Common misconceptions of starting a business in Saudi Arabia
For foreign investors looking to enter the Saudi Arabia market, there are many misconceptions associated with starting a business in Saudi Arabia. Common ones include that the country is tax free or that there aren’t opportunities available for foreign investment or that it’s a complicated process to set up a company.
However with King Salman’s Vision 2030 and the National Transformation Program (NTP), there are an increasing number of opportunities available for those in the private sector. And whilst it can be complicated to set up your entity in the Kingdom, by choosing the right partner from the offset, it will make the process smoother.
Below are common misconceptions and the reality of the Saudi market.
Misconception 1: Saudi Arabia is tax free
Saudis and expatriates living in Saudi Arabia are not subject to personal income tax. Individuals receiving income from an employer do not receive deductions from their gross income. The employer is responsible for the employee’s social insurance (GOSI). However, individuals should be mindful of indirect fees such as, exit re-entry fees and dependent fees.
For businesses, they can fall into two categories for taxes, these are resident entities and non-resident entities. A non-resident entity is any business outside of the GCC doing business in Saudi Arabia without a SAGIA license. A resident entity is a business registered in Saudi or any GCC country.
Non-resident entities pay 20% tax on income acquired from commercial activity within Saudi Arabia. While, resident entities pay 2.5% tax, in the form of Zakat. If the entity is owned by a resident and non-resident, then tax is charged on a pro-rata basis depending on the percentage of ownership.
Misconception 2: Our business won’t fit in the culture
Some companies fear that their businesses may not fit into Arab culture. However, there is a large Western influence in Saudi Arabia, and it is a common part of life in Saudi. Many Arabs study abroad and are familiar with foreign cultures and the large expat community in Saudi means that there’s a mix of cultures in the country. Before moving to Saudi, consider if your brand is adaptable to Saudi culture, you can read more in this article.
Misconception 3: There are not many foreign investment opportunities
The Saudi economy is a very stable market, the currency is pegged to the American Dollar, making it favorable for long term investment.
As a part of Vision 2030, the government are looking to increase privatization in the Kingdom. This has lead to many large projects being opened to the private sector. The government are committed to increasing privatization and the are incentive’s foreign investors that come to the Kingdom.
Some incentives of investing in Saudi include:
- 100% foreign ownership permitted for select industries
- Significant range of industrial and property offerings available at competitive cost
- Utilities (water, power and telecommunications) are all available at globally competitive costs
- Saudi Arabia offers a wide range of competitive financing opportunities by the government for loans of up to 75% of total project costs are available
- International investors are taxed at a flat rate of 20% on their profit
- No real estate tax in Saudi Arabia
The foreign investment opportunities in Saudi are constantly growing. Vision 2030 is the initiative to decrease dependence on oil and create new streams of income for the country, this includes the growing of the private sector. There have been many foreign investment opportunities availed through this on a long term basis. Projects are constantly being announced and opportunities are available in many sectors. Below are some current project opportunities:
- Renewable energy: R1 Dumat Al Jandal Wind, R1 Midyan Wind and R1 Sakaka PV
- Power and water: Shuaiba Seawater Reverse Osmosis Desalination Plant, Jeddah South Power Plant Expansion – Phase 2, Taibah Integrated Solar Combined Cycle (ISCC) Power Plant, Strategic Water Tanks in Riyadh – Phase 2 – Contract B6
- Wastewater: Sewage treatment plant in Madinah, Wastewater networks in Yanbu
- Oil and gas: Fadhili gas processing plant, Ras Tanura – Clean fuel project, Hawiya gas plant expansion
- Industrial: Waad al Shimal Mining City, New Yamama Saudi Cement Plant, Chlorine Plant in Jubail, Sahm Steel Plant in Jubail
- Infrastructure: Obhur Creek Bridge, Dareen East Beach & Parks Improvement – Phase 2, Sewage Treatment Plant in Dhahran South
- Construction: Taif International Airport, Aqua Raffles Jeddah, Fadhili Residential Camp
- Transport: Riyadh Metro Project, Makkah Mass Rail Transit (MMRT) – Makkah Metro (Lines B and C)
Misconception 4: Complying with Saudization is difficult
For companies that feel that Saudization makes recruitment and hiring difficult in Saudi, there are many updates that make the process easier. Companies that are looking to hire Saudi nationals can use TAQAT, an online portal that allows companies to search for Saudi nationals that are job-seeking. The portal makes it easier for companies to find the required staff by giving them access to hundreds of thousands of candidates and matches them according to skills with a comprehensive filtering system to find the right candidate.
Additionally, the Parallel Nitaqat system has recently been released, to help companies that are not able to immediately adapt to the new Saudization ratios. The Parallel Nitaqat system allows companies to pay a monthly fee, or collectively for six months to advance to the next level of Nitaqat, if they are unable to find suitable staff. Compliance with Nitaqat is beneficial as the government offers incentives to companies that are at a higher level of compliance.
- Expedited visa processing and lower processing fees
- Able to easily renew Iqamas and can be done before three months of Iqama’s expiry
- Are eligible to switch employee’s professions
- Are able to hire new employees from companies in the red and yellow categories
The Saudi government are continually improving the environment for foreign investors and making it easier for them to do business in the Kingdom. Increasing opportunities from Vision 2030 and NTP means continual growth possibilities for companies.
For foreign investors looking to expand into Saudi, contact Proven on +966 11 411 1127 or firstname.lastname@example.org for support and consulting.