Points You Need To Consider
Direct Foreign Investment
Saudi Arabian General Investment Authority (SAGIA) is the gateway to investment in Saudi Arabia. The Foreign Investment Law allows non-Saudi companies and individuals the possibility of 100 percent ownership of projects and enables them to retain the same incentives given to national companies, although foreigners are excluded from investing in certain businesses. More details on investment regulations and applicable taxation is available from the website of SAGIA - www.sagia.gov.sa
For more information about doing consultancy work in the Kingdom, please see the The Ministry of Commerce website - www.commerce.gov.sa
Taxation is a specialised subject and advice should be sought from specialists practising in Saudi Arabia as part of the planning stage before any investment is made. The following is offered as a very simplified introduction only.
There are no personal taxes in Saudi Arabia. Neither Saudi nationals nor foreigners resident in the Kingdom are taxed on their salaries. Saudis and GCC nationals are subject to zakat - the religious wealth tax.
In general, companies pay 20% corporate tax. But, foreigners who derive net income from investments in Saudi businesses, and self-employed individuals who do business in the Kingdom, are subject to corporate tax on a sliding scale according to their income. A summary of the main rules and regulations are as follows:
Those subject to 20% tax are:
(a) A foreign partner's share in a resident capital company,
(b) A resident foreigner who does business in the Kingdom,
(c) A non-resident who does business in the Kingdom through a permanent establishment.
The tax rate on companies engaged in the production of oil and other hydrocarbons productions will be 85%.
The tax rate on companies engaged only in natural gas investment fields is subject to a 30 % tax rate.
Zakat is a religious wealth tax, which is one of the five pillars of Islam. Saudi's, GCC nationals and companies entirely owned by those individuals have to pay zakat. If companies or partner-ships are owned by Saudi or GCC nationals and by other foreigners, zakat is assessed on the taxable income of the entity in proportion to the equity interest of Saudi and GCC nationals in the company.
Complex rules apply to the calculation of zakat liabilities. In general, zakat is levied at a rate of 2.5% on capital that is not invested in fixed assets or long-term investments and on pre-incorporation expenses deferred, as adjusted by net results for the year.
Social Security Taxes
The General Organisation of Social Insurance (GOSI) is the government body responsible for the enforcement and collection of social insurance. Employers are required to pay Saudi social insurance tax on behalf of their employees.
For more details please see - www.gosi.gov.sa
The government has granted tax concessions to six less-developed regions in the Kingdom, with the intention of attracting more investment. These tax cuts are granted for period of ten years from the start of any project and are offered in the following regions:
For more details about taxation, please visit the SAGIA website www.sagia.gov.sa
The banking sector in Saudi Arabia broadly comprises domestic banks and branches of foreign banks. A number of international banks such as HSBC have partnership arrangements with domestic banks. Banks in Saudi Arabia can offer Islamic financing which is compliant with Sharia, and non-Sharia compliant financing.
Intellectual Property Rights
Saudi Arabia has been a member of the World Trade Organisation since December 2005 and has introduced new legislation increasing the level of protection for intellectual property. For more information about intellectual property in Saudi Arabia, please see the World Intellectual Property Organisation website - www.wipo.int
In general, a UK citizen may not apply for a patent or trade mark in Saudi Arabia unless they have already made the same application in the UK. Applications must be sent to the GCC Patent office in Riyadh at:
GCC Patent office
P O Box 340227
Kingdom of Saudi Arabia
Tel: (96611) 482 9378, 482 0136
Fax: (96611) 482 9600
Selecting the right agent is very important. It should be made clear from the outset which services will and will not be provided. An agent may be anything from a highly-proactive investor into the business who is deeply involved on a day-to-day basis with all aspects of management, finance and marketing, to a hands-off "Mr. Fixit‟ who just arranges official paperwork and has little other involvement.
British companies should always try to visit a potential agent on his home ground before concluding any agreement. It is also recommended that companies should seek legal advice before signing agency agreements.
Recruiting Staff and Saudisation
Foreign workers form a large proportion of the workforce - it is currently estimated that there are around 8 million expats working in the Kingdom.
This, coupled with rapid population growth has led to high levels of unemployment among Saudi nationals, particularly those under 25. As a result, the Government has introduced a number of measures designed to limit the number of expatriates working in the country, in the hope of boosting the employment of Saudis. Each private sector company is supposed to have a certain percentage of staff depending on the type of business. The Ministry of Labour has the power to specify those occupations, trades, professions, activities and ventures which are restricted to Saudis. The Minister may, on occasions, reduce the Saudisation percentage in situations where there are no adequate technically or academically qualified workers to fill the position, or if not possible to fill the vacant job with Saudi nationals for another valid reason.
The latest Saudisation measure provides for companies to be be colour coded on the basis of how many Saudis they employ, with Green companies employing the highest number of Saudis, yellow for those who have not yet achieved their quota and red for companies who are nowhere near their quota.
It is important to monitor your employee situation to show that you are trying to comply with Saudisation, as it can be an important factor in the awarding of government contracts.
The government is also currently boosting technical and vocational training for its unemployed youths, to enhance their employment value, and help the Saudisation project. Long term investment, improvement in education and expansion of the non-oil sector are all required in order to alleviate the unemployment problem.
The Saudi Arabian General Investment Authority (SAGIA) - www.sagia.gov.sa - has all the up-to-date details regarding patents, trademarks and copyright laws within the Kingdom.
The Ministry of Commerce is responsible for providing protection for trademarks and also has information on their website about what can and cannot be protected - www.mci.gov.sa
Saudi Law permits the appointment of more than one agent on a regional basis, and for particular products. Many companies however, prefer to appoint a sole agent to avoid conflict of interest and possible mix-up especially when bidding for Government contracts.
It is generally best to avoid visiting Saudi Arabia in July and August due to the heat. Also, many Saudi business people leave the Kingdom then for their summer holidays.
During Ramadan it can be difficult to do business as working hours are considerably shorter and many meetings will be conducted outside of normal office hours, usually very late at night. The date of Ramadan moves forward by about 10 days every year.
Saudi Law does not require foreign companies to appoint a commercial agent to do business in the Kingdom and indeed Government Ministries prefer to deal directly with UK companies, rather than through an intermediary. Companies can make direct sales to the private sector from outside Saudi Arabia, but in practice, appointing an agent or distributor is the most common procedure for companies wishing to enter the Saudi market. Virtually all government purchasing is conducted by local tenders and requests for proposals from prequalified shortlists. The relationship between a foreign contractor and his Saudi agent is regulated by the Ministry of Commerce - www.commerce.gov.sa
Commercial agency agreements are controlled by Royal Decree and by the Ministry of Commerce (MoC). Any agency/distributorship contract should follow the standard format approved by the MoC and must be submitted to the MoC for registration. In particular, they should specify whether the agent will solicit business for the foreign principal in return for a commission or buy goods from the foreign principal to sell on his own account. The parties to the contract may add or delete additional clauses that do not contradict with the relevant commercial regulations. UKTI can assist with identifying potential agents on your behalf through the Overseas Market Information Service (OMIS).
Communication and Advertising
Newspapers and Periodicals
Radio and Television
Both the net and e-mail are increasingly widely used, although the current telecoms infrastructure is inadequate for the demands placed upon it and service can be patchy, with overloaded lines making access difficult at peak times. Some internet sites are censored. Dial-up subscription rates are very low, ADSL and satellite connections can also be installed. Although prices are coming down, they are more expensive and less reliable than in the UK. Broadband internet has alleviated some of these frustrations but there are still frequent service glitches.
Saudi has its own yellow pages, a useful directory for finding telephone numbers: www.saudianyellowpages.com
International airmail to/from Europe takes 4-5 days and to/from the US 8-10 days.
Source - UKTI
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