Includes steps involved in establishing a local office.
The procedures to establish an office in Saudi Arabia differ according to the type of business undertaken. To open an office in Saudi Arabia, a foreign company must submit to the Ministry of Commerce and Investment a copy of its articles of association as incorporated in the country of origin; a copy of its commercial registration; a written approval by the board of directors of the company, its chief executive officer/president, or a similar entity related to their decision to open a subsidiary office; the name of the city where the office will be established; and the name of the subsidiary’s manager. All the documents must be attested by the Saudi Embassy in Washington, D.C. The most common and direct method is simply to appoint an agent/distributor who can set up the office under its own commercial registry. The agent/distributor agreement should be registered with the Ministry of Commerce and Investment. The Commercial Agency regulations govern the conduct of the agent/distributor.
Types of offices:
Technical and Scientific Service Office: This type of office requires a license from the Ministry of Commerce and Investment. This approach preserves the independence and identity of the foreign company and provides for more leeway in managing and marketing the company’s products and/or services. Technical and scientific service offices are not allowed to engage directly or indirectly in commercial activities, but they may provide technical and advisory support to Saudi distributors, as well as conduct market surveys and product research.
Branch Office: Saudi Arabia’s Foreign Investment Law permits international companies to own 100 percent of projects and property required for the project itself, while enabling them to retain the same incentives given to national companies. A branch office involves a more direct presence than a commercial agent. Branch offices are largely restricted to an administrative role and may not engage in trading activities. Nevertheless, a branch office can be very useful as a liaison presence for a U.S. company. A branch office offers the benefits of a physical presence without the formal requirements of a joint venture company. A U.S. company can open an independent branch office without a Saudi partner. Its parent company must accept full responsibility for all work undertaken by the branch office in Saudi Arabia.
Liaison Office: Establishing a liaison office is normally granted only for companies that have multiple contracts with the government and require a local office to oversee contract implementation. Representative offices are not allowed to engage in direct or indirect commercial activities in the Kingdom.
Joint Venture: A company can establish a joint venture with a legally registered Saudi firm. Usually, the Saudi business community refers to limited liability partnerships as joint ventures. These partnerships must also be registered with the Ministry of Commerce and Investment and the partners’ liabilities are limited to the extent of their investment in the partnership. Finally, foreign companies can get a license from the Saudi Arabian General Investment Authority (SAGIA) to set up an industrial or a non-industrial project in Saudi Arabia. SAGIA will license projects under the new Foreign Investment Act, which allows for 100 percent foreign ownership. In addition, foreign investors can open a sales/administration/marketing office to complement their industrial or non-industrial project. SAGIA has a broad mandate on all matters relating to foreign investments in industry, services, agriculture, and contracting.
The Saudi Companies Law, which came into effect in 2016, is the principal body of legislation governing the conduct of companies in the Kingdom. The law recognizes eight forms of companies. The most common forms are limited-liability companies (LLC), joint stock companies, general partnerships, and limited partnerships. The less common company forms are partnerships limited by shares and joint ventures. Apart from the above, Sharia Law specifies several other types of companies which cannot, however, be used by foreign investors. In practice, foreign companies usually establish LLCs. LLCs are a popular corporate vehicle among foreign investors in Saudi Arabia because they are simple to establish and administer and the personal liability of each of the partners is limited to the individual partner’s contribution to the company’s share capital.
Partnerships and joint stock companies are established in exceptional cases because of their complexities, purposes for which they are suited, and costs. Certain costs of doing business in Saudi Arabia are substantially lower than those in the West. Commercial and industrial rents average USD 5.33 to USD 26.67 per square meter per year. The rate is much lower in industrial cities, where it ranges from USD 0.27 to USD 1.33 per square meter per year. Rentals for residential accommodation can vary immensely depending on location and quality of housing. With respect to utilities, electricity costs are at USD 0.048 per KwH for industrial use. Water costs range from USD 0.040 to USD 2.40 per cubic meter depending on the number of bands, adding to both electricity and water costs the five percent value added tax (VAT) imposed on January 1, 2018. Employee costs vary based on the employee’s status, position, and relevant skills and experience.