Saudi Arabia – Trade

·         International Business

BUSINESS ORGANIZATIONS

Foreign entities may participate and invest in three forms of Saudi business organization: the limited liability company, the joint-stock company, or the "joint venture". Foreign entities may also operate on the Saudi Market through branch, representative, or technical and scientific services offices. All such operations must obtain the necessary licenses from the Saudi Ministry of Commerce and other appropriate agencies.

Limited Liability Companies: Limited liability companies (LLCs) are the most common form of business organization utilized by foreign investors. LLCs must have at least two but not more than 50 share-holders. Such companies cannot deal in insurance or financial operations, and must be capitalized with at least SR 500,000. LLCs are required to set aside 10 percent of net annual profits as reserve capital.

Joint Stock Companies: Joint stock companies are privately- or publicly-held limited liability companies resembling U.S. corporations.

Joint Ventures: Joint Ventures are unincorporated associations which resemble general partnerships. Each party to the venture holds title to their agreed upon contribution. The joint venture agreement must be submitted to the Ministry of Commerce and must include objectives, rights and liabilities of the venturers, and the manner of the division of profits.

Branches:  Wholly foreign-owned entities may establish branch offices in Saudi Arabia. Branches may only be established and registered in the Commercial Register at the Ministry of Commerce if approval is granted from the Foreign Investment Capital Committee (FCIC) at the Ministry of Industry and Electricity. Approval by the FCIC depends on whether the branch is conducive to the economic development of the country. In order to apply for such permission, the foreign company must supply a certified copy of its charter and bylaws (together with full Arabic translation thereof) as well as company name, address, date of establishment, type of business and amount of capital. In addition, a resolution must be supplied from the board of directors authorizing the establishment of a Saudi branch. Financial statements of the branch must be kept in Arabic and filed for tax purposes with the Department of Zakat and Income Tax at the Ministry of Finance and National Economy. Local legal representation is necessary to register a branch in the Kingdom.

Representative Office: A foreign-owned entity undertaking multiple public sector contracts may obtain a "representative office" license from the Ministry of Commerce. The representative office may supervise and coordinate the entity's administrative activities within Saudi Arabia, but would be prohibited from directly or indirectly engaging in commercial activities in the Kingdom.

Technical and Scientific Services Office: A foreign-owned entity may obtain a "technical and scientific services offices" license from the Ministry of Commerce. This office may provide technical and scientific support to the parent company's Saudi distributor(s), conduct market surveys, and undertake product research. Services offices are, how-ever, prohibited from directly or indirectly engaging in commercial activities in the Kingdom.

EXPORTING

The Commercial Agency Regulations (CARs) regulate all commercial relationships (including both agency and distribution arrangements) in Saudi Arabia. Under the CARs, foreign companies may not operate directly on the Saudi market, but only through Saudi intermediaries, i.e., Saudi nationals or companies owned and managed exclusively by Saudi nationals. Thus, although a U.S. exporter may sell its products to a Saudi purchaser without entering into a formal relationship with a Saudi intermediary, e.g., through an offshore sales transaction, Saudi representation is a prerequisite for those exporters which seek to establish a long-term presence on the Saudi market. The most important features of the CARs include: