Saudi Arabia – Trade
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
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: