Company Formation in Saudi
General information about Company formation In Saudi Arabia
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Foreign Investment Policy
Foreign capital is regulated by Foreign Investment Regulations, which were issued in April 2000 as part of the government’s foreign investment policy. These regulations controlled the Foreign Capital Investment Code issued in 1979. The Law requires any company in the Kingdom of Saudi Arabia with foreign shareholders to obtain a foreign capital investment license. Licensed companies enjoy all privileges and incentives offered to wholly Saudi owned companies, like ownership of freehold property that is necessary to carry out the licensed activity, the privileges granted by the anti-double taxation treaties to which the Kingdom of Saudi Arabia is a party, a law prohibiting against expropriation or confiscation of investments, rights to repatriate profits, etc.
Branches of foreign companies in the Kingdom of Saudi Arabia are subject to the provisions of the Regulations for Companies and to the laws and regulations applicable to the business set up. A foreign company that opens a branch in the Kingdom of Saudi Arabia is required to deposit security amount to a local bank and such amount is blocked until issuance of the certificate of registration for such branch by the Ministry of Commerce and Industry.
Saudi Arabic organization development can be difficult, if not effectively prepared, or without the assistance of a professional services firm. However, the Saudi Arabic regulators have enhanced techniques for organizational development to assist and motivate business owners to form their organization in Saudi Arabic. Development Company in Saudi Arabia is an effective way to work in the Empire and the Gulf Cooperation Council (GCC). The following information will help to determine whether the Saudi company formation is the optimum corporate structure to fulfill your Middle East business objectives.
Advantages of Saudi Arabia Company Registration
- Saudi Arabia company formation is the best possible corporate structure for international business owners to work in Saudi Arabia. A Saudi company can bid for local agreements, rent office property, and obtain visas for staff. According to the World Bank’s Doing Business 2012 Survey, Saudi Arabic is favorably rated as the Twelfth best legislation with ease of performing. Laptop computer measures factors including business start-up procedures, time, cost and minimum capital required to start a business. The World Economic Forum also ranks Saudi Arabia positively at 18th in its Global Competitiveness Report 2012-2013.
- The government-run Saudi Arabia General Investment Authority (SAGIA) provides incentives to encourage Saudi Arabia company formation.
- Saudi Arabia company formation permits 100% foreign investment in most sectors. All foreign investment projects require a government license
- The minimum capital investment for forming a Limited Liability Company (LLC) in Saudi Arabia varies depending on the business sector of the company. A contracting company requires SR500,000 (approximately US$133,000), while a company in agriculture requires SR25,000,000 (approximately US$6.67million). More information can be found on the Saudi Investment Support Centre website..
- As an aspect of its program to create non-oil sectors, the govt. provides various tax and other rewards for international traders. For government-approved projects with at least 25% Saudi participation, foreign investors in agricultural and industrial ventures are eligible for a 10-year exemption from tax..
- High oil prices are driving economic growth in the Kingdom, presenting opportunities for investors considering Saudi Arabia company formation.
- After incorporating a company, it is easy to start corporate bank accounts all over the world. Healy Consultants perform with worldwide acknowledged financial institutions such as HSBC, Conventional Chartered and Citibank to provide business banking consideration services..
Steps to Obtain an Industrial License
- Identify joint venture partner and negotiate a joint venture Agreement
- You just Visit the Industrial License Department at the MIE and establish that licenses are still available in relevant product areas.
- When you obtained provisional approval from the MIE, obtain an application form from the foreign capital investment bureau.
- You have to submit application to FCIB Within six months, in Arabic, but with a copy also in English, together with other documentation.
- It may request further information, depending upon the thoroughness of original application
- FCIB submits its report plus original application to the Foreign Capital Investment Committee for a decision.
- Industrial license is issued and is valid for 6 months. It can be renewed for a further 6 months. If an application is rejected, an appeal can be made to MIE and a new application submitted within 3 months of the rejection.
- Apply for registration and incorporation of the company at the Ministry of Commerce within one month of license issue Articles approved, published in the official gazette and notarized. Commercial registration certificate given with entry into the commercial registry at the Ministry of Commerce.
- Apply for Funding from SIDF if required. Find a land on an Industrial Estate (MIE).
- If approved, then within 4 months detailed drawings and designs of plant should be submitted to Saudi Consulting House for approval via Engineering and Projects Department, MIE. Also within ten days the site should be visited and reservation of land made with the Industrial Estate Manager.
- On approval of factory plans, lease agreement to be signed within 6 weeks with Manager of Industrial Estate. Possible request for customs duty exemptions for importing equipment/raw materials from the Protection and Encouragement of Industry Department at MIE.
The companies Law recognizes mainly as given below. General partnership & Limited partnership
This is known as group of company. There will be more than two partners in the management team. A limited partnership consists of at least one general partner who is liable for the debts of the partnership to the full extent of his assets .
Partnership limited by shares
This considered as another type of business set up. In this form of limited partnership, which must have at least one general partner and four limited partners, the interests of the limited partners consist of negotiable shares of equal value.
Limited liability Company & Cooperative company
A limited liability company is a private entity formed by two or more partners who are liable for company debts to the extent of their contributed capital. The company may not include in its objects the conduct of banking, insurance or savings. Inter alia, requirements are placed on the company in respect of audits, annual general meetings and filing of accounts. A limited liability company or a joint stock company may be incorporated as a cooperative for the purposes of achieving specific objects such as reductions in the cost, the selling price of certain products and services or improvements in their quality
Variable capital company
As the phrase indicates, the investment of such an organization may be different according to organization’s Memorandum and Content of Organization. The investment may be improved either by further efforts from the current associates or by the entrance of new associates, and it may be decreased either by the drawback of associates or by decrease of their investment.
Joint stock company
A joint stock company or corporation includes five or more investors who are responsible for the financial obligations of the organization to the level of their investment participation. The organization may be integrated only upon the acceptance of the Reverend of Industry or upon the issuance of a Royal Decree.
Variable capital company
As the phrase indicates, the investment of such an organization may be different using the organization’s Memorandum and Content of Organization. The investment may be improved either by further efforts from the current associates or by the entrance of new associates, and it may be decreased either by the drawback of associates or by a decrease of their investment.
A limited liability company or a joint stock company may be integrated as a support or for the requirements of accomplishing particular things such as discount rates on the cost, the price level of certain goods and solutions or upgrades in their quality. Investment is variable and it must be separated into stocks of equivalent value with the par value of each share.
The joint stock company is generally only available when it is imagined that stock will be released to the average person in the future. This has been used for financing and projects relating to the exploitation of natural sources. In such cases the combined inventory organization is the suggested type. For most traders, however, the LLC is the real way of local development. As mentioned above international companies wanting to do business in the Empire may also set up a division which as with most other types of international financial commitment drops within the opportunity of the Foreign Investment Rules. The division is also topic to the regulating power of the Secretary of state for Industry.
The Government Tender and Procurement Law control Government tenders and procurement in the Kingdom of Saudi Arabia. The Kingdom of Saudi Arabia has also acceded to the Unified Rules of Granting Priority in Government Procurements to National Products and Products of National Origin in the GCC. The Capital Markets Law act as the regulator and supervisor of capital markets in the Kingdom of Saudi Arabia. The CMA has already implemented ten major regulations, namely
- Listing Rules,
- Offers of Securities Regulations,
- Authorized Persons Regulations,
- Securities Business Regulations,
- Market Conduct Regulations,
- Corporate Governance Regulations,
- Investment Funds Regulations,
- Real Estate Investment Funds Regulations,
- Merger and Acquisition Regulations,
- Anti-Money Laundering and Counter-Terrorist Financing Rules.
There are Import and Export regulations. Anti Cover-Up Law and competition Law come under the title of business setup.
Saudi Arabia’s tax system is promulgated by the central government through royal decrees, ministerial decisions and circulars of the Department of Zakat and Income Tax (DZIT) of the Ministry of Finance and National Economy.
The income tax
The income tax rate is 20 percent for all taxpayers.. The NGIT rate for any taxable year is determined based on the internal rate of return on the cumulative annual cash flows of the taxpayer from the natural gas investment activities. Based on the NGIT rates table, the NGIT rate can range from a minimum of 30% for an internal rate of return of 8% to a maximum of 85% for internal rates of return of 20% and above. A tax rate of 85% is applicable to the taxable income from oil or other hydrocarbon production activity in the Kingdom.
Zakat is known as Islamic tax. Zakat levied on Saudi Arabian and GCC natural persons, wholly Saudi Arabian or GCC-owned entities, and Saudi Arabian or GCC shareholders of companies. The rate of zakat is 2.5%..
Payments made to non-residents by a resident or a permanent establishment of a nonresident, that are from a source in the Kingdom, are subject to withholding tax. Withholding tax rate as follows:
- Five per cent of rents
- 15 percent of royalties
- 20 percent of management fees
- Five percent for payments for air tickets, airfreight and maritime freight
- Five percent for payment of international telecommunications services and
- 15 percent for any other services
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