Saudi Arabia Subsidiary Entity Set Up
Saudi Arabia Entity Set Up
Setting up a subsidiary overseas is a tempting move for companies planning to explore new economies. Establishing an entity is essential to operate in Saudi Arabia if international companies intend to hire locally or import staff from their home base and run the payroll.
Risks are involved in launching a corporate presence in a foreign territory. It can be costly both in time and money. Plus, the effort and financial outlay do not guarantee success.
Expert guidance is necessary if Saudi Arabia is the target for expansion – a powerhouse economy which is built on holding 15% of the world’s oil reserves and being the largest exporter of crude oil. This strength underpins Saudi’s move towards a more diverse economy, encouraging private enterprise and entrepreneurs and striving to rival the United Arab Emirates as the prime business hub for the Middle East and West Asia.
The most popular choice for foreign investors establishing a subsidiary is to set up a limited liability company, with branch offices another possibility. Making such a move is a major commitment.
How to set up a Saudi Subsidiary
Step one for companies establishing their profile in the Kingdom of Saudi Arabia (KSA) is to decide the business structure that best fits their expansion plans. The most popular choice is to open a limited liability company (LLC), which operates under the Companies Law, as amended in 2016. In 2020 the Ministry of Commerce and the Capital Markets Authority published a ‘Draft Law’, which proposed lifting the restriction on a single shareholder LLC being owned by another single shareholder LLC.
There is a daunting list of requirements to form a limited liability company, including:
- Submitting a comprehensive business and financial plan to the Ministry of Investment Saudi Arabia (MISA), formerly Saudi Arabia General Investment Authority (SAGIA) pre-2020, to obtain their pre-approval to apply for an international investment license
- Verifying unique company name with the Ministry of Commerce (MOC), submitting Articles of Association, and making a formal application to receive a Registration Certificate
- Registering for taxation with the Zakat, Tax and Customs Authority (ZATCA)
- Employers and employees must register with the General Organization for Social insurance (GOSI)
- Securing lease agreement for business premises and registering with the appropriate municipality, a process can take up to three months to complete
- Opening a business bank account
- There is no statutory minimum for share capital, but MISA requires foreign LLCs to have minimum capital of at least SAR 500,000 (€130,750, US$133,180)
- Submitting to MISA the license from the municipality, tax number, Registration Certificate, bank’s confirmation of deposited share capital. MISA then issues the foreign business investment license. At this point the business can start operating
- Publishing a résumé of the Articles of Association in the Official Gazette, registering with the relevant chamber of commerce, and producing a company seal
- A minimum of one shareholder is required under the new Companies Law (2016), prior to which the requirement was for two. The shareholder can be a person or entity. There is no requirement on number of directors
Benefits of setting up a Subsidiary in Saudi Arabia
International companies expanding into Saudi Arabia by establishing a limited liability company (LLC) as a subsidiary will operate under the Companies Law, as amended in 2016. In 2020, the Ministry of Commerce and Capital Markets Authority issued a ‘Draft Law’. Among various proposals it removed the restriction on a single shareholder LLC being owned by another single shareholder LLC.
Subsidiaries in Saudi Arabia have an independent legal identity from the parent company. The incorporation process is prolonged and differs from the procedures for Saudi companies and those form the other Gulf Cooperation Council nations, Oman, Bahrain, the United Arab Emirates, Qatar and Kuwait.
The liability of the parent company and its shareholders is generally limited to their invested capital.
The subsidiary provides the parent company with the potential for further expansion throughout the Middle East and West Asia as a steppingstone into other regional economies. Additionally, the subsidiary can ‘test the market’ by following its own business ideas and entering different areas of operation to the owning company. The subsidiary is also free to draw up its own contracts and agreements with clients.
Other benefits for a subsidiary:
- Easier to obtain potential benefits and incentives and enter contracts with other Saudi and GCC companies
- More impact with clients and suppliers, as subsidiaries imply more permanency than branches
- Employees feel there is more stability and job security than from being with a branch
However, there is a more straightforward alternative to the risks and costs of setting up a subsidiary in Saudi Arabia … by working with Bradford Jacobs. Using a global Professional Employer Organization (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles, and be up-and-running within days, rather than months.