The New Companies Act in Saudi Arabia has brought about changes that are relevant and highly important for those who want to set up companies in Saudi Arabia and for those running companies in Saudi Arabia
Introduction
With almost 2 years into the Companies Law and the grace period of 2 years for implementing the new law coming to an end recently, we examine what investors and new companies deciding to set up business or invest in the Kingdom of Saudi Arabia ( KSA) has to keep in mind when establishing companies in KSA.
Understanding the New Legal Framework
Saudi Arabia’s new Companies Law came into effect on January 19, 2023, replacing the previous Companies Law of 2015 and the Professional Companies Law of 2019. The law governs all forms of entities in the Saudi market, whether commercial, non-profit, family operated entities, and/or professional, under one comprehensive single law.
The two-year grace period for existing companies to amend their bylaws and articles of association concluded on January 18, 2025, marking a critical milestone for businesses operating in the Kingdom. This means all companies must now be fully compliant with the new legal requirements.
The most significant change is the introduction of a new form of company – the Simplified Joint Stock Company (SJSC) – designed to meet the growing demands of entrepreneurship and venture capital growth. An SJSC can be established by one or more people whose capital will be divided into tradable shares with a structure organized by the Articles of Association. There is no minimum capital requirement in an SJSC and shares can be issued in-kind.
2. Relaxed Requirements for Traditional Structures
The new Law relaxes several requirements for Joint Stock Companies (JSCs), allowing the establishment of one-person JSCs, eliminating the requirement to hold an establishment meeting, and setting the minimum capital requirement to SAR 500,000. For Limited Liability Companies (LLCs), restrictions on financing are removed, with LLCs allowed to raise capital through the issuance of sukuks, debt instruments, or financing instruments.
3. Corporate Governance Improvements
The new law emphasizes enhanced corporate governance standards, including strengthened disclosure requirements and improved transparency measures that align with international best practices.
4. Foreign Investment Opportunities
100% Foreign Ownership
Saudi Arabia allows 100 percent foreign ownership in most sectors, representing a significant departure from previous regulations that often required local partners. 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).
Sectoral Considerations
While most sectors allow full foreign ownership, certain professional services including accounting, auditing, architecture, healthcare, and veterinary services still require Saudi partners. Services, industrial, and agricultural investments are eligible for 100% foreign ownership without conditions, while other investment types, such as trading, have requirements such as having four branches around the world and a capital of SAR 10 million.
Business Registration in Saudi Arabia: Step-by-Step Process
When looking to register a company in Saudi Arabia, foreign investors must navigate several key steps:
1. Obtain Investment License
The cornerstone of establishing your foreign-owned business is obtaining a MISA license. According to the new investment law, companies will be required to register with MISA’s portal instead of acquiring a license. These changes will take effect in 2025.
2. Secure Trade Name and Commercial Registration
The next course of action is to secure a trade name and then register with the Ministry of Commerce (MoC) to obtain the Commercial Registration (CR) as well as apply for the Chamber of Commerce’s membership.
3. Complete Residency Requirements
Completing the residency process (Iqama) for the General Manager (GM) is a non-negotiable aspect of the company registration process. The general manager is required to sign the paperwork for Iqama in person in Saudi to complete the setup process.
Professional legal assistance is crucial for successful business registration in Saudi Arabia. Experienced lawyers in Saudi Arabia provide comprehensive services including business registration, contract drafting, dispute resolution, and corporate governance. Company registration attorneys ensure compliance with the Companies Law of Saudi Arabia and guide clients through seamless company registration and business setup processes.
Legal Services for Business Formation
Lawyers specializing in company setup in Saudi Arabia analyze the investor’s goals and recommend the most suitable structure, considering factors like liability, taxation, and operational flexibility. They ensure that the chosen trade name complies with Saudi regulations and assist in its reservation to avoid conflicts or rejections.
The complexity of Saudi business law makes professional legal guidance essential, particularly for foreign investors unfamiliar with local regulations and procedures.
Compliance Requirements Under the New Law
Documentation Requirements
Companies must obtain a Commercial Registration Certificate (CR) from the Ministry of Commerce and Industry (MOCI), an investment license from MISA, an approved Article of Association (AOA) notarized and approved by MOCI, and registration certificates with the Ministry of Labour and Social Development (MLSD) and the General Organization of Social Insurance (GOSI).
Tax Obligations
Foreign-owned companies in Saudi Arabia are subject to a 20% corporate income tax, with withholding tax rates of 5% (rent), 15% (royalty) and 20% (management fees).
Annual Compliance
Companies must maintain accurate records, conduct annual general meetings, and ensure ongoing compliance with corporate governance standards established under the new law.
Opportunities in Key Sectors
Technology and Innovation
Saudi Arabia’s burgeoning entertainment sector provides opportunities for foreign investment. The Kingdom now regularly sponsors and promotes entertainment programming, including live concerts, dance exhibitions, sports competitions, and other public performances.
Transportation and Logistics
Saudi Arabia’s transportation sector provides ample opportunity for international investment. In June 2021, Crown Prince Mohammed bin Salman launched the National Transport and Logistics Strategy to upgrade transportation infrastructure throughout Saudi Arabia, with plans to invest $147 billion in transport and logistics over eight years.
Saudi Arabia’s healthcare privatization program provides lucrative opportunities for foreign investment through public-private partnerships (PPP). The government plans to invest $65 billion to overhaul their healthcare infrastructure.
Challenges and Practical Considerations
Documentation and Language Requirements
The application process for setting up a business in Saudi Arabia can be complicated, especially for foreigners who are not proficient in Arabic and need support communicating with the authorizing agency.
General Manager Requirements
Each MISA LLC must appoint a General Manager who is either a Saudi national or an expatriate with a local work permit. A foreigner can only be appointed as bank signatory to a Saudi Arabian corporate bank account after employment visa approval (Iqama).
Understanding local customs, business practices, and cultural norms remains essential for successful operations in the Kingdom.
Benefits of the New Legal Framework
The updated Companies Law offers several advantages:
- Simplified company formation processes that reduce bureaucratic barriers
- Enhanced investor protection through improved corporate governance standards
- Greater flexibility in business structures and operations
- Alignment with international standards that facilitates global business integration
- Support for innovation through new corporate forms like the SJSC
Looking Ahead: Future Business Environment
The new Companies Law represents part of Saudi Arabia’s broader Vision 2030 initiative to diversify the economy and attract foreign investment. Saudi Arabia seeks to attract $3 trillion in foreign investment to promote economic development, transfer foreign expertise and technology to Saudi Arabia, create jobs for Saudi nationals, and increase Saudi Arabia’s non-oil exports.
Conclusion and Next Steps
With the grace period now concluded, all businesses operating in Saudi Arabia must ensure full compliance with the new Companies Law. For investors considering entry into the Saudi market, the modernized legal framework offers unprecedented opportunities for business formation and growth.
Success in navigating Saudi Arabia’s business environment requires:
- Professional legal assistance from qualified lawyers in Saudi Arabia who specialize in business registration and company formation
- Thorough understanding of the new Companies Law requirements and compliance obligations
- Strategic planning that takes advantage of the enhanced business structures and foreign ownership opportunities
- Cultural awareness and respect for local business practices
The Kingdom’s commitment to economic diversification, combined with its strategic location and stable business environment, makes it an attractive destination for foreign investment. By working with experienced lawyers in Saudi Arabia and ensuring compliance with all regulatory requirements, investors can successfully register a company in Saudi Arabia and capitalize on the opportunities presented by this dynamic and rapidly evolving market.
For businesses seeking to establish operations in the Kingdom, engaging qualified legal professionals experienced in Saudi business registration is essential for navigating the complexities of company formation and ensuring long-term success in this promising market.
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