually for a free of SAR 100,000
• Permanent Residency: – available for a one-time fee of SAR 800,000

The various visa products are designed to provide avenues to residency for a wide spectrum of international talent:

• Special Talent Residency: For healthcare and scientific professionals.
• Gifted Residency: For individuals with exceptional achievements in culture, arts, or sports.
• Investor Residency: Requires a minimum investment of SAR 7 million and creation of at least 10 jobs within the first two years.
• Entrepreneur Residency: Divided into two categories based on investment amount and job creation.
• Real Estate Owner Residency: Requires ownership of real estate worth at least SAR 4 million.

Our Premium Residency Visa explainer provides more information about the different routes and how you can apply for each of them.

Saudi Temporary Work Visa

The Temporary Work Visa replaced the previous Work Visit Visa in May 2023. It significantly opens up routes into the Kingdom for a much wider set of short-term workers.

It grants foreign workers multiplie entries within one year of up to 90 days at a time, with the option to extend for another 90 days.

Employers process applications on behalf of their temporary prospective hires via the Ministry of Human Resources and Social Development’s online Qiwa platform. The application involves the following steps:

1. Log in to the organisation’s account.
2. Select temporary work visa service from the e-services option.
3. Click on Submit temporary work visa request.
4. Fill in the details on all the fields.
5. Submit the request for a temporary work visa.

You can learn more about this visa route in our Temporary Work Visa explainer.

You can also contact our Saudi immigration experts to launch your Saudi business visa or residency application.

What is Saudi Arabia’s corporate tax system?

Saudi Arabia follows a territorial basis of taxation, meaning only income sourced within the Kingdom is subject to tax. This system differs significantly from many Western countries, where residents may be taxed on their worldwide income.

Corporate tax rate

The standard corporate income tax rate for foreign companies in Saudi Arabia is 20%. This rate applies to the net income the business makes within the country. Necessary expenses to earn this income can typically be deducted

Withholding tax

Non-Saudi and non-GCC individuals conducting business in a partnership are subject to withholding tax on their share of the profits. The withholding tax rates vary depending on the type of income, ranging from 5% to 20%.

Personal income tax

Saudi Arabia does not levy taxes on personal income. This means individuals do not need to pay tax on their earnings, whether from employment, self-employment, or investments. This tax-free personal rate allows workers in Saudi Arabia to keep a larger portion of their earnings.

Wealth and property taxes

There are no wealth taxes in Saudi Arabia, including taxes on the total value of a person’s assets or capital gains. There’s also no property tax, making it more affordable for individuals and businesses to own property in the Kingdom.

Saudi VAT

Businesses should be aware that a 15% Value Added Tax (VAT) is applied to most goods and services in Saudi Arabia. Certain goods and services are exempt from this tax or are subject to a zero rate.

Tax Incentives for Regional Headquarters (RHQs)

One of the biggest developments in Saudi Arabia’s tax regime is the 30-year tax relief package for multinationals who establish their RHQs in the Kingdom. This initiative offers a 0% corporate tax rate and 0% withholding tax on approved RHQ activities for three decades, starting from the date the RHQ license is issued.

Incentives for investment in less-developed Regions

Saudi Arabia offers investment tax concessions to promote balanced regional development. This applies to six less-developed regions: Ha’il, Jazan, Najran, Al-Baha, Al-Jouf, and the Northern Territory.

These incentives include:

• Tax Credits: Up to 50% of the annual training expenditure on Saudi employees and 50% of the annual salaries paid to Saudi employees can be credited against the annual tax payable.
• Additional Deductions: Investments exceeding SAR 1 million and employing more than five Saudi nationals in technical or administrative roles can qualify for further tax deductions.

Challenges of doing business in Saudi Arabia

Thanks to Vision 2030, doing business in Saudi Arabia is a more inviting prospect than it has been in many years. However, it also comes with a unique set of challenges for foreign investors. Those used to operating within Western European and American environments should prepare themselves to work in a very different context, with highly distinct ways of doing business.

Understanding these challenges is a prerequisite for successfully doing business in KSA.

Cultural and social norms

One of the most significant challenges is adapting to the local culture and social norms. Saudi Arabia has a rich Muslim heritage, and Islamic law (Sharia) governs many aspects of life, including business practices and finance.

Foreign businesses must respect local customs, such as prayer times, and understand the importance of building strong personal relationships before engaging in business transactions

Missteps in cultural etiquette can hinder business negotiations and relationships.

Legal and regulatory environment

The legal and regulatory landscape in Saudi Arabia can be confusing. The country has made strides in modernising its corporate regulations to promote transparency and corporate governance, but foreign businesses still face bureaucratic hurdles. Obtaining business licenses and permits can be time-consuming, normally involving extensive documentation and a tight compliance operation.

Saudization and employment regulations

Saudi Arabia’s Saudization policy mandates that businesses employ a certain percentage of Saudi nationals. This policy aims to reduce unemployment among Saudi citizens but can pose challenges for foreign companies, especially in finding qualified local talent. Additionally, the process of obtaining work visas for expatriates can be lengthy and complicated, further complicating staffing efforts

High start-up costs

Starting a business in Saudi Arabia can be expensive. Foreign investors must budget for significant start-up costs, including business license fees, office rentals, and local employee wages.

The requirement to deposit paid-up share capital in a Saudi bank account before the company becomes operational adds to the financial burden

Bureaucracy and inefficiency

Government departments and banks in Saudi Arabia are often slow and inefficient. When doing business in Saudi Arabia, prepare for delays in obtaining necessary approvals, licenses, and other documentation.

The concept of wasta (using intermediaries to expedite processes) is prevalent, and crossing these bureaucratic channels can seem frustrating for foreign investors.

Local content requirements

Vision 2030 stresses local procurement in various sectors. Programs like Saudi Aramco’s In-Kingdom Total Value Added (IKTVA) and other local content requirements mandate that foreign firms source a significant portion of their goods and services locally. This can be challenging for companies that rely on international supply chains.

Political and economic risks

While Saudi Arabia is politically stable, regional tensions and economic fluctuations are ever-present risks. The Kingdom’s economy is heavily dependent on oil, and fluctuations in oil prices can impact economic stability. Geopolitical tensions in the wider Middle East can also affect business operations and dampen investor confidence.

Environmental and sustainability challenges

Saudi Arabia faces significant environmental challenges, including desertification, water scarcity, and pollution. Businesses operating in the Kingdom must comply with environmental regulations and contribute to sustainability efforts, which can involve additional costs and operational adjustments.

Start doing business in Saudi Arabia with expert help

Despite these challenges, the prizes on offer from Vision 2030 will prove hard to resist for many businesses.

As you can see, doing business in Saudi Arabia still requires you to contend with a lot of bureaucracy and procedure. If you don’t want to do it alone, you don’t have to. Our dedicated legal team on the ground will handle every legal and administrative step in your Saudi expansion. You’ll be able to track and monitor it all on our cutting-edge, AI-enabled tech platform, with all the latest regulatory information at your fingertips.

Let’s get started on your Saudi expansion plan today.