Saudi Arabia is located in the Middle East between the Persian Gulf and the Red Sea. The country, which is divided into 13 provinces, is composed primarily of desert. Each region has a governor appointed by the king.

Fiscal Advantages

• 6^th most rewarding tax system in the world
• Personal income tax rate is 0%
• Corporate tax rate stands at 20% in Saudi Arabia
• No foreign exchange control
• No capital duty, stamp duty, payroll tax, real property tax or transfer taxes
• Net worth tax is not levied on non-Saudis in Saudi Arabia

Regulatory Advantages

• Foreign controlled companies do not exist
• Disclosure of documents or information is not allowed
• Saudi Arabia has signed 33 tax treaties

Limitations

• The investment activity to be licensed should not be in the Negative List of excluded activities from Foreign Investment
• The product technical specifications and production processes should comply with the Saudi, Gulf or international standards and specifications
• Monarchy Government
• Government decision-making lacks transparency, and corruption remains a concern
• Laws protecting and facilitating the acquisition and disposition of private property are subject to Islamic practice

• General Partnerships
• Limited Partnerships
• Joint Ventures
• Limited Liability Company
• Cooperative Companies (Joint Stock Company)
• Corporations
• Partnerships Limited by Shares
• Variable Capital Companies

Foreign investors can operate in Saudi Arabia through the following incorporations:

• Limited Liability Companies
• Joint Stock Companies
• Foreign Office Branch
• Representative Offices

Limited Liability Company (LLC): This is one of the most common forms pursuant to which foreign companies do business in Saudi Arabia. An LLC may engage in the full range of activities, which fall within the approved objects of the company and undertake projects in both the public and private sector. In addition, the company may promote and solicit business throughout the Kingdom. LLC's are prohibited from engaging in insurance and banking activities. 

Joint Stock Company: The joint stock company is a limited liability company, which has the option to issue shares to the Saudi public. In order to incorporate a joint stock company, a licence is required from the Minister of Commerce and Industry. 

Branch of a foreign entity: The branch is considered as the representative of a foreign company. It is allowed to perform activities in Saudi Arabia, like any other limited liability companies. As per the licence issued by KSA, it can run its business accordingly. It cannot enter into a Joint Venture or partnership or establish it's own branch. The Companies Regulations and the Foreign Investment Regulations permit a foreign company to establish a branch in Saudi Arabia, subject to approval by SAGIA. 

Although foreign investors prefer a 100% ownership of their company, advantages of having a local Saudi shareholder are aplenty - Interest free loans from the government, ease of networking, to name a few.

New investment opportunities are being created especially in water, oil and gas, power transport, petrochemicals, communications, construction, mining and other infrastructure projects – all adding up to a trillion dollars over the next two decades.

The working days are 5 - all offices remain closed on Friday with either Thursday or Saturday as weekends. Application, business registration and set-up process, will consume about 30 days from document submission.

• True copy of the applicants commercial registration and articles of association – authenticated by the Saudi Embassy and an official authority in the applicants country of origin
• Copy of the trade name reservation
• Draft of memorandum of association for a limited liability company
• Draft of memorandum of association and articles of association for a joint stock company
• Partners Resolution to invest in the kingdom along with other details
• Copy of general managers passport
• Copy of the national identification card and family card if one of the partners is a Saudi national
• Submission of initial approval from relevant ministers or authorities
• Business plan & objectives of company
• Financial statements of the past 3 years
• Any other documents, as required

• Personal income tax rate is nil
• Social Security Rate is charged at 20% 
  • The companies need to pay 11% of this and 
  • The employee pays up the remainder 9%

In Saudi Arabia, the Social Security Rate is tax related with labour income charged to both companies and employees. Revenues from Social Security Rate are an important source of income for the government of Saudi Arabia since they help to pay for many social programs including welfare, healthcare and many other benefits.

Non-Saudi: Income tax is levied on a non-Saudi's share in a resident corporation. The tax base for a resident non-Saudi is the share of income subject to tax from any activity in Saudi Arabia less allowable expenses. The tax base for a non-resident non-Saudi carrying out activities in Saudi Arabia through a permanent establishment (PE) is the income arising from the activities of the PE less allowable expenses.

Saudi: Zakat is levied on the Saudi's share in a resident corporation. Zakat is an obligatory payment made annually under Islamic law on certain kinds of property and used for charitable and religious purposes. Citizens of Gulf Cooperation Council countries are treated as Saudis. Zakat is assessed at 2.5% on the Zakat base of a Saudi shareholder. 

An individual is resident in Saudi Arabia for a tax year if either he/she has a permanent residence in the Kingdom and is present in the Kingdom for a period that in total is not less than 30 days in the tax year, or is present in the Kingdom for a period that is not less than 183 days in the tax year.

A 20% capital gains tax is imposed on the disposal of shares in a resident company. Capital gains on the disposal of shares traded on the Saudi stock exchange are exempt if the shares were acquired after 2004. 

The tax year is the state’s fiscal year. The taxable year of a taxpayer starts from the date it obtains a commercial registration or license, unless other documents support a different date. 

A taxpayer may use a different tax year in the following circumstances:

• The different year was approved by the Directorate before the effective date of income tax regulations
• The taxpayer uses a Gregorian financial year or
• The taxpayer is a member of a group of companies or a branch of a foreign company that uses a different financial year

Penalties for non-submission of tax declarations by the deadline are payable at a rate of 1% of the total revenue, subject to a maximum delay fine of SR 20,000. 

The Saudi government is currently granting 10-year tax incentives on investments made in the following six underdeveloped provinces of Saudi Arabia: Hail, Jizan, Abha, Northern Border, Najran and Al-jouf. 

Investors will be granted a tax credit against the annual tax payable in respect of certain costs incurred on Saudi employees.

The Saudi governments new Foreign Investment Law, in 2000, has introduced major regulatory incentives like the Saudi Arabian General Investment Authority (SAGIA) that will be responsible for issuing investment licences to foreign investors and coordinating with other related governmental bodies for approval. 

Under the Foreign Investment Law overseas businesses and individuals are entitled to 100% ownership of projects and legislation allows them the same conditions as Saudi companies.

Companies may be structured as they wish, but unless they meet specific criteria they may not obtain investment incentives available under foreign capital investment regulations. Additionally, in accordance with the Companies Regulations, if the accumulated losses of a company exceed 50% of its share capital, a shareholders' meeting must be called to determine whether to continue the business. The resolution must be published in the official gazette.

The duties, liabilities and obligations of directors in relation to KSA companies (JSCs and LLCs) are contained in a suite of documents and legislation, including:

• The Companies Law (mainly for JSCs) supplemented by resolutions and circulars issued by the Ministry of Commerce & Industry (MOCI)
• The company's constitutional documents (the articles of association of LLCs and by-laws of JSCs) as well as shareholder agreements (if any)
• Other laws and regulations relating to directors

Reducing the rate of unemployment among nationals has been one of the long-term strategic challenges in the Kingdom. The law of Nitaqat also known as Saudisation, introduced by Saudi Arabia is aimed at encouraging companies to hire more Saudis. Recently, the law has further become stringent, stating that - newly employed Saudis should stay with a company for at least 6 months to be counted as a full Saudi worker under the Nitaqat program. 

Saudi Arabia’s monetary policy is managed by the Saudi Arabian Monetary Authority (SAMA) and is based on its fixed exchange-rate policy.