1) Overview

The Saudi Arabian government first enacted the Foreign Investment Act in 1956
Since then, the Foreign Investment Act was completely revised in April 2000 to join the WTO, and additional revisions were made in March 2014. In 2016, Saudi Vision 2030, a mid- to long-term economic development policy to reduce dependence on the oil sector and create new economic growth engines, was declared, and further revised in February 2017 to strengthen investment in foreign manufacturing.

In the Foreign Investment Act revised in February 2017, 100% foreign shares were allowed in all fields except for the national protection industry
Previously, it was essential for Saudi partners to hold at least 25% of their shares
National protection industries that limit 100% of foreign investment include oil, gas, munitions, security, Medina and Mecca real estate purchases, pilgrimage-related projects, publishing, broadcasting, public transportation, hospitals, fisheries, cancer centers, and blood banks
Except for previous industries, the main conditions for foreign investors to hold 100% shares in the general industrial sector are as follows.

Investor or parent company listed on Sauna International Stock Exchange 2 Revenue above $18.66 million (70 million riyals) over two years Total assets of $26.66 million or more (100 million riyals) 1 YEAR NET PROFIT OF $13.33 MILLION (50 MILLION RIYAL) OR MORE Possession of at least three corporations or branches outside the country 10,000 or more investors or parent company employees, etc

Even after allowing 100% of foreign investment in 2017, the Saudi government has been making various efforts to attract foreign investment as part of the "Saudi Vision 2030" policy
As part of this, the Saudi Investment Authority (SAGIA), established in April 2000, was promoted to the Ministry of Investment in Saudi Arabia (MISA) in February 2020 and is focusing its capabilities on attracting foreign investment by unifying investment, approval, and permission functions.

On the other hand, although the Saudi Ministry of Investment (MISA) has been created, it is true that there are many difficulties in entering investment compared to advanced countries due to opaque administrative tasks
In some cases, investment is indirectly restricted, such as demanding ridiculously high capital for some industries, such as the construction industry, or refusing investment approval without any special reason
In particular, not only companies but also third-country companies are suffering because they do not disclose the exact reason for rejection of approval and do not notify companies in a timely manner whether to revise the investment law.

2) Institutions related to foreign direct investment (Saudi Investment Department)

The department in charge of applying for and approving foreign investment is the Saudi Ministry of Investment (MISA)
It was promoted from the Saudi Investment Authority (SAGIA) to the Ministry of Investment (MISA) in February 2020 and serves as a central government department dedicated to foreign investment permits and investment attraction, and its main tasks and contacts are as follows.

Major Responsibilities

Contact Information

The Saudi Ministry of Investment (MISA) provides the following services to continue to attract foreign investment after COVID-19.

Respond within 48 hours of receiving investment-related inquiries

Support for the connection of government officials related to foreign investment Establishment of a dedicated team to receive and resolve investor difficulties Saudi investment permit issued within 3 hours (if the required documents are completed) Operation of a commercial arbitration center to prevent disputes with Saudi partners Investor license period extended to up to 5 years

Regarding investment applications and permits, working procedures are conducted under the supervision of the Ministry of Investment (MISA)
There are five investment department offices in Riyadh, Jeddah, Alcova, Medina and Zubale, where they distribute formal investment application forms and carry out all licensing and licensing tasks
In addition, employees of each government department in charge of the permits or approvals that foreign investors need to receive before applying for investment are stationed to provide investment-related services
The main services of government resident staff are as follows.

The Ministry of Commerce employee issues commercial registration documents when the investment application is approved Employees of the General Directorate of Passports, the General Administration for Recruitment, and the Labor Office of the Ministry of Labor and Social Affairs issue a labor permit and a residence permit after verifying that the investment application meets the conditions of Saudi employment Employees of the Zakat and Income Department of the Treasury confirm that they are ready for accounting and tax reporting Employees of the Saudi Industrial Development Fund (SIDF) confirm the possibility of supporting the fund if it is a development project

Main Sectors for Investment Incentives

Recently, Saudi Arabia has been promoting industrial diversification by fostering the manufacturing industry to improve the economic structure that is highly dependent on mineral resources
Accordingly, the government is actively making efforts to transfer technology in the manufacturing sector by attracting foreign investment
The Saudi government has added solar energy to automobiles, metal processing, construction materials, packaging materials, and consumer electronics clusters with high added value and employment inducement effects, designated them as the National Industrial Clusters Development Program (NICDP)
The Saudi Arabian Investment Authority (SAGIA) has selected Energy, Transport and Logistics, Information Communication Technology, Health, Life Science, and Human Capital as key sectors and is actively attracting investment.

In the case of Saudi Arabia's ICT market, it is the largest ICT market, accounting for more than 50% of the entire Middle East, and companies with strengths in the information and communication technology sector are expected to expand their opportunities to enter the e-government and e-learning markets.

Other Fields of Interest

• Insurance and finance: Allows foreign insurance companies to enter and establish commercial domestic insurance companies (stock companies, unions, corporations, or foreign joint ventures), but allows up to 60% of foreign ownership
  At the time of joining the WTO in December 2005, foreign insurance companies were allowed to switch to Saudi Arabian companies or foreign corporate branches within three years
  It allows the establishment of commercial banks in the form of branches of local corporations, corporations or international banks, and has expanded the limit on foreign assets held by financial sector joint ventures to 60 percent
  On the other hand, financial services are only allowed to commercial banks, and asset management and advisory services are also allowed to non-commercial financial institutions.

• Telecommunications: expanding the foreign equity ratio in the telecommunications sector to 70 % by the end of 2008, covering both basic and value-added telecommunications services, and public telecommunications services are only available to corporations.

• Distribution sector: Regulations have been phased out since 2009, except for some product distribution.

Saudi Regional Headquarters Attraction (RHQ) Policy

• At the 21.1.27-28 Future Investment Initiative Forum (FII), the crown prince officially announced his policy of attracting regional headquarters (RHQ)
  The main content is that companies without headquarters in the Middle East in Saudi Arabia will not be able to participate in government-ordered projects from 24, which is considered Saudi Arabia's strategy to build manufacturing infrastructure in the kingdom.

• Incentives include a 50-year exemption from corporate taxes and a 10-year easing of the Saudization ratio when entering a government-designated special economic zone, but many companies are expected to re-establish their entry strategies in line with the follow-up announcement.

• There was a government announcement in early 23 that there would be restrictions on bids for companies that were not established among local headquarters, but the scope of the bill is still on the watch as no enforcement ordinance or detailed enforcement rules have been announced.

Saudi Arabia is located in the heart of the Middle East and North Africa (MENA) region and is the largest market in the GCC region with a population of 35 million
Although there is slower administrative processing and work uncertainty compared to advanced countries, Saudi Arabia ranked 62nd among 190 business-friendly countries according to "Doing Business 2020" released by the World Bank
The government is implementing policies to encourage foreign investment, and foreigners can invest in all areas except for 15 areas (which can be found in the National Information 'Major Investment Law'), including several areas of publishing and media services, inland transportation, and upstream oil production
In addition, in recent years, it has been striving to attract and support foreign investment by reducing bureaucratic practices and catering activities, simplifying investment procedures, and providing various incentives
In the past, most incentives were provided mainly for manufacturing or oil production companies
However, in recent years, the Saudi government has provided various incentives for the development of local industries, thereby attracting foreign investment and promoting the development of specific industries such as tourism and sports.

Financial Incentives

Saudi Arabia does not have separate taxes on personal income and Saudi companies (paid 2.5% for Zakat, a religious tax concept), but imposes a 20% corporate tax on foreign-invested corporations
Losses on the balance sheet can be carried forward indefinitely, and foreign investors can also use the following regional or international financial programs.

• Arab Fund for Economic and Social Development (AFESD): financial support programs for economic and social development projects in Arab countries

• Arab Monetary Fund: Facilitating the development of Arab financial markets and financial transactions between Member States, supporting consulting on resource investment in Member States

• Arab Trade Financing Program: Providing medium- and long-term loans to individuals or institutions for personal and commercial transactions

• Inter-Arab Investment Guarantee Corporation: Providing export credit for insurance, commercial and non-commercial risks for investments between Arab countries

• Islamic Development Bank: Capital and grants to promising projects and companies, etc

• The Human Resources Development Fund: Support training and recruitment of Saudi workers

• Others: provision of competitive industrial public rates in electricity, water, land lease, etc., priority allocation of natural gas, provision of research grants from King Abdullah University of Science and Technology (KAUST) and the Saudi Advanced City Development Committee (KACST)

In addition, the government is promoting the development of the manufacturing industry by operating the SIDF (Saudi Industrial Development Fund)
SIDF provides financial support in the manufacturing sector not only to Saudi local companies but also to foreign companies
When investing in the manufacturing industry, up to 50% of the investment amount will be loaned at long-term low interest rates, and foreign-invested companies can also be supported regardless of investment methods such as solo and joint ventures
However, it should be noted that loan benefits can only be received when investing in the manufacturing industry
The maximum loan amount is up to 75% of the project size, and management fees of about 2% per year are collected, and the loan period is up to 20 years, but in reality, it is about 9.5 years on average
When applying for a loan, workers' employment and training plans, construction techniques, basic facilities, prices, etc. shall be submitted
It is a principle that the loan is decided within four months when the documents are completed, but there may be cases where the deadline is exceeded.

Since May 2020, the government and public financial institutions have implemented a number of corporate financial support programs to ease the impact of the private economy caused by COVID-19.

• Saudi Finance Ministry (MOF): $47.2 billion in corporate support policy, of which $37.4 billion is promoted directly in financial forms such as loans

• SAUDI CENTRAL BANK (SAMA): $8 BILLION LOAN PAYMENT DELAYED, $13.3 BILLION LOAN SUPPORT PROGRAM FOR SMALL BUSINESSES

• Ministry of Industrial Property Resources (MIM): 25% exemption from factory operating expenses (maintenance expenses such as electricity and water taxes) of all enterprises operating in the Industrial Complex

• Human Resources Development Fund (HRDF): 30% of salaries for Saudis working in small and medium-sized enterprises for one year from July 2019 (for monthly salary of USD 1,000 to 4,000; maximum subsidies of USD 800 or 50% of salaries per person)

Incentive by Industry

In the case of the export industry, there is no direct financial support from the government, but indirect support such as port tax reduction or exemption for export companies is possible
It does not give incentives to specific industries, and general incentives vary somewhat depending on the industry
In addition, the 6th Economic Development Plan gives priority to mining, exempts corporate tax for 10 years when investing in industrial and agricultural sectors (5 years in the service sector), and exempts tariffs when importing machinery, equipment, and raw materials.

Regional Incentives

Saudi Arabia is creating and operating industrial cities or manufacturing industrial complexes in major regions
If you move into an industrial city (industrial complex), you can receive special benefits for factory sites, electricity, and water bills
Currently, there are 35 industrial cities (as of May 2022) under The Saudi Industrial Property Authority (MODON) in major Saudi cities such as Riyadh, Jeddah, Dammam and Jubale
The industrial city has a total of 3,000 factories and 300,000 workers, with a total of $66.7 billion worth of foreign investment
In addition, two large industrial cities, Jubale and Jambu, are in operation under the Royal Commission
According to the Saudi Ministry of Commerce and Industry, about 50% of Saudi foreign investment is concentrated in the Jubale Industrial Complex
The Saudi government will actively attract foreign investment to the industrial complexes in the future
The Ministry of Commerce and Industry has set up small industrial zones in 16 regions, including Dammam, Jeddah, Mecca, Qasim, and Al-Asa, to support the entry of cheap industrial complexes for 20 years
In addition, the Saudi government provides tax incentives for hiring and providing training to six underdeveloped areas, including Ha'il, Jasan, Najran, Al-Baha, Al-Jouf, and Northern Territory
The special tax rate is applied for 10 years after the start of the investment project.

• Saudi workers' education and training expenses equivalent to 50% tax deduction

• Tax credit equivalent to 50% annual salary paid to Saudi workers

• Additional deductions for carrying out projects worth more than 1 million Saudi Arabian Riyals ($270,000) or hiring more than 5 Saudis for technical or managerial positions for more than a year

The Saudi government has recently invested $60 billion to build four new cities, including King Abdullah Economic City (KAEC) in Rabigh, JEC in Jazan, Prince Abdul Aziz bin Mousaed Economic City (PABMEC) in Hail, and Knowledge Economy in Media
The project is due by 2025, and the Saudi government expects various effects from the project, including economic diversification, creating more than 1.3 million jobs, building residential complexes for 4 to 5 million people, and contributing $15 million worth of GDP.

Other

• Saudi Industrial Development Fund (SIDF) loan benefits for plant joint ventures (long-term, low-interest loans up to 50% of total capital, 15-year repayment)

• Support for cheap occupancy of industrial complexes ($0.26/㎡)

• Duty Free: Customs Clearance for Production Raw Materials and Facilities

• Export benefits: 50% reduction in port usage fees, 10-day warehouse storage fees, etc. (However, foreign investment is restricted in national security-related areas such as power and transportation, major public facilities management, and strategic industries such as crude oil exploration and upstream)

• In the case of some items, 20% protection tariff is imposed on imported products of the same type under certain conditions on products produced by joint ventures

Industrial Sector

Crude oil exploration, drilling and production (excluding services related to the mining sector in the CPC5115+883 list as specified by the International Industrial Classification Code) military equipment, equipment, and uniform manufacturing Private explosives manufacturing industry

1) the service sector

Real estate brokerage in Mecca and Medina (Islamic Holy Land) Travel information service related to pilgrimage (Hajj and Umrah) Vocational recruitment and employment services including local vocational offices Real estate brokerage business Printing and publishing business (excluding some items prescribed by the relevant international classification standards)

• Pre-processing printing (88442), printing press (88442), painting and calligraphy (84501), photography (875), radio and television broadcasting studios (96114), overseas press offices and correspondents (962), promotions and advertising (871), publication (8644), press services (88442), computer software production, sales and lease (88442), and distribution services (875) are allowed Some consignment businesses prescribed by international classification standards (International Industrial Code 621) Audio-visual and media services Land transport services excluding rail passenger transportation between cities Some of the services provided by midwives, nurses, physical therapy services, and quasi-doctors according to international classification h (International Industrial Code 93191)

Fishing

• As of March 25, 2007, wholesale and retail distribution services, including film videotape distribution services, drug retail and private pharmacies, commercial agents, telecommunications services, satellite transmission and reception services, intercity train passenger transport services and air transport services have been lifted from prohibition

Special Economic Zones and Free Trade Zones

ㅇ King Abdullah Financial District(KAFD)

The King Abdullah Financial District is one of the largest mega projects in Saudi Arabia and is under construction on a site north of Riyadh with an investment of $7.8 billion, and will provide various occupancy environments such as commercial, residential, medical, retail and entertainment
Within the GCC, neighboring countries such as Dubai, Qatar, and Bahrain have large-scale financial centers aimed at becoming financial hubs in the Middle East, while Saudi Arabia is also rushing to make KAFD the largest financial center in the Middle East
In addition, KAFD plans to occupy Dubai's GCC financial hub by positioning Saudi Arabia's stock exchange Tadawul and Capital Market Authority (CMA) headquarters, financial institutions such as banks, and financial academies
In addition, exhibition halls, conferences, and hotels will be moved in, and it is expected to become a comprehensive financial center with various auxiliary facilities through the construction of recreation centers, waterways, parks and sports facilities
In the future, bidding will begin for various financial institutions, museums, aquariums, and financial academies.

It was designated as a special business zone to attract companies with visa exemptions and competitive regulations, including financial incentives, but construction has been delayed due to exceeding construction costs in 2018 and the global economic downturn such as COVID-19
Most companies are expected to move in within 2022, and subways that can be boarded directly within the financial district are also scheduled to operate normally as soon as the pilot operation is completed, making it a future business-oriented district.

ㅇ King Abdulaziz City for Science and Technology(KACST)

It was established to develop and promote science and technology to move Saudi Arabia to a knowledge-based economy
It also functions as the National Academy of Sciences of Saudi Arabia, and its main role is to promote funding for Saudi Arabia's innovation and external research
KACST is in charge of promoting and supporting Saudi Arabia's science and technology development in connection with a number of global companies such as Lockheed Martin, Intel, and Thomson Reuters in the United States, and is in charge of patent approval in Saudi Arabia
KACST is currently promoting the construction of a science and technology city in connection with a technopark in Taip City near Jeddah, Saudi Arabia's second-largest city.

ㅇ King Abdullah Economic City(KAEC)

King Abdullah Economic City (KAEC), located north of Jeddah, is under development focusing on the port industry, logistics industry, light industry and service industry
Basic infrastructure and residential facilities are being completed, and industrial infrastructure and leisure infrastructure are under construction
The 168 million㎡ site can accommodate 2 million people and expects to create 1 million jobs in various fields
According to the Saudi Arabian General Investment Authority, KAEC is expected to be a port city with world-class industrial complexes, educational facilities, and tourist complexes

2023 In 2023, four new special economic zones were designated

The government has announced new special economic zones located in Riyadh, Zazan, Ras Alkair and KAEC
It plans to designate specialized industries for each region to provide services and investment incentives suitable for each industry group entering the market, thereby minimizing entry barriers for willing companies
Incentives include an exemption from import duties on standby goods in the SEZ due to a corporate tax rate of 5% for up to 20 years, a exemption from VAT on goods traded within or between the SEZ, and the possibility of hiring foreign workers without Saudization for the first five years
KAEC will focus on automotive, consumer goods, ICT, pharmaceutical, medical technology, and logistics, Las Alkair will focus on shipbuilding and league platforms, Zazan will focus on food processing, metal, and logistics, and Riyadh will focus on air logistics-linked industries such as consumer goods, computers, pharmaceuticals, medical devices, aviation parts and precious metals.

Riyadh

Riyadh is the capital of Saudi Arabia and is a political, administrative, and financial center
As of 2022, 7.54 million people, or about 21% of Saudi Arabia's total population, reside
King Khalid International Airport is located near the northeast, about 40 km from the city center
The Olaya area is the center of Riyadh, and offices of major companies are located, including landmark buildings such as Kingdom Tower
King Fahad Road runs north and south through downtown Riyadh
Dawadmi, Zulfi, Majma and Shaqraa, including the agricultural city Al-Kharj and the ancient city Darraiya, are included in the Riyadh region, and are expected to grow into megacities with a population of more than 8 million by 2030.

Riyadh is actively investing in expanding King Khalid International Airport, introducing a $7 billion to $8 billion Riyadh Metro, and a bus system to meet logistics and transportation demands in preparation for the urban economy's growth, air pollution and continued population growth
In the case of Riyadh Metro, construction began in October 2013 and was being completed in September 2018, but construction was delayed for a considerable time in the aftermath of low oil prices
It has been in trial operation from the end of 2021 to the present of 2022, and aims to operate normally in all sections during this year
The project is led by the Spanish company FCC, with Samsung C&T and Strukton and Freysinet Saudi Arabia participating
Riyadh is also known as a more religiously conservative city in Saudi Arabia than the cosmopolitan Jeddah, industrial city Dammam, Islamic holy sites Mecca and Medina, but various cultural events are being held due to the reform policy of Crown Prince Mohammed bin Salman (MBS), who took power in 2017.

The Riyadh Season Festival was held from the end of 2022 to the beginning of 2023, and an area for the Riyadh Season Festival was built in Boulevard in Riyadh, starting with performances and sports games, to create a space for various restaurants, games, DJs, and plays
The space is still in operation after the Riyadh season.

West (Jedah, Mecca, Medina)

The western part of Saudi Arabia developed around Jeddah and the two holy sites of Islam, Mecca and Medinah
In particular, Jeddah is Saudi Arabia's second-largest city after Riyadh, and has a population of 3.5 million
The western region has a population of about 6 million, and Mecca is a city visited by 15 million pilgrims every year
Pilgrims to Hajj and Umrah spend about $30 billion each year, and the average room occupancy of hotels in Mecca is 90%. In addition to Jeddah, Mecca, and Medina, cities such as Taif, Rabigh, and Qunfuzah belong to western Saudi Arabia
Recently, the Saudi Arabian government has been actively investing in transportation infrastructure in the western region
With the approval of the ministerial council, the Jeddah regional public transportation system is being implemented to build three train lines, 816 buses and 10 sea transportation stops worth about $12 billion
Due to the Saudi government's recent policy to foster the cultural and entertainment industry, the Jeddah Season Festival was held in July 2019.

Following the Riyadh season, which was held first, it is underway as of 2023, and various activities such as safari tours, fireworks, yacht clubs, and amusement parks are combined to continue the success of the Riyadh season.

Eastern Region (Dammam, Alcova, Daran)

The eastern part of Saudi Arabia consists of Dammam, Al-Khobar, Jubail, and Darhan
In particular, Dammam is the largest port in the Gulf, followed by Jeddah Port in the Red Sea in the Arabian Peninsula, King Abdulaziz Port, and King Fahd International Airport, one of the four largest airports in Saudi Arabia
The eastern region is home to Damam 7, where Saudi Aramco, the state-run oil company, first developed an oil field in Saudi Arabia in April 1938
The city was formed around this Damam 7, and Aramco is the center of the economy in the region.

ㅇ Dammam

It is the center of the Dammam Metropolitan area, where oil subsidiaries and related service industries are concentrated from oil companies to catering companies, and has grown rapidly since the discovery of crude oil in 1938
Compared to the size of the city, there were many complaints from residents due to smog, traffic congestion, and lack of road systems, but the city has recently been renovated and actively invested in tourism industries such as Half Moon Bay and Coral Island
Damam Port, a major port in the eastern region, is located, and like Jeddah, the volume of traffic is high due to the recent rapid growth, but so far, it is at a level that can be controlled.

ㅇ Al-Khobar

Alcova, a small fishing village before the discovery of oil fields, developed significantly after Aramco's activities expanded and Aramco's oil export terminal in the northern part of Dammam
In addition, since the completion of the King Fahd Causeway, which runs through Alkova and connects Saudi Arabia and Bahrain, Alkova has been developing as a center of trade.

ㅇ Dhahran

Daran is the central city of Saudi Arabia's oil industry, where the headquarters of Saudi Arabia's oil-related companies, including Aramco, are located
Ras Tanura, the world's largest oil port, is located, and King Fahd University of Petroleum and Minerals, one of Saudi Arabia's top universities, is located
For about 80 years, Aramco's headquarters have been located in Daran, forming Aramco Camp, the residential area of the Aramco company.

Limited liability companies are the most preferred form of entry by foreign investors, and it is easy to establish and manage the company, and the investor's responsibility is limited according to the investment ratio
Contrary to GCC regulations, the Saudi Arabian Company Act does not limit the foreign participation stage of limited liability companies, and 100% foreign-owned companies can also be registered in industrial, agricultural, contracting, and service projects
According to the Foreign Investment Act, the minimum capital of a limited liability company is 500,000 Saudi Arabia Riyals, 1 million Saudi Arabia Riyals for manufacturing (industrial projects), 25 million Saudi Arabia Riyals for agriculture (agricultural projects), and the service industry has no minimum capital requirement
Under the decision of the SAGIA (Saudi Arabia Investment Authority) board of directors, investments in special regions, export projects, and investments in important technologies can be reduced at least in capital
At the time of establishment of the company, capital must be paid immediately in cash or in kind, and in the case of investment in kind, it must be a registered right such as tangible goods, patents, and trade marks.

Limited liability companies prohibit activities related to insurance or finance, and matters related to stocks of limited liability companies should be given equal voting rights to all shareholders
In addition, the largest shareholder may have a preemptive right in connection with the sale of shares by other shareholders to a third party
The balance sheet and profit and loss statement of the limited liability company shall be prepared each fiscal year, which shall be audited in accordance with Saudi Arabia's proven accounting monitoring procedures
If a limited liability company suffers a loss of more than 1/2 of the company's capital, the manager must notify the shareholders, and the shareholders can decide whether to dispose of the shares accordingly
Whatever decision is made, the decision must be published in the Official Gazette
A limited liability company shall consist of an individual or an investment organization with at least one person (organization) and at least 50 people (organization) under Article 151 of the Companies Act
If there are more than 50 people, they must switch to JSC within a year
If there are less than two investors (organizations), they will automatically disappear
One side bond is liable for capital investment.

It does not require minimum capital from the wholly-owned companies of Saudi or GCC investors
However, according to the Foreign Investment Act, the minimum capital of a limited liability company is 500,000 riyals when participating in foreign companies, 1 million riyals for manufacturing (industrial projects), 25 million riyals for agriculture (agricultural projects), and 20 million riyals for distribution
A foreign company that wants to establish an LLC with a single 100% stake may also have a subsidiary or a particular individual of their choice hold only a minimum stake
In addition, LLC must set aside 10% of its net profit as reserves each year up to 30% of its capital.

Management can have more than one person, and a Saudi Arabian does not necessarily have to be the management
If there are more than 20 shareholders, an audit committee of at least three people must be established
Under company law, investors will be held liable for all of the company's debts if the company's losses exceed 75% of its capital and it is accepted within 30 days that the company will continue or that the investor has no debt repayment plan
The three-way transfer of shares must be approved by the SAGIA (Saudi Arabia Investment Authority) and the Ministry of Commerce and Industry, and SAGIA licenses, commercial registration, and corporate articles must be revised depending on whether the shares are transferred to a third party.
In most cases, shareholder agreements are the only protective device for foreign investors, so it should always be kept in mind, and shareholder agreements other than limited liability company laws should not deviate from Sharia law and Saudi company legal obligations, like all contracts in Saudi Arabia.

The establishment of a corporation is somewhat more detailed and complicated than the approval process applied to a limited company, but the related requirements and operating requirements are not particularly difficult, and the cost of managing the company is not much higher than that of a limited company.
In order to establish a corporation, an investor must prepare a feasibility study report and obtain review and approval from the Ministry of Commerce and Industry.
In order to prevent delays in procedures in the establishment of a corporation, it is recommended that the company's articles of incorporation follow the form designated by the Ministry of Commerce and Industry, and shareholders have the right to preempt.
Also, since Saudi Arabian investors are not required to participate, foreign investors can own 100% of the company.
However, the company name cannot be used as an individual's name unless a patent with a person's name is used when naming a company.
In order to be established as a stock company, a permit must be obtained from the Chamber of Commerce, and a specific stock company cannot be registered as a stock company without a permit prescribed by the royal decree.
For example, a company for the establishment of a public institution, a company subsidized by the state, or a company related to finance or insurance cannot be established in the form of a stock company.
The minimum capital of the corporation is 2 million Saudi Arabian Riyals, and the minimum amount of distribution shares is 50 Saudi Arabian Riyals.
If a listed company is established, the minimum capital will be 10 million Saudi Arabian Riyals.
At least five shareholders of a corporation, and at the time of establishment of the company, each shareholder must deposit at least 25% of the total amount of cash in the company account designated by the Ministry of Commerce and Industry, and the total deposit must be at least 50% of the company's total capital.

A corporation shall operate a board of directors consisting of at least three persons.
The board of directors shall elect the chairman and the managing director from among its members, and the chairman and the managing director may concurrently hold office.
There is no separate board of auditors other than the board of directors created under Saudi Arabian law.
In general, the resolution of the board of directors is valid only when there is no company regulation on the participation rate of members, and the number of members exceeds three in the presence of a majority of executives.
All meetings of the Board shall always be recorded in the officially stamped register and signed by the Chairman and the General Secretary.
The general shareholders' meeting shall be held at least once a year within six months after the company's fiscal year, and shareholders may exercise (or delegate) the right to vote.
The general shareholders' meeting is normally established only when shareholders who account for more than 50% of the company's capital attend.
An extraordinary general shareholders' meeting can be held by the board of directors at the request of shareholders who account for more than 10% of the company's capital, and a resolution is possible only with the consent of at least two-thirds of the shareholders attending the meeting.
The following are excluded from the list of amendments to the company's articles of incorporation at the extraordinary general shareholders' meeting.

• Deprivation of basic rights as a company shareholder

• Increase in financial liabilities of certain shareholders

• Moving Registered Companies in Saudi Arabia to Foreign Countries

• the act of changing the nationality of a company

Major differences between limited liability companies and stock companies

• Ownership

  • LLC: Joint Venture or Wholly Foreign-owned

  • Joint venture or wholly foreign-owned

• Whether it is a separate corporation

  • Limited Liability Company (LLC): Yes

  • JSC: Yes

• Limited Liability

  • Limited Liability Company (LLC): Yes

  • JSC: Yes

• Management management

  • LIMITED LIABILITY COMPANY (LLC): subject to ownership ratio; audit committee required if more than 20 investors are present

  • JSC: Fully manageable and operational

• Profit Distribution

  • LIMITED LIABILITY COMPANY (LLC): IN ACCORDANCE WITH CAPITAL EQUITY

  • JSC: in accordance with the articles of incorporation or shareholder agreement

• Minimum capital investment limits

  • LIMITED LIABILITY COMPANY (LLC): 500,000 Saudi Arabian RIYALS

  • JSC INC: RIYAL, Saudi Arabia, 2 MILLION

• Corporate Tax

  • LIMITED LIABILITY COMPANY (LLC): 20%

  • JSC: 20%

• Investment Incentives

  • Limited Liability Company (LLC): Yes

  • JSC Co., Ltd. : Yes

Foreign companies can enter in the form of branches, and are similar to limited liability companies, which are in the form of general investment corporations, but have different scope of responsibility, and can only enter alone.
In other words, if a limited liability company is responsible for the share ratio of each investor, the parent company is responsible in the case of Branch.
Foreign capital investment licenses, commercial registration, and business registration certificates issued by the Ministry of Commerce and Industry are required.
Depending on the type of investment, there is no minimum capital for service branches, and a minimum capital of 1 million Saudi Arabia Riyal.
In addition to corporate branches, there are cases where they operate without registration under the sponsorship of Saudi Arabian companies, but since they can operate in Saudi Arabia without various reporting procedures, foreign companies with certain agents (sponsors) enter in this way.
However, in this case, the legal status of the branch is the sponsor's employee type, and the scope of activities is also greatly affected by the sponsor's industry and local scope of activities, so it is necessary to consider which company to become a local sponsor or sponsor.

According to Saudi Arabia's company law, only Liaison Offices and Technical and Scientific Services Offices are allowed as branches of foreign companies, other than corporate types.
However, the scope of their activities is very limited, and they are not permitted to engage in economic activities.
To carry out government-ordered projects, foreign companies typically obtain a temporary license and execute the project through Temporary Commercial Registration (TCR).
During this process, if a foreign company fails to register as a separate corporation, the project will be terminated, and the TCR will also be revoked.
After the project's completion, the liaison office is responsible for managing follow-up projects or follow-up management, primarily for companies that have secured government projects.

Office of Science and Technology Services

A foreign company with a commercial agent in Saudi Arabia can establish an Office of Science and Technology Services in the form of a liaison office, subject to permission from the Ministry of Commerce and Industry.
The scope of activities for this office is limited to providing science, technology, and advisory services to customers who purchase their products or to commercial agents (who are legally obligated to register).
Additionally, they must comply with audit requirements and Saudi Arabian employment regulations.

Major differences between branch offices and liaison offices

• Ownership

  • Branch : Wholly foreign-owned

  • Office of Technology and Science (TSO): Wholly foreign-owned

• Whether it is a separate corporation

  • Branch: No

  • Technical Science Office (TSO): No

• Limited Liability

  • Branch: No

  • Technical Science Office (TSO): No

• Management

  • Branch: Fully manageable and operational

  • Technical Science Office (TSO): Fully operational and operational

• Profit

  • Branch: According to parent company standards

  · Office of Technology and Science (TSO): No profit

• Minimum capital investment limits

  • Branch: 500,000 Saudi Arabia Riyals

  · Technical Science Office (TSO): None

• Corporate Tax

  • Branch: 20%

  · Technical Science Office (TSO): None

• Investment Incentives

  • Branch: Yes

  · Technical Science Office (TSO): None

The establishment of a corporation is somewhat more detailed and complicated than the approval process applied to a limited company, but the related requirements and operating conditions are not particularly challenging.
Moreover, the cost of managing the company is not significantly higher than that of a limited company.

To establish a corporation, an investor must prepare a feasibility study report and obtain review and approval from the Ministry of Commerce and Industry.
To avoid delays in the establishment procedures of a corporation, it is recommended that the company's articles of incorporation follow the form designated by the Ministry of Commerce and Industry, and shareholders have the right of first refusal.
Additionally, since Saudi Arabian investors are not required to participate, foreign investors can own 100% of the company.
However, the company's name cannot be an individual's name unless a patent with a person's name is used when naming the company.

To be established as a stock company, a permit must be obtained from the Chamber of Commerce.
A specific stock company cannot be registered as such without the requisite permit prescribed by royal decree.
For example, a company for the establishment of a public institution, a state-subsidized company, or a company related to finance or insurance cannot be established in the form of a stock company.

The minimum capital requirement for a corporation is 2 million Saudi Arabian Riyals, and the minimum amount of distributable shares is 50 Saudi Arabian Riyals.
If a listed company is established, the minimum capital requirement will be 10 million Saudi Arabian Riyals.
At least five shareholders are required for a corporation, and at the time of the company's establishment, each shareholder must deposit at least 25% of the total cash amount in the company account designated by the Ministry of Commerce and Industry, with the total deposit being at least 50% of the company's total capital.

A corporation must operate a board of directors consisting of at least three individuals.
The board of directors elects the chairman and the managing director from among its members, and these positions can be held concurrently.
Under Saudi Arabian law, there is no separate board of auditors apart from the board of directors.

In general, a resolution of the board of directors is valid only when there is no company regulation on the participation rate of members, and the number of members exceeds three in the presence of a majority of executives.
All board meetings must be recorded in the officially stamped register and signed by the Chairman and the General Secretary.

The general shareholders' meeting must be held at least once a year within six months after the company's fiscal year.
Shareholders have the right to vote or delegate this right.
Normally, a general shareholders' meeting is established only when shareholders who account for more than 50% of the company's capital are in attendance.
An extraordinary general shareholders' meeting can be convened by the board of directors upon the request of shareholders who account for more than 10% of the company's capital.
Resolutions can be passed only with the consent of at least two-thirds of the shareholders attending the meeting.
The following items are excluded from the list of amendments to the company's articles of incorporation at the extraordinary general shareholders' meeting:

• Deprivation of basic rights as a company shareholder

• Increase in financial liabilities of specific shareholders

• Relocating Registered Companies in Saudi Arabia to Foreign Countries

• Changing the nationality of a company

Limited liability companies are the most preferred form of entry for foreign investors.
They are easy to establish and manage, and the investor's liability is limited according to their investment ratio.
In contrast to GCC regulations, the Saudi Arabian Company Act does not restrict the level of foreign participation in limited liability companies, allowing for the registration of 100% foreign-owned companies in industrial, agricultural, contracting, and service projects.

According to the Foreign Investment Act, the minimum capital requirement for a limited liability company when participating in foreign ventures is 500,000 Saudi Arabian Riyals, 1 million Saudi Arabian Riyals for manufacturing (industrial projects), and 25 million Saudi Arabian Riyals for agriculture (agricultural projects).
The service industry, on the other hand, has no minimum capital requirement.
The SAGIA (Saudi Arabia Investment Authority) board of directors has the authority to reduce the capital requirements for investments in special regions, export projects, and investments in important technologies.
At the time of company establishment, capital must be paid immediately, either in cash or in kind, with in-kind investments being registered rights such as tangible goods, patents, and trademarks.

Limited liability companies are prohibited from engaging in activities related to insurance or finance.
Matters concerning the shares of limited liability companies must grant equal voting rights to all shareholders.
Additionally, the largest shareholder may have preemptive rights regarding the sale of shares by other shareholders to third parties.
The balance sheet and profit and loss statement of the limited liability company must be prepared each fiscal year and audited in accordance with Saudi Arabia's established accounting monitoring procedures.

If a limited liability company incurs a loss exceeding 1/2 of the company's capital, the manager must notify the shareholders, who can then decide whether to dispose of their shares accordingly.
Regardless of the decision made, it must be published in the official gazette.
A limited liability company can consist of an individual or an investment organization with at least one person or organization, and if there are more than 50 people or organizations involved, they must convert to a Joint-Stock Company (JSC) within a year.
If there are fewer than two investors or organizations, the company will automatically cease to exist, and one side's bond will be liable for the capital investment.

Wholly-owned companies of Saudi or GCC investors do not have a minimum capital requirement.
However, as per the Foreign Investment Act, the minimum capital requirement for a limited liability company varies, including 500,000 riyals for participating in foreign companies, 1 million riyals for manufacturing (industrial projects), 25 million riyals for agriculture (agricultural projects), and 20 million riyals for distribution.
There is no minimum capital regulation for the service industry.
A foreign company aiming to establish an LLC with 100% ownership may have a subsidiary or a specific individual of their choice hold only a minimum stake.
Additionally, an LLC must set aside 10% of its net profit as reserves each year, up to 30% of its capital.

Management can involve more than one person, and a Saudi Arabian individual does not necessarily have to be in charge.
If there are more than 20 shareholders, an audit committee of at least three people must be established.
Under company law, investors will be held liable for all of the company's debts if the company's losses exceed 75% of its capital, and this is accepted within 30 days that the company will continue or that the investor has no debt repayment plan.
The transfer of shares among three parties must be approved by the SAGIA (Saudi Arabia Investment Authority) and the Ministry of Commerce and Industry, and SAGIA licenses, commercial registration, and corporate articles must be revised depending on whether the shares are transferred to a third party.
In most cases, shareholder agreements are the primary protective mechanism for foreign investors, and they should always adhere to Sharia law and Saudi company legal obligations, like all contracts in Saudi Arabia.

Private businesses must also register with the Ministry of Commerce (Ministry of Commerce) and obtain a CR (Commercial Register).
In the process, if you enter the business name, type, etc.
and pay the fee, you can get a CR unless there is a special problem.
It is also possible to proceed through the Ministry of Commerce and Industry's website without visiting the Ministry of Commerce and Industry in person, and after receiving CR, you can proceed with personal business.
However, tax processing is possible only when registered with the Saudi National Tax Service (ZAKAT) to carry out personal business