Forming a Limited Liability Company (LLC) is a common choice for foreign investors looking to establish their businesses inside the Kingdom of Saudi Arabia (KSA). The Saudi Arabian Ministry of Investments (MISA) makes it easy to establish a wholly-owned business with little interference from the government and without requiring a local partner. This article explores the necessary steps to incorporate a fully foreign-owned LLC in Saudi Arabia, including permissions for 100% Foreign Direct Investment (FDI), sectors available, rules, licensing, documentation, taxation, and other requirements.
MISA's Authorization for 100% Foreign Ownership in KSA
According to the most recent World Bank survey, Saudi Arabia, the fastest-growing commercial market in the Gulf Cooperation Council (GCC), has improved its Ease of Doing commercial ranking dramatically, moving up from 92nd to 62nd place. Improved business-friendly policies, more welcoming policies to foreign direct investment (FDI), regulatory changes, and the launch of online service portals by ministries and agencies are all credited with this positive change.
The Kingdom is aggressively seeking a significant number of prospective international investors to form 100% foreign-owned Limited Liability Companies (LLCs) in Saudi Arabia in accordance with Vision 2030 goals. As a result, during the last three years, there has been a noticeable increase in the number of foreign licenses issued; the numbers have increased yearly, with 377 licenses in 2017, 736 in 2018, and 1131 in 2019 indicating the expanding trend.
Sectors Open to 100% Foreign Ownership by MISA
In earlier times, Saudi Arabia required international businesses to have at least 25% national ownership. However, the Saudi Arabian General Investment Authority (SAGIA), now known as the Ministry of Investments of Saudi Arabia (MISA), issued a "Decree" on September 6, 2015, allowing foreign nationals to hold 100% ownership in retail and wholesale business operations in the Kingdom, in accordance with Vision 2030 objectives to attract more Foreign Direct Investment (FDI). This marked a significant increase from the previous limit of 75% for foreign ownership before the decree.
In 2016, the Saudi Government officially approved the rules and regulations for granting licenses to establish 100% foreign-owned Limited Liability Companies (LLCs) in the wholesale and retail sectors. This approval was published in the Official Gazette on July 1, 2016. Our legal support services in Saudi Arabia cover all necessary requirements for foreign investors seeking to establish a 100% foreign-owned LLC company.
Capital Requirement for Initiating a 100% Foreign-Owned Company in KSA
Establishing a 100% foreign-owned Limited Liability Company (LLC) in Saudi Arabia requires foreign investors to have a minimum share capital of SAR 500,000, according to the Ministry of Investments of Saudi Arabia (MISA), formerly known as SAGIA. This share capital should typically be shown on the company's balance sheet and can be used as working capital instead of necessarily needing to be deposited in a nearby bank.
However, different minimum capital requirements are specified by MISA for certain business types:
- Property investment sector: SAR 30 million
- Contracting businesses: SAR 500,000 (along with other asset value)
- Commercial sector: SAR 30 million, with a commitment to invest at least SAR 200 million within the first 5 years to establish a 100% foreign-owned LLC in Saudi.
LLCs are required to allocate a minimum of 10% of net profits until the statutory reserve reaches 30% of the company's original capital share.
Documents Needed for Establishing a 100% Foreign-Owned LLC Company in Saudi Arabia
To establish a 100% foreign-owned LLC company in Saudi Arabia, certain documents are required, including:
- Obtain a Commercial Registration Certificate (CR) from the Ministry of Commerce and Industry (MOCI).
- Obtain an investment license from Saudi Arabia's Ministry of Investments (MISA).
- Possess an approved Article of Association (AOA) that has been notarized and approved by MOCI.
- Create a bank account in Saudi Arabia.
- Maintain a local physical office address and lease.
- Obtain a Ministry of Labour and Social Development (MLSD) registration certificate.
- Obtain a General Organization of Social Insurance (GOSI) registration certificate; this is a prerequisite for processing monthly wages.
Furthermore, some industries can need licenses from the appropriate government agencies; for example, pharmaceutical companies must obtain licenses from the Saudi Food and Drug Association (SFDA).
Saudi Arabian Taxation on a 100% Foreign-Owned LLC
In Saudi Arabia, an LLC that is 100% foreign-owned is subject to a corporate income tax of 20%. The rates of withholding tax (WHT) are as follows: 20% for management fees, 15% for royalties, and 5% for rent. All goods and services are additionally subject to a regular 15% value-added tax (VAT).
The Saudi LLC must file income tax returns (ITRs) no later than 120 days following the conclusion of the fiscal year. The Saudi tax year runs from January 1 to December 31. A one percent revenue penalty may be imposed for any late ITR filings.
Additional Requirements for Establishing a 100% Foreign-Owned LLC in Saudi Arabia
To establish a 100% foreign-owned LLC company in Saudi Arabia, certain additional requirements must be met, including:
- Annual General Meeting (AGM): The company is obligated to conduct at least one AGM annually within four months of the financial year's end. During this meeting, financial statements and operational reports are prepared for submission to the Ministry of Commerce and Industry (MOCI).
- Board of Directors: While having a board of directors is optional, LLCs in Saudi Arabia can be managed by either a general manager (GM) or a board of directors. If a board is formed, frequent meetings are not necessary, apart from the AGM.
- General Manager's Residency: The GM must be a Saudi resident holding an Iqama (residency permit), whereas other directors are not subject to specific residency or nationality requirements, depending on their roles.
- Privacy of Company Information: There is no requirement to publicly disclose the identity of the company's directors and shareholders.
- Shareholders and Directors Limits: According to the Saudi New Company Law 2022, an LLC must have a minimum of one shareholder and a maximum of 50. There is no set limit for directors, and a foreign-owned LLC can add shareholders, but the maximum is capped at 50.
- Holding Company Status: An LLC is permitted to function as a holding company, but its subsidiaries cannot hold shares in the holding company.
- Inclusion of "Limited Liability" in Company Name: The company name must include "limited liability," derived from its approved purpose by MOCI.
- Employee Residency Sponsorship: The LLC has the authority to sponsor its employees for residency in Saudi Arabia.
Establishing a 100% Foreign-Owned Company in KSA with BMS Auditing's Expert Consultancy
Creating a 100% foreign-owned company in KSA involves adhering to the 2015 SAGIA decree permitting the establishment of a fully foreign-owned LLC in Saudi. The recent conditions set by MISA further enhance the appeal for retail and wholesale business ventures in the Kingdom.
However, compliance with rules and conditions outlined in the Saudi New Company Law 2022 is essential to capitalize on these changes. Our proficient team at BMS Auditing, possesses the expertise to offer high-quality consultancy for establishing a 100% foreign-owned LLC in Saudi Arabia, ensuring full adherence to all necessary requirements.
