Establishment of a company in Saudi Arabia.

Establishment of a company in Saudi Arabia.

Introduction.

Saudi Arabia is the largest among the Arab states, which was established in 1932 and has a population of about 34.15 million. The country is ruled by a king whose government pursues economic diversification and reforms, which promotes foreign investment. The official currency of the Kingdom of Saudi Arabia is the Saudi Arabian Riyal, where one Riyal is equal to about 0.27 United States dollar. The Saudi Arabian government took the initiative of creating the Saudi Arabian General Investment Authority (SAGIA), which eases the procedures of setting up a business for foreigners. Saudi Arabia is a monarchy without a constitution that is legally bound. The state is governed by Sharia’s laws from the Qur’an and Sunah, which is supplemented by the royal decrees, which covers contemporary issues such as corporate law and intellectual property. In this paper, we shall discuss the rules, regulations, and systems of Saudi Arabia in the process of setting up a foreign-based owned company.

Business establishment laws

The company law, which was concealed by the royal decree regulates the formation and operation of entities. To start a business in Saudi Arabia, foreign investors must obtain a license from SAGIA under the Foreign Investment Regulations.  However, to operate some business such as the drone company, which may affect the security, one is required to acquire a pre-approval from the related ministry before receiving the SAGIA license. Generally, in the absence of a formal presence in the state limits the investors from foreign countries from undertaking business activities. Alternatively, local distributors and agents may be appointed to evade violating the “Anti-Fronting” law. The appointed local agents and distributors are governed by the Saudi Arabian commercial agency laws (Rice, 2003).

To set-up, a limited liability company that may have up to 50 partners as a foreigner, one is required to have a capital of SAR500,000. Foreigners may own the company with shares of up to 75%.  The Ministry of Commerce and Industry (MOCI) offers the technical and scientific services office, which provides the support which we shall require in our case to conduct the product research and undertake market surveys.  In the industrial sector, there are some entities which are prohibited for foreigners in Saudi Arabia such as the manufacture of civilian explosives, manufacture of military uniform, equipment’s and devices (Dalton, 2003). Lastly, it’s also prohibited to explore, produce, and drill oil in the state.

Systems in Saudi Arabia for foreign business

In the Saudi Arabian stock market, any foreigner as an individual is not allowed to own more than 5 percent of a listed company. The percentage ownership is increased to 20 percent if the foreign institution joins together in the acquisition of a registered firm. There are two types of taxation for a company in Saudi Arabia; zakat, which applies to company owners from the Kingdom of Saudi Arabia (KSA), and income tax for the non-KSA residents who conduct business. If a company is owned by both a foreigner and a KSA citizen, a fraction of the fee is attributed to the foreigner’s interest where its subjected to income tax, and the citizen’s share is subject to Zakat taxation. The rate of taxable income for a foreigner is usually at a fixed rate of 20%. It’s also worth noting that the tax filing is generally based on a companies’ fiscal year, which is filed with the Department of Zakat and Income Tax (DZIT) done in less than 120 days after the end of a taxpayer’s year.

The company established in the KSA are required to conduct annual audits. The limited liability companies and the joint-stock are required to appoint one auditor who is an independent and certified public accountant of the Saudi Organization for Certified Public Accounts (Blenkhorn & Fleisher, 2005). It’s a requirement by MOCI to keep the general ledger, daily journal, and inventory book for all companies with a capital exceeding SR100,000. Additionally, the company is required to comply with the Saudi Organization of Certified Accounts (SOCPA) in terms of the accounting standards. Also, it’s essential to consider being enlightened with the Work and Workmen Regulations, which regulate all work affairs and labor in the human resource department without unions.

Conclusion.

While setting up a company, especially in a foreign country, it is crucial to learn about the laws and regulations of the given state. Furthermore, the type of company we shall set-up is concerned with the security of a country that requires the authorization of the highest order from any country. In the paper, we have seen that for the establishment of a foreign company, we shall need a license from the ministry, MOCI, and SAGIA. We have seen the rule observed in terms of production with prohibited goods. Besides, we have listed the basic laws which need to be followed in the accounting and human resource department. Therefore, the establishment of the drone company will be much more comfortable with this knowledge.