Legal Framework for Investments in Saudi Arabia Entering The Saudi Market Alaa Yamani Frankfurt am Main, 19 January 2016
There are two approaches for non-saudi entities to invest in the Saudi Arabia: Direct approach. Indirect approach. 2
Direct approach: A foreign company can set up a business in Saudi Arabia by obtaining a license from the Saudi Arabian General Investment Authority (SAGIA). Foreign companies can own up to 100% of their business. 3
Direct approach: Most activities are allowed (with some exceptions): Industrial. Services & contracting. Trading. Real Estate. Agriculture. 4
Direct approach: Some activities are prohibited for foreign investments, e.g.: Industrial Sector: Oil exploration / Manufacturing of military equipment. Services Sector: Security services/ Recruitment services/ Real-estate brokerage/ physical therapy. 5
Direct approach: Minimum Capital Requirements: o Service: No minimum capital. o Industrial: SR. 1M. o Trading: SR. 20M. o Real Estate: Min. project value SR. 30M. o Agriculture: SR. 25M. 6
Direct approach: Foreign investments in Saudi Arabia can be in any of the following forms: Limited Liability / Joint Stock Companies. A branch office. Scientific and Technical Office. 7
Direct approach: Limited Liability Companies: o The number of shareholders shall not exceed (50). o L.L.C may not conduct insurance, banking or saving activity. o No minimum capital. The capital should be adequate for achieving the company purposes. 8
Direct approach: Joint Stock Companies: o The capital of a joint-stock company shall not be less than SR 500K. o Joint Stock Companies shall be formed only by a resolution issued by the Minister of Commerce 9
Direct approach: Branch office: o A foreign company may establish a branch in Saudi Arabia. o Similar procedure as forming new company. o The mother company could be sued for claims arising out of the activity of its Saudi branch. 10
Direct approach: Scientific and Technical Office: Offered to foreign companies that desire to provide direct scientific and technical services to their Saudi agents, distributors and consumers of their products. 11
Direct approach: Licenses for Contracting Activity: 1) Temporary certificate to submit proposals for government projects: A foreign company may obtain a temporary certificate to bid for government projects. 12
Direct approach: Licenses for Contracting Activity: 2) Temporary licenses for the performance of government/ semigovernment contracts: A government or semi-government contract winners can apply for a temporary license to execute one project only. 13
Direct approach: Licenses for Contracting Activity: 3) Temporary contracting licenses for a period of (3) years: Firms that wish to explore Saudi markets may apply for a time-limited temporary contracting license, renewable under specific criteria. 14
Direct approach: Investment Requirements: Shareholder s resolution to invest in the Kingdom. Copy of the Articles of Association & C.R. Company s profile not exceeding five (5) pages. Undertaking to deposit full capital in an approved bank in Saudi Arabia. 15
Direct approach: Investment Requirements: A proof of financial capability. Detailed action plan identifying the project s capability to achieve investment objectives, and to enhance the Kingdom s Revenue. 16
Indirect approach 17
Indirect approach: Foreign companies can access the Saudi market via a Saudi entity, through any of the following methods: Commercial Agency. Distributorship. Franchise. 18
Indirect approach: Benefits: Access to Saudi market with minimal or no cost. No restrictions on activities, as Saudi entities may conduct all activities. No lengthy procedures. The foreign company is protected from liability that may arise out of its product or service. 19
Import and Export Regulations 20
Import and Export Regulations A custom duty of 5% is imposed on most products from all countries, with some country-exceptions. Most livestock may be imported duty-free. There are no duties on exports. 21
Taxation 22
Taxation Corporate Income Tax: Profits of foreign investors are subject to income tax of 20%, for Most types of business, with some exceptions. 23
Taxation Withholding Tax: All payments from a resident business to a non-resident generated from a source in Saudi Arabia is subject to withholding tax at a rate of 5-20%. 24
Disputes Resolution & Enforcement of Foreign Judgments and Arbitral Awards 25
Disputes Resolution All business disputes are heard by commercial courts, which shall apply Islamic Shari ah as well as various codified commercial laws. Opponents may choose to settle their disputes through arbitration. Arbitration procedures should be consistent with applicable laws. Arbitration awards should not contradict Islamic Shari ah, nor applicable laws. 26
Enforcement of Foreign Judgments and Arbitral Awards Foreign judgments and arbitral awards are enforceable in Saudi Arabia if (among other things): Reciprocal treatment exists; The foreign judgments is final; and The foreign judgment contains nothing that violates the public policy of Saudi Arabia. 27
Thank you very much 28
Contact GERMELA Dipl. Pol. Alexander M. Haghani Business Development Executive Lehmweg 17 20251 Hamburg Germany Yamani, Jamjoom & Baroom Law Firm Alaa Yamani Managing Partner Bughdadiya Dist, Hail St, Al-Amal plaza building office #101 P.O. Box 2720 Jeddah 21461 Jeddah Saudi Arabia Phone: +49 (40) 414 252 60 alexander.haghani@germela.co m www.germela.com Phone: +966 12 6143614 ayamani@yib-law.com www.yjb-law.com