Doing business guide KSA 2019...06 Doing business guide | Understanding Saudi Arabia’s tax position• Saudi Arabia is an oil-based economy with the largest proven crude oil reserves

Doing business guideUnderstanding Saudi Arabia’s tax position

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Doing business guide | Understanding Saudi Arabia’s tax position

Contents

04Saudi Arabia

06Market overview

08Industries of opportunity

10Entering the market

A country located in the Arabian Peninsula,the Kingdom of Saudi Arabia (KSA, SaudiArabia or The Kingdom) is the largest oil-producing country in the world.

Throughout this guide, we have providedour comments with respect to KSA, unlessnoted otherwise.

Government type Monarchy

Population (2018) 33.7 million

GDP (2018) US$ 782.48 billion

GDP growth (2018) 2.215%

Inflation (2018) 2.466%

Labor force (2018) 14.37 million

Key industries Crude oil production, petroleum refining, basic petrochemicals, ammonia, industrial gases, sodium hydroxide (caustic soda), cement,fertilizer, plastics, metals, commercial ship repair, commercial aircraft repair,construction

Source: The Economist Intelligence unit, World Bank, Central Intelligence Agency FactBook

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Saudi Arabia

The Kingdom of SaudiArabia is the largest oil-producing country in the world.

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• Saudi Arabia is an oil-based economywith the largest proven crude oil reservesin the world. According to OPEC, SaudiArabia is also the largest exporter ofpetroleum and possesses around 18percent of the world’s total provenpetroleum reserves.

• The Saudi Arabian economy reportedstrong growth until 2014, primarily due to high oil prices, strong private sectoractivity, increased government spendingand the implementation of severaldomestic reform initiatives. Since 2014,lower oil prices have put pressure on theeconomy and Saudi Arabia has sought todiversify its revenue base to protect itselffrom oil price fluctuations.

• The non-oil sectors, especiallyconstruction, real estate, healthcare and education, still offer businessopportunities although most businessesare currently more conservative in theirplans compared to the past.

• Saudi Arabia holds membership ofseveral councils and internationalorganizations, such as: - United Nations (UN)- World Trade Organization (WTO) - Organization of Petroleum Exporting

Countries (OPEC)- Gulf Cooperation Council (GCC)- Arab League- Organization of Islamic Cooperation (OIC)- G20

Government• Saudi Arabia is a monarchy based on

Islam. The government is headed by theKing, who is also the commander in chiefof the military. On January 23, 2015, KingSalman Bin Abdul-Aziz Al Saud was

declared as the King and SupremeLeader of the country following the deathof the late King Abdullah Bin Abdul-Aziz Al Saud.

• The King governs with the help of theCouncil of Ministers, also called theCabinet. There are 23 governmentministries that are part of the cabinet.Each ministry specializes in a differentpart of the government, such as foreignaffairs, education and finance.

• The King is also advised by a legislativebody called the Consultative Council(Majlis Al-Shura). The Council proposesnew laws and amends existing ones. Itconsists of 150 members who areappointed by the King for four-year terms that can be renewed.

• The country is divided into 13 provinces,with a governor and deputy governor ineach one. Each province has its owncouncil that advises the governor anddeals with the development of theprovince.

• As Saudi Arabia is an Islamic state, itsjudicial system is based on Islamic law(Sharia’). The King acts as the final courtof appeal and can issue pardons. Thereare also courts in the Kingdom. Thelargest are the Sharia’ courts, which hearmost cases in the Saudi legal system.

• In recent years, conscious efforts havebeen made by the government to reducebureaucracy at all levels and transformgovernment departments by introducingonline services and increasingautomation in several ministries.

• King Salman chairs the Saudi SupremeEconomic Council, which is in charge ofoverseeing the formulation of economicpolicy and encouraging foreigninvestment.

Government

Government type Monarchy

Chief of State King Salman Bin Abdul-Aziz Al Saud

Head of Government King Salman Bin Abdul-Aziz Al Saud

Legal system Islamic (Sharia’) legal system with some elements of Egyptian, French, andcustomary law; note - several secular codes have been introduced;commercial disputes are handled by special committees.

Administrative divisions 13 provinces (mintaqat, singular - mintaqah); Al Bahah, Al Hudud ashShamaliyah (Northern Border), Al Jawf, Al Madinah (Medina), Al Qasim, ArRiyad (Riyadh), Ash Sharqiyah (Eastern), 'Asir, Ha'il, Jazan, Makkah (Mecca),Najran, Tabuk.

Source: Central Intelligence Agency Factbook, the Economist Intelligence Unit

Market overview

Saudi Arabia is an oil-based economy with thelargest proven crude oilreserves in the world.

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Economy – overview• The economy of Saudi Arabia is primarily

dependent on revenues from the oil andgas sector. Rising oil prices in the lastdecade (until 2014) fueled the Kingdom’sgrowth and resulted in the lowering ofgovernment debt and an increase offiscal surpluses. However, post summer2014, the economy is under the impactof declining oil prices.

• In order to reduce its reliance on the oiland gas sector, the government aims todiversify its economy by continuouslyutilizing the revenues from the oil and gas sector to support the growth of non-oil sectors, such as infrastructure,construction, education, tourism andmanufacturing.

• Saudi Arabia is also working on improvingthe business climate and increasingaccess to finance, especially for small and medium enterprises.

• The construction of “economic cities” is central to development plans. Thegovernment has launched projects toestablish new cities at different locationsacross the country. These cities areplanned as hubs for petrochemicals,mining and logistics industries as well as for a knowledge-based economy.

Vision 2030The Council of Ministers has approvedVision 2030, and the salient features are as follows:• To raise the non-profit sector’s

contribution to GDP from less than 1% to 5%

• To increase household savings from 6% to 10% of total household income

• To raise ranking on the E-GovernmentSurvey Index from the current position of 36 to be among the top 5 nations

• To raise ranking in the GovernmentEffectiveness Index, from 80 to 20

• To increase non-oil government revenuefrom SR163 billion to SR1 trillion

• To raise the share of non-oil exports in non-oil GDP from 16% to 50%

• To raise global ranking in the LogisticsPerformance Index from 49 to 25 andensure the Kingdom is a regional leader

• To increase the private sector'scontribution from 40% to 65% of GDP

• To increase foreign direct investmentfrom 3.8% to the international level of5.7% of GDP

• To rise from the current position of 25 to the top 10 countries on the GlobalCompetitiveness Index

• To increase the Public Investment Fund’sassets, from SR600 billion to over SR7trillion

• To increase the localization of oil and gas sectors from 40% to 75%

• To move from the current position as the 19th largest economy in the world into the top 15

• To increase women’s participation in the workforce from 22% to 30%

• To increase SME contribution to GDPfrom 20% to 35%

• To lower the rate of unemployment from 11.6% to 7%

• To have three Saudi cities be recognizedin the top-ranked 100 cities in the world

In order to reduce its reliance on the oiland gas sector, the government aims todiversify its economy by continuouslyutilizing the revenues from the oil andgas sector to support the growth of non-oil sectors.

• Real estate, hospitality and constructionare the key industries in terms ofopportunities in Saudi Arabia. A growingpopulation, increasing urbanization,inflow of religious tourism, ease of doingbusiness, and a focus on economicdiversification have all paved the way forincreased investment potential in thecountry.

• The government plans to constructmultiple schools and hospitals in theKingdom in the next 5 years. Moreover,the government is also focusing ondeveloping economic cities, industrialhubs and healthcare facilitates that offerinvestment and business opportunities.

Doing business in Saudi ArabiaThe official language is Arabic, therefore all documents are first required to betranslated into Arabic by an officialtranslator and thereafter submitted to therelevant government authority.

The summary of procedures is as follows:• Obtain the investment license from the

Saudi Arabian General InvestmentAuthority (SAGIA)

• Open a bank account with a local bank in KSA for depositing the initial capital

• Obtain a commercial registration (CR)from the Ministry of Commerce andIndustry (MOCI)

• Register with the Chamber of Commerce

• Register with the Customs department

• Obtain a municipality license

• Register with the Ministry of Labor

• Register with the General Organizationfor Social Insurance (GOSI)

• Register with the General Authority of Zakat and Tax (GAZT)

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Industries of opportunity

The official language isArabic, therefore all documents are firstrequired to be translatedinto Arabic by an officialtranslator and thereaftersubmitted to the relevantgovernment authority.

The non-resident who intends to set up a branch or an LLC in KSA is required toobtain the investment license from SaudiArabian General Investment Authority(SAGIA) before starting the aboveprocedures. Given that all the requireddocuments should be translated intoArabic language for filing with theauthorities, it may take approximately 3 to 4 months to obtain the CommercialRegistration (CR) from the Ministry ofCommerce and Industry

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Number Procedure Minimum time tocomplete

Associated cost

01 Reserve the company name and submitArticles of Association

5 days on average No charge

02 Notarize the Articles of Association with the Notary Public

1 days No charge

03 Pay company registration fees Less than one day (online procedure)

SR1,200 for commercialregistration + SR2,000 afee to become member ofChamber of Commerce +SR 500 e-magazinepublication fee

04 Open a bank account 1 day No charge

05 Obtain a business location license from the Municipality

4 days SR 1,000

06 Register with the Ministry of Labor 1 day No charge

07 Register with the post office ‘Wasel’ Less than one day (online procedure)

SR500

08 Make a company seal 1 day SR50

09 Register with the General Organization for Social Insurance (GOSI)

1 day No charge

10 Register with the General Authority of Zakat and Tax (GAZT)

3 days No charge

Procedures for starting a business in Saudi Arabia

Source: Doing Business report Saudi Arabia, World Bank Group

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Doing business in Saudi ArabiaForeign investment incentives and restrictionsIn April 2000, the Supreme EconomicCouncil enacted the Foreign InvestmentAct (FIA), which is a broad framework withinwhich non-Saudis are permitted to investin the Kingdom in minority, majority or100%-foreign-owned ventures. In February2001, Saudi Arabia’s Supreme EconomicCouncil approved a “negative list” ofeconomic sectors barred to majority-foreign-owned firms, thus clarifying theissue of where in the economy foreignersmay invest. The list was published assecondary legislation to the FIA and wasearmarked for annual revision. It is also, in the words of the government, to beinterpreted “flexibly”. By default, thosesectors not included on the list should be regarded as legally open to majority-foreign-owned companies.

In August 2002, a new, shorter listconsisting of 15 areas of the economyrestricted from foreign investmentreplaced the original negative list of 22areas. The present negative list includes oilexploration, drilling and production; realestate brokerage; and land and airtransport. Foreign investment is nowofficially permitted in insurance, powertransmission and distribution, educationand pipelines.

The FIA aims to provide equal treatmentfor non-Saudi firms, stating in Article 5 ofthe Implementing Regulations for theForeign Investment Law that a foreign

venture “shall enjoy all the benefits,incentives and guarantees enjoyed by a national project”. The FIA includesguarantees on the free repatriation ofprofits and capital, and it provides a clause that foreign-owned assets may be expropriated only in exceptionalcircumstances, in return for fullcompensation. It offers the right to buyproperty and allows ventures to sponsortheir own employees (previously denied to 100%-foreign-owned ventures).

The FIA established SAGIA, an entity withsole responsibility for approving foreign-investment projects. This includes amandate to regulate the investmentsmade by foreign entities to ensureconsistency with national interests. SAGIAalso has responsibility for developing

more detailed legislation to flesh out the framework established by the FIA.However, SAGIA’s primary goal is tofacilitate and encourage investment (bothlocal and foreign) wherever possible.

SAGIA’s Investors Service Center (ISC)(www.sagia.gov.sa/en/) serves as a one-stop shop to facilitate the investmentprocess for foreign companies, minimizingthe number of bureaucratic steps requiredbefore investment can take place. The ISCcomprises of three divisions, each focusedon particular steps in the investmentprocess:• The investors service unit – ensures

that initial approval forms are completedand that documentation is handledproperly.

• The license follow-up unit – rechecksinvestment applications, notifies theinvestor of any omissions, collects theappropriate application fees and thenregisters the new venture.

• The government relations unit – helpsinvestors to establish contacts with othergovernment agencies to eliminateobstacles hindering the licensing of aproject. Nine ministries are representedat the ISC.

The government has courted foreigncompanies willing to invest in thepetrochemicals business (which is notincluded on the negative list), especiallyaround the industrial cities of Jubail andYanbu. The substantial incentives it has

Entering the market

In April 2000, theSupreme EconomicCouncil enacted theForeign Investment Act(FIA), which is a broadframework within whichnon-Saudis are permittedto invest in the Kingdomin minority, majority or100%-foreign-ownedventures.

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made available have already attracted anumber of firms to the sector. However,the foreign investors that have been mostsuccessful in petrochemicals have typicallybeen those seeking joint ventures withSaudi Arabian Basic Industries Corporation(SABIC), the majority-state-ownedindustrial giant. The government haslooked most favorably on joint ventures

with Saudi partners in other sectors aswell. Prior to the passage of the FIA,operations that were 100%-foreign-ownedcould not gain access to the same taxtreatment, funding and other incentivesavailable to joint ventures. Fully foreign-owned companies still remain theexception rather than the norm.

SAGIA’s Investors ServiceCenter (ISC) serves as aone-stop shop to facilitatethe investment processfor foreign companies.

There is a series of labor regulations thatrequire foreign companies operating in the Kingdom to employ and train Saudinationals. All investment schemes mustshow that they meet requirements onemploying and training Saudi nationals.After the commencement of the project,depending upon the nature of its work, an entity should, on a continuing basis,maintain its Saudization ratio; a failure to do so may lead to problems withauthorities in renewals. Labor-intensiveprojects receive preferential treatmentsince the government seeks to combatrising local unemployment. Priority is givento high-technology projects which offersignificant skills transfer. Theserequirements have been in place for some time but are being enforced withincreasing rigor, and the licensing processoffers officials a good opportunity toensure that standards are being met.

100% foreign ownership is now allowed intrading activity on a case-by-case basis.

Tax incentivesThe government has granted 10-year taxconcessions to six underdevelopedprovinces in the Kingdom, with theintention of attracting more investment on the start of any project. Investors will be granted a tax credit against the annualtax payable in respect of certain costsincurred on Saudi employees.

The tax credits will be offered in thefollowing regions:• Ha’il• Jazan• Najran• Al-Baha• Al-Jouf• Northern territory

In early 2019 the GAZT published a draftSpecial Economic Cloud Zone Law forgeneral comments. The purpose of thisLaw is to make Saudi Arabia a hub for newdigital services, including cloud computing,through attracting investments in

informational technology and digital-basedservices and Cloud Computing Servicesand Related Activity by offering tax andnon-tax based incentives to prospectiveinvestors. However, the law has not beenformally introduced as yet.

Financial incentives• The ability to carry forward tax losses on

balance sheets indefinitely (subject tochange of ownership and performingsame activity rules).

• Foreign investors have access togenerous regional and internationalfinancial programs, including:- Arab Fund for Economic and Social

Development (AFESD) - participates in financing economic and socialdevelopment projects in Arab countries.

- Arab Monetary Fund - promotes thedevelopment of Arab financial marketsand trade among member states;advises member states on investment of resources.

- Arab Trade Financing Program -provides medium and long-term loansto individuals and organizations forprivate and commercial trade.

- Inter-Arab Investment GuaranteeCorporation - provides insurancecoverage for inter-Arab investments and export credits against commercialand non-commercial risks.

- Islamic Development Bank (IDB) -participates in equity capital and grantsloans for productive projects andenterprises. It accepts deposits tomobilize financial resources throughSharia’-compatible avenues.

Exchange controlsThere are no significant restrictions on the inward or outward movement of fundsby companies. Transfer operations areincreasingly sophisticated and rapid,although occasional constraints onworking hours or working days may causea delay of one or two days in implementingorders.

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The government hasgranted 10-year taxconcessions to sixunderdevelopedprovinces in the Kingdom,with the intention ofattracting moreinvestment on the start of any project.

Although there are no restrictions, theSaudi Arabian Monetary Authority (SAMA –the central bank) closely monitors foreignexchange transactions to deterspeculation, fraud and money-laundering.

Banks must report the export of riyal banknotes to SAMA and gain approval prior tothe participation of foreign banks in riyal-

denominated syndicated loans or foreign-currency syndicated transactions arrangedfor non-residents. SAMA has shownconsiderable flexibility in its approach tosuch arrangements, however, and has co-operated speedily with the vast majority of transactions.

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No. License type Minimum capital (SR) Minimum Saudiparticipation (%)

01

Commercial with Saudipartner

26,666,667Foreign capital shareholding not less thantwenty million (SR 20,000,000) andpartnership not more than 75%.

25%

100% Foreign commercial 30,000,000 –

02 Communications – 40%

03 Communications value added – 30%

04 Insurance – 40%

05 Reinsurance – 40%

06 Property financing – 40%

07 Property investment The value of each project is not less than30,000,000 (covering land and construction);the land and building will be outside theperimeter of the two holy mosques

–

08 Management of constructionprojects, detailed engineeringdesign and EPC contracts

– 25%

09 Public transport (bustransportation within cities)

500,000 30%

10 Public transport (metrotransportation within cities)

500,000 20%

11 Joint stock company 500,000 –

12 Practice other transportsactivities

10,000,000 –

*Related to the limit of the cost of a single project to be constructed. There is no minimum limit for the capitalof property development projects.

Source: sagia.gov.sa/media/1100/sagia-investment-manual-7th-edition-jan-2019-final.pdf

Types of licenses, minimum capital requirements and percentage of Saudipartnership

There are no significantrestrictions on the inwardor outward movement offunds by companies.

Choice of business entity and setting up a companyPrincipal business entitiesLimited liability company (LCC) , joint stock company ( JSC) and branch of a foreign entity.

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Restrictions on licenses

Number Activity Restrictions

01 InformationTechnology

• It is not allowed to open a shop

02 Trading licenses(Foreign 100%)

• Train 15% of Saudis• Not to open more than a shop per district

03 Industrial licenses • It is not allowed to open shopping centers for products without obtaining theSAGIA approval

04 Scientific andtechnical office

• Number of technical employees in the office shall be (50) and this number canonly increase after the prior consent of the SAGIA

• Office may study the markets regarding the activity type of the company andprepare reports on such study to the headquarters. Office shall submit to theSAGIA annual summary on its activity

• Office may neither implement any contracts nor carry out any commercial orinvestment activity directly or indirectly in the Kingdom as well as it may notcharge any fees for training the Saudi technicians

• Company shall comply with all regulations and instructions applicable in theKingdom of Saudi Arabia and this license will be withdrawn if the company hasbreached its terms and the relevant official entities will be so notified

05 Contractions • It is not allowed to carry on any consultancy activities and design

06 Activities of holding companies • Obtaining the prior approval of the General Authority for investment for eachproject to be established and investment in it

07 Real estate license • Obtaining the prior approval of the General Authority for Investment on anyproperty to be owned or invested so that the cost of any project is not less than30 million riyals land and building, provided that they are not within theboundaries of the cities of Mecca or Medina

08 General restrictions and conditions to be followed by the investor after receiving the license

License Applicant(s)/Entity shall be committed to the following:1. Obtaining the required post-SAGIA license’s governmental documents within 3

months of issuance of the SAGIA license and obtaining the necessary’sdocuments or licenses from related government agencies – where required-before or after obtaining SAGIA’s investment license and SAGIA should benotified by the investor if difficulties are faced in doing so not less than 3months from the projects schedules start of operation

2. Operating within the licensed field/ industry3. Implementing the project within the time- frame indicated in this application

and within licensed location or branch4. Using licensed name - as per SAGIA’s investment license- in all government

documents5. Renewing SAGIA’s investment license annually on time6. Receiving SAGIA’s follow-up officers, cooperating with them and furnishing all

required documents and proofs requested during the visit7. Not marketing or selling any non-licensed inside the kingdom of Saudi Arabia8. Respecting intellectual property rights of others9. Taking all necessary measures to protect the environment10. Respecting all local laws and regulations issued by Saudi ministries/agencies for

the entity and its employees11. Notify SAGIA of any change in contact address, P.O Box, email or phones and

fax numbers within (10) working days of the change using SAGIA designedforms no (13.01) from this manual

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Investor(s) acknowledges and undertakes:• To abide by all rules and regulation started in the Foreign Investment act issued

under the Royal Decree No (M/1) dated (15/01/1421 H) and all of itscorresponding Executive Rules and guarantee the authenticity of the documents,information and data presented herein with this application.

• That licensee shall be use the license issued by the Saudi Arabian GeneralInvestment Authority (SAGIA) only for the purpose for which the license issued.The Saudi Arabian Government and SAGIA will not be held responsible towardsany part for any acts of misconduct committed, directly or indirectly, by thelicensee, whether inside or outside Saudi Arabia, in violation of any laws of SaudiArabia or elsewhere. Furthermore, SAGIA reserves the right to revoke the licenseat any time if the license is convicted of any illegal acts or is deemed to posenational.

• That the purposes of this application is to obtain an investment license to startlegitimate investment activity/activities. The investment license is revocable if atany time the data and information presented are found false or inaccurate.

• That no final ruling/verdicts have been issued against the investor in violation ofForeign Investment Act.

• That no ruling/verdicts have been issued against the investor in monetary orcommercial related violations whether inside or outside the kingdom of SaudiArabia.

• That the investor(s) will transfer the capital declared in this application to a localbank once the investment licensed is issued.

• That the investor(s) is not currently resident within the Kingdom of Saudi Arabiaand that the investor(s) was not resident within the Kingdom of Saudi Arabiaduring the last 3 years.

• That the applicant who has obtained the investment license shall use it for thelicensed purposes and that the Saudi Government and the Saudi Arabian GeneralInvestment Authority will not directly or indirectly assume any liability towardsthird parties whether inside or outside the Kingdom of Saudi Arabia for any non-statuary action

• That the investor(s) have read and understood the above terms and conditions,commitments, obligations and undertakings and have agreed to them.

• That the name(s) and signature(s) on this application belong to him/them orhis/their legal representative and the signature of the letter is considered ashis/theirs.

Source: sagia.gov.sa/media/1100/sagia-investment-manual-7th-edition-jan-2019-final.pdf

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New Saudi Company Law• The Saudi Arabian MOCI introduced a

new Company Law, effectiveMay 2, 2016.Some of the key changes compared tothe old Company Law are as follows:- The ability for a LLC to be formed by

one shareholder rather than a minimumof two as required previously

- Reducing the minimum share capital forJSCs (SR500,000 instead of SR2,000,000)

- Reducing the minimum number ofshareholders in JSCs to become twoshareholders instead of the previousminimum requirement of fiveshareholders

- Enforcing the need for an auditcommittee to monitor the company’sbusiness

- Prohibition on the role of the chairmanof the board and any other executiverole in a company being combined

- Dictating the “accumulated voting”methodology in electing the board ofdirectors (i.e. each shareholder hasvoting rights equivalent to the numberof shares it holds, which can be used for one nominee, or divided betweennominees, without any duplication ofvotes. This system tends to favorminority shareholders)

- Shareholders in an LLC can no longerbe held personally liable for acompany's debts if losses exceed 50%of the company's capital. Instead thecompany is dissolved by operation oflaw unless the shareholders resolveotherwise

- The MOCI is responsible for supervisingand regulating matters relating to alltypes of companies under the newregulation, except for “listed companies”as these will be the specialty of theCapital Market Authority (CMA)

- Special treatment for family companiesand a legal framework specifically forholding companies

- Introduction of provisions relating to the issuance of debt instruments andsukuk financing by “listed companies” inaccordance with the regulations of thecapital markets

- Allowing companies to mortgage theirshares and the shareholders of listedcompanies to participate in annualgeneral meetings and vote on thedecisions via modern technology (i.e. no need for physical presence)

- Requirement for companies to valuetheir in-kind share capital contributionby a certified valuer

- Reduction from 50% to 30% of thestatutory reserve which needs to be put aside each year by the company

• Following are the different types ofbusiness structure provided under theregulations for companies:- Branches of foreign company -

commonly used for foreign investors- LLC - commonly used for foreign

investors- JSC- Limited partnership- Joint ventures- General partnership

• The procedure for setting up a branch ofa foreign company or LLC normally takesthree to six months.

There is specialtreatment for familycompanies and a legalframework specifically forholding companies.

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Accounting principles/financialstatements• All the Financial statements from 2018

are now prepared in accordance withInternational Financial ReportingStandards (IFRS) as endorsed in SaudiArabia and other standards andpronouncements endorsed by the Saudi Organization for Certified PublicAccountants (SOCPA)

• The audited financial statements arerequired to be uploaded within fourmonths from the end of the financial year on the MOCI’s web portal.

Taxation in Saudi ArabiaOverview• Like most other states in the GCC, Saudi

Arabia levies corporate income tax on thenon-resident's share in a resident

corporation; the share of Saudi and GCCnationals is subject only to a religious levycalled Zakat, which is levied on net equity.If a company is a joint venture between aSaudi/GCC shareholder and a foreignshareholder, the portion of taxableincome attributable to the foreign party is subject to income tax and the Saudiparty’s share of net equity is subject to Zakat.

• Corporate tax rates for foreigncompanies vary widely among GCCstates. The Saudi cabinet approved a new tax law on 12 January 2004. Theexecutive by-laws covering the newcorporate tax law were published inAugust 2004. The tax regulations providethe income tax flat rate of 20%, effectivefor accounting years commencing on orafter 30 July 2004. Investments in certainstrategic resources are still taxed athigher rates: 30% for gas and at ratesranging from 50% to 85% depending onthe capital investments for taxpayersengaged in the production of oil andhydrocarbons materials. The taxstructure offers some benefits tocompanies choosing to invest in LLCs orJSCs in Saudi Arabia. Such companies arefree to establish branches throughoutthe kingdom and only need to file onecombined return, provided they arebranches of only one legal entity. TheGAZT often scrutinizes the reportedexpenses and charges of a branch.

The general tax burden of a Saudientity owned by foreign companies• The share of taxable profit owned by the

non-Saudi/non-GCC shareholder will besubject to 20% corporate income tax in

Branch of foreign company

LLC JSC

Minimumcapitalrequirement

Normally SR500,000 (but can be lower or higher depending upon the nature of activity)

SR500,000 SR500,000 or SR5,000,000 (in case of single shareholder)

Minimumshareholder

Not applicable One shareholder

If the number of shareholdersexceeds 50, the company hasto be converted into a JSCwithin a year. If the company is not converted into a JSC, the LLC will be dissolved byoperation of law with certainconditions.

Two shareholders

Single shareholder is allowed with a minimumcapital of SR5,000,000 andcertain other conditions.

Losses exceed 50% of capital

In case of a foreign branch,the HO’s liability may not be restricted to the extent of the branch's capital.

If losses exceed 50% of capital, the shareholders must meet within 90 days and decide whether todissolve or continue thebusiness.

If losses exceed 50% of capital, the shareholders willnot be held personally liablefor company debts.Shareholders must meet within 90 days and decidewhether to dissolve orcontinue the business andpublish their decision. Thecompany will be deemed todissolve by operation of law if no decision is made.

If losses exceed 50% of capital, the shareholders willnot be held personally liablefor company debts.Shareholders, once aware,must meet within 45 days inan extraordinary generalmeeting and decide whetherto dissolve or increase sharecapital. If the increase in sharecapital is not materialized, thecompany will be deemed todissolve by operation of law.

Maintenanceof statutoryreserve

Transfer 10% of net profit to statutory reserve until it reaches 30% of sharecapital.

Transfer 10% of net profit to statutory reserve until itreaches 30% of share capital.

Transfer 10% of net profit to statutory reserve until itreaches 30% of share capital.

Key differences between foreign branch, LLC and JSC

addition to 5% withholding tax (WHT)applicable on the distribution ofdividends to the non-resident (includingnon-resident GCC) shareholders.However, the Saudi/GCC shareholder will be subject to Zakat, a fixed-rate tax of 2.5% levied on the higher of taxableincome or what is sometimes referred to as the “balance sheet” basis. A simplecalculation of the balance sheet basisincludes the Saudi shareholder’s share of equity plus long-term liabilities lessfixed assets.

• As per the domestic regulations, theaccounting treatment for Zakat andincome tax in joint venture companies is charged to the Company’s incomestatement.

Summary of the Saudi Arabian incometax law 2004The Saudi tax regulations came into effectfrom 30 July 2004, which has introducedcertain new concepts and/or modifiedexisting practices. The taxation system inthe past was much less codified and asignificant portion of the tax system hadevolved over a number of years throughvarious practices. However, the law is stillsubject to significant interpretation. Thefinal treatment of any particular section ofthe law will ultimately be dependent uponthe practices developed by the GAZT andhow the particular appeals play out in thecourts.

The GAZT will always lift the veil ofincorporation to determine the nationalityof the shareholders. They will go up thechain of ownership to the last level.

In addition to corporate income tax andZakat, WHT is levied on payment to non-residents from an “in-kingdom source”.WHT, on the other hand, ranges from5% to 20%, depending on the nature of

payment, place of performing services and relationship with the non-resident.

Residence• The 2004 tax law also introduced the

concept of residency for individuals andcorporations, which is of particularimportance in assessing liability to WHT.

• A natural person is considered resident ifhe has a permanent residence (defined)and is available in the Kingdom for aperiod that in total is not less than 30consecutive/non-consecutive days in atax year. Additionally, a natural person isconsidered resident if he resides in theKingdom for a period not less than 183consecutive/non-consecutive days in atax year, even if he does not have apermanent residence.

• For a company, residency in a tax year isconsidered if the company is establishedin accordance with the companies’regulations or is headquartered in theKingdom.

Related partyThe tax law has introduced the concept of related party. Thus, for companies,ownership or control of 50% or more bythe same persons or related persons shallbe considered to be companies under one common control.

Source of incomeThere are extensive rules; however, insummary, income is considered to berealized in the Kingdom if it arises from an activity occurring in the Kingdom; if it is dividends or management fees and amanager’s fee paid by a resident company;amounts paid by a resident for servicesrendered in the Kingdom either fully orpartly; or an amount paid by a residentcompany to its head office or a relatedcompany for services rendered, etc. (thedetailed list is included in the tax law).

Supply of goodsThere is no WHT on payments made tonon-residents for the import of goods.

Income derived by a non-resident partyfrom a contract for supply of goods fromabroad is not considered as a Saudi-source income (i.e. not subject to tax inSaudi Arabia) unless it includes associatedwork in Saudi Arabia, such astransportation, installation, training orother similar work. In such a case, onlyassociated work is considered to bederived from an activity performed inSaudi Arabia and is liable to tax.

In case of delivery of goods from abroadwith “in-Kingdom associated work”, wherevalue is not separately specified in thecontract for the “in-Kingdom associatedwork”, income for each associated workshall be estimated at 10% of the totalgross value of the contract for taxpurposes.

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As per the domestic regulations, theaccounting treatment for Zakat andincome tax in joint venture companies is charged to the Company’s incomestatement.

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Tax losses Carry forward is allowed indefinitely. The maximum limit allowed to bededucted in each year must notexceed 25% of the annual taxableprofit.

Capital companies will be allowed tocarry forward losses, irrespective ofwhether there has been a change inownership or control, provided theycontinue to perform the sameactivity.

Currencytranslation

No consideration is given tounrealized currency translation gainsor losses arising from revaluation fortax purposes.

Tax rate 20% applicable to all, except 30% forexploitation of natural gas and ranges50% to 85% for production of oil andhydrocarbons materials depending oncapital investment.

Levied on • The resident corporation – on theshare of the non-Saudishareholders.

• The resident, natural, non-Saudiperson who conducts activities inthe Kingdom.

• The non-resident person whoconducts activities in the kingdom through a permanent enterprise.

• The non-resident person that hasother taxable income from in-Kingdom source without havingpermanent establishment.

Incomeexempt from tax

• Capital gains realized from thedisposal of financial instrumentstraded in the Kingdom’s stockexchange acquired afterimplementation of the new tax lawand gains resulting from the disposalof assets that are not part of theactivity.

• Capital gains realized from thedisposal of securities traded on astock exchange outside the Kingdomprovided the securities also aretraded on the Saudi stock exchange(Tadawul), irrespective whether thedisposal occurred through a stockexchange or through any othermeans.

• Cash or in-kind dividends receivedfrom investments made by a Saudiresident capital company in a Saudiresident or non-resident companyprovided the dividend recipient ownsat least 10% of the investeecompany and for a period of at leastone year.

Allowableexpenses

Ordinary expenses necessary for the realization of taxable income.Expenses such as bad debt write-offs,interest deduction, depreciationexpense repairs and maintenance,etc. are subject to certain rules.

Thincapitali-zation

There are no specific thincapitalization rules. However, there isa rule limiting the deductibility ofinterest expense to the lesser of thefollowing:• The actual interest expense; or• Interest income, plus 50% of taxable

income (excluding interest income and interest expense).

Income tax

Estimatedtaxes (deemedprofit tax)

The GAZT may assess the tax foractivities associated with worldwideexpenses on an estimated basis,when local expenses for practicingsuch activities are mixed withworldwide expenses and it is difficultto separate these expenses relatedto activity in the Kingdom accuratelyand hence it is impossible to submitactual accounts for the local activity.

The minimum deemed profit rates on various activities range from 80%(for management fees) to 10% (forconstruction work contracts).

Taxableyear

In general, the tax year is the state’sfiscal year.

A different year can be used in thefollowing circumstances:• If it is approved by the GAZT prior

to the effective date of law• If it is a Gregorian year• If the tax payer is a member of a

group of companies or a branch of a foreign company that uses adifferent financial year

Registration Each taxpayer must register hisactivity prior to the end of his first taxyear, otherwise a penalty may beimposed ranging from SR1,000 toSR10,000, depending upon theclassification of the taxpayer.

It is now mandatory for all taxpayersto be registered on the GAZT onlineportal and all filings with the GAZTare required to be made through theonline system.

Books andrecords

All taxpayers (except non-residentswho do not have a permanent establishment in the Kingdom) arerequired to keep the necessarybooks in the Kingdom in the Arabiclanguage. They must at least includethe following:• Daily journal• General ledger• Inventory book

For computerized records, thecomputer should be located in theKingdom.

For taxpayers operating through apermanent establishment that has acentral computer system abroad, thelocal terminal must be in theKingdom to generate all statements,transactions, etc.

Assessmentand appealprocedures

Detailed guidelines have been laidout in the tax regulations. Followingare the two appellate committees:• Settlement Committee of Tax for

Conflict and Dispute• Higher Committee of Tax for

Conflict and Dispute

New stream ofSettlementTax andZakatDispute

An independent Internal SettlementCommittee (ISC) is formed in theGAZT to assess open disputesbetween taxpayers and the GAZT forboth direct and Indirect taxes toreach to an amicable settlement.

Acceleratedtax payment

Accelerated tax payment procedureshave been introduced based on aformula. If the prior year’s tax liabilityis SR2 million or more, the taxpayer is required to settle accelerated taxpayments in 3 equal installments.

Non-submittaland delaypenalties

Penalties for non-submittal of the taxreturn by the due date are the higherof 1% of the total revenues up to amaximum of SR 20,000, or they rangefrom 5% of the unsettled tax for adelay not exceeding 30 days to 25%of the unsettled tax if the delayexceeds 365 days.

Penalties for delay in settlementamount to 1% of the unsettled taxfor each 30 days of delay. Thisincludes the delay in the WHT andaccelerated tax payments.

A financial penalty amounting to 25%will be imposed on the taxdifferences resulting from submittingincorrect information or fraud.

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WHTThe non-resident, on any amount received from any sources in the Kingdom, shall besubject to WHT deductible from the gross amount according to the following rates:

Nature of payment WHT rate (%)

Management fee 20

Royalties, payments against technical or consultancy services, or services for international telephone calls paid to the head office or any other related entities

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Dividends distributed 5

Rent, return on loans (interest) & insurance (including related parties) 5

Technical & consulting services 5

Airline tickets/air or sea freight 5

Insurance & reinsurance premiums 5

International telecommunication services 5

In-Kingdom land transportation 15

Any other payments 15

Statutory compliance deadlinesA Saudi entity is required to comply with the following main filing requirements by law:

Statutory compliance requirements Deadline

Filing of annual tax/Zakat return 120 days from year-end (60 days for consortium)

Filing of monthly WHT return 10 days from the end of month in which payment was made

Filing of annual WHT return 120 days from year-end

Contract Information Form (CIF) Within 3 months of signing the contract or amendments to the contracts signed with suppliers (services or materials) ifvalue is SR100,000 or more

Filing of accelerated tax payment To pay advance income tax in 3 equal instalments calculated at 25% of immediately preceding year’s tax liability (SR2 millionor more), if due, by the sixth, ninth and twelfth month of the year

Filing of audited financial statements with the MOC

Within 4 months of year-end

Capital companies will beallowed to carry forwardlosses, irrespective ofwhether there has been achange in ownership orcontrol, provided theycontinue to perform thesame activity.

Delay penalty 1% of unsettled tax for every 30 days of delay

Responsibility for payment The party making a payment to a non-resident is required to withhold tax

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Capital gains• Capital gains tax is assessed at 20%

on the disposal of shares by the foreignshareholder in a resident company.Capital gains on the disposal of sharestraded on the Saudi stock exchange(Tadawul) are tax exempt if the shareswere acquired after 30 July 2004. Capitalgains realized from the disposal ofsecurities traded on a stock exchangeoutside the Kingdom will be exempt fromtax, provided the securities are alsotraded on Tadawul, irrespective whetherthe disposal occurred through a stockexchange or through any other means.

• No gain or loss will be computed ontransfers of assets between groupcompanies, provided:

- The companies are wholly owned (directlyor indirectly) within the group; and

- The assets are owned within the groupfor two years from the date of transfer.

Transfer pricingThe transfer pricing (TP) regulations apply to all taxpayers whose deadline forsubmitting the tax declaration is on orafter 1 January, 2019 and generally areconsistent with Organization for EconomicCo-operation and Development (OECD) TP guidelines with the additionalrequirement to prepare industry analysis in TP local file and specific requirementsfor comparability analysis. The regulationsapply to all taxpayers however entities orpersons that are subject only to zakat (i.e.100% zakat payer) are not subject to theTP regulations (with the exception ofcountry-by-country reporting). In TPregulations, related party definition isextended with the introduction of effectivecontrol criteria which is in addition toownership and common control criteriaalready present in Income Tax law.

The choice of transfer pricing method isaligned with OECD guidance, with fiveprescribed methods: comparableuncontrolled price, resale price, cost plus,transactional net margin and transactionalprofit split. TP documentation including TPmaster file shall be submitted to Taxauthority within 30 days from the date ofrequest, subject to de minimis thresholdi.e. aggregate arm’s length value of relatedparty transactions in a year includingdomestic and capital transactions equalsor exceed SAR 6 million equivalent to US$1.6 million.

Foreign income and tax treatiesSaudi Arabia has signed treaties withFrance, China, India, Pakistan, Malaysia,Austria, Italy, Ireland, Greece, Japan, Korea,Poland, Bangladesh, Vietnam, Ukraine,Netherlands, Russia, Singapore, SouthAfrica, Spain, Turkey, United Kingdom,Uzbekistan, Belarus, Romania, CzechRepublic, Tunisia, Malta, Azerbaijan,Hungary, Kazakhstan, Luxembourg,Tajikistan, Algeria, Ethiopia, Macedonia,Portugal, Sweden, Venezuela, KyrgystanTurkmenistan, Egypt, Hong Kong, Jordan,Mexico and United Arab Emirates (effectivefor withholding tax on payments be madeon or after 1 January 2020)

The GAZT in recent years has issuedinternal guidance recommending astronger position on service permanentestablishments (PEs). The guidance statesthat if a non-resident provides services fora period exceeding the agreed services PEduration under an applicable tax treaty (i.e.183 days in a 12-month period), the non-resident will be deemed to have a PE inKSA, regardless of whether the serviceswere physically rendered in KSA.Consequently, a foreign service providerrendering services in KSA for more than

The GAZT in recent yearshas issued internalguidance recommendinga stronger position onservice permanentestablishments.

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183 days may create a PE even if it doesnot have any personnel or employeesactually in KSA.

ZakatZakat is payable by Saudi (and GCCnational) shareholders in their share of theZakat base in a company. The rate is 2.5%(This 2.5% could be changed to 2.577683%for the zakat payer following Gregorianyear and paying zakat on zakat base)and is calculated on the higher of theSaudi’s share in the adjusted net incomeor his share on the “balance sheet” basis.

The Zakat regulations effective from1.6.1438H (February 28, 2017) replace allprevious resolutions, circulars andinstructions relating to Zakat collectionfrom the date of this resolution.

The 2019 Zakat regulations was publishedon the GAZT's website on 14 March 2019and will be effective for the accountingperiod commencing on or after 1 January2019 by replacing the existing Zakatregulations that was issued in ealry 2017.The GAZT's current practices are more orless compiled in the Zakat regulations. TheGAZT also published rules for computingZakat on banks and finance companieslicensed by SAMA. Also issued theMinisterial Resolution providing theframework that the State will bear theZakat and Tax on Sukuks and Bonds beissued by Ministry of Finance locally in SR.

Turnover and other indirect taxes and stamp dutiesPresently there are no sales orconsumption taxes or stamp duties inSaudi Arabia.

Value Added Tax (VAT)VAT was introduced in Saudi Arabia on

1 January 2018 and is currently charged ata standard rate of 5% on most goods andservices.

Taxable transactionsVAT applies to almost all supplies of goodsor services, subject to limited exceptions.Exempt supplies include margin-basedfinancial services, life insurance andresidential property rental. Education and healthcare services provided to Saudicitizens are exempt. Saudi citizens alsomay claim relief from paying VAT on thefirst purchase of a private residence (forthe first SAR 850,000) through a specialscheme run by the Ministry of Housing.

RatesThe standard rate of VAT is 5%. Certaingoods and services are zero-rated inaccordance with the GCC’s FrameworkAgreement, which specifies somemandatory areas for zero-rating in all sixGCC member states (including exports ofgoods and services outside the GCC, andthe supply of qualifying medicines, medicalgoods and investment metals).

RegistrationThe standard mandatory VAT registrationthreshold is annual turnover of SAR375,000. A fine of SAR 10,000 is imposedfor failure to register by the requireddeadline. Businesses also may apply toregister voluntarily if they have annualturnover of at least SAR 187,500.Nonresidents providing taxable supplies to non-taxable customers in Saudi Arabiamust register through tax representativeswithin 30 days from the first such supply.

Filing and payment VAT tax periods may be monthly orquarterly. Taxpayers must calculate the netVAT for the period and submit the VAT

return electronically by the end of thefollowing month, together with thepayment required. VAT reporting can becarried out on a “cash accounting” basis forsmall businesses with turnover of less thanSAR 5 million. Businesses with an annualturnover of less than SAR 40 million mayuse a quarterly filing period. The GAZThave been very active in identifyingbusinesses that have failed to comply withthe VAT law, and have issued assessmentsand often significant penalties accordingly.To avoid penalties, businesses shouldensure they are compliant from a VATperspective.

Customs duties• Most of the consumer products are duty

free, e.g., rice, tea, corn, livestock andmeat (fresh or frozen).

• Customs duties at 20% are imposed onsome commodities for the purposes ofprotecting Saudi industries.

• Import duty on other items rangesbetween 5% to 20% ad valorem on thecost, insurance and freight (CIF) value.

• A limited number of items are subject tocustoms duties calculated on the basis ofmetric weight or capacity, rather than advalorem. However, the rates for theseitems are fairly low.

• The government has decided to raise the customs duty rates applied to 193products, from 5% to 25%.

• The Ministry of Finance has increasedcustoms duty rates applicable to a widerange of highly consumed products, withalmost 600 harmonized system (HS)codes impacted. The rate increase issignificant, with new rates of up to 25%

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payable on the customs value. A full listof impacted HS codes, description (inArabic) and new duty rates can be foundon the KSA Ministry of Finance website.

Customs duty is calculated on the CIFvalue of imports, which is converted toSaudi Riyals at the exchange ratespublished by SAMA applicable on the dateof the declaration. Customs duty is payablein cash or by a certified check drawn on alocal bank.

The documents required for allcommercial shipments to the Kingdom,irrespective of value or mode oftransportation, are:• Commercial invoice• Certificate of origin • Bill of lading (or airway bill)• Steamship (airlines) company certificate• Insurance certificate (if goods are insured

by the exporter)• Packing list• Evidence of payment to non-resident

vendor or bank guarantee

Depending on the nature of goods beingshipped, or upon certain requests fromthe Saudi importer or clauses in acontractual document, specific certificatesmay also be required.

GCC Unified Customs Tariff 2017Importers should review their importproduct portfolio in relation to the TheUnified Customs Tariff and ensure the HScodes/product descriptions are followed.Incorrect classification of goods on importmay lead to action by the customsauthorities, even where no duty rateincrease results.

Excise duty In June 2017, Saudi Arabia introducedexcise tax, another GCC harmonizedinitiative with the GCC FrameworkAgreement in place, and with domestic law effective from June 11, 2017. Some

of the key points are listed below:• Excise tax is chargeable on the

importation or production of excisegoods released for consumption in KSAon or after June 11, 2017.

• The excise tax is, ordinarily, chargeable byreference to the “tax base” of the goodsconcerned. The tax base is the higher ofeither the retail price of the goods or alist price which will be determined andpublished by the authorities.

• The definitions of excise goods are,broadly, soft carbonated drinks (50%rate), energy drinks (100% rate), andtobacco products (100% rate).

• Since then, the GCC has decided tobroaden the scope of excise products toall sugary drinks (i.e. also non carbonateddrinks) at 50% and electronic cigarettesand liquids for electronic cigarettes, bothat 100%. The excise on electroniccigarettes came into force in June 2019and the implementation of the excise on sugar sweetened drinks has beenpostponed until december 1st, 2019.

• All those holding excise goods valued in excess of SR60,000 (whether or nototherwise registered or registrable) arerequired to submit a one-off transitionalreturn and pay excise due within 45 daysof the implementation of the tax. Thismeans many shops and other businesseswill need to pay tax on stocks on hand.

• In addition to any transitional return,excise tax registrants must submitreturns reporting their total exciseliabilities on a bi-monthly basis (i.e. one return every two calendar months).Returns must be submitted together withpayment within 15 days of the end of thetax period.

• Importers of excise goods that are notentered into an approved warehousing arrangement will be required to pay

excise tax upon importation to thecustoms authorities.

Land taxThe Council of Ministers issued the whiteland tax law and its implementationregulations in June 2016 and levied 2.5%‘land tax’ on all undeveloped residentialand residential/commercial plots withinurban boundaries. The land valuation isperformed by the Ministry of Housing andis applicable to individuals and privatesector legal entities.

Personal taxation• Presently, there is no employment tax

in Saudi Arabia.

• In the 2017 federal budget, thegovernment announced its intention tolevy 6% tax on the remittance of salary byexpatriate individuals working in SaudiArabia, however this has not beenintroduced as yet.

Social security, pension• The GOSI (social insurance) is paid for

the employees who are on a residentialpermit (iqama) of a Saudi entity. The GOSIcontributions are computed on basicsalary, housing allowance andcommission payments, if any. Thesecontributions are required to be settledat the following rates:

All those holding excisegoods valued in excess ofSR60,000 (whether or nototherwise registered orregistrable) are requiredto submit a one-offtransitional return and payexcise due within 45 daysof the implementation ofthe tax.

• The minimum and maximum monthlylevels of contributory wage for Saudiemployees are SR1,500 and SR45,000respectively. For non-Saudi employees,the minimum and maximum levels areSR400 and SR45,000 respectively.

• GOSI is not applicable on individualsvisiting Saudi Arabia on a temporary,Business or a Visit Visa.

• Retirement benefits are payable toinsured Saudi workers at 60 Hijri years(58 Gregorian years). No annuitiescontribution exists for expatriate workers.

• Capital companies are allowed to deducttheir contribution to a retirement, socialinsurance or any other fund established

for the purpose of settling employees’end-of-service benefits or medicalexpenses, provided:- The allowable deduction does not

exceed the unfunded liabilities relatingto the fund that are due at thebeginning of the financial year for whicha deduction is being claimed; and

- The fund has an independent legalstatus, regardless of whether it isestablished inside or outside SaudiArabia.

Visa entry and requirements All visitors requires obtaining a visa prior travel to Saudi Arabia except:• Nationals of the GCC countries (barring

Qatari nationals)

• Transit passengers who intend tocontinue their journey by the same orfirst connecting aircraft within 18 hours,provided they possess onward or returndocumentation, do not leave the airportand make no further landing in SaudiArabia (except nationals of Burkina Faso,Mali, Niger and Nigeria who alwaysrequire a Transit Visa).

• Holders of re-entry permits and landingpermits issued by the Saudi ArabiaMinistry of Foreign Affairs

Foreign nationals who wishes to takeshort-term trips to Saudi Arabia to conduct business activities may obtain aCommercial Visitor Visa or Business VisitorVisa. The two types of visa permit differentactivities and are dependent on the jobposition. A summary of the two visa typesfollows:Foreign nationals possessing either aCommercial Visitor Visa or a BusinessVisitor Visa are not considered residents of Saudi Arabia and cannot obtain aResidence Permit or sponsor theirdependents for Family Visa. Business

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Annuity branch Occupational hazards

Total Employer’s share

Employee’sshare

Employer’sshare

Saudi nationals 22% 10% 10% 2%

Foreign employees(expatriates) 2% – – 2%

Type of visa and applicability Permitted activities Visa validity Permitted duration of stay

Commercial Visitor Visa Typically granted to individuals insenior-level positions (e.g., President,Vice President, General Manager, HRManager, Marketing Manager,Operations Manager, and Director).Foreign nationals holding acommercial visitor is not allowed toperform any hands on work activities.

• Attending business meetings or discussions;

• Receiving hands-on training;• Buying goods for sale outside

of the country;• Negotiating contracts; • Attending and participating in

a trade show; • Visiting facilities and plants;• Attending seminars or conferences

Single entry - valid for 90 days uponissuance

Multiple entry visa - US nationalsgets 5 years multiple entry visa; UKnationals can get up to 5 years visavalidity; French nationals can get upto 4 years visa validity; othernationality can obtain maximum 2years multiple entry visa

Single entry visa – 90 days allowedduration of stay

1 years, 2 years multiple entry visa – 30 or 90 days allowed duration of stay

4 years, 5 years multiple entry visa – 180 days allowed duration of stay

Business Visitor Visa Granted to individuals in technical andengineer position (e.g., Consultant,Engineer, and Technician). TheBusiness Visitor Visa is suitable forforeign nationals carrying out short-term hands-on or technical work.

• Technical repairs and maintenance;• Facilitating technical training; • Technical oversight;• Systems installation; • Auditing;• Consulting;• Buying goods for sale inside the

country;• Market integration;• Preparing inventory for evaluation.

Single entry - valid for 90 days uponissuance

Multiple entry visa - US nationalsgets 5 years multiple entry visa; UKnationals can get up to 5 years visavalidity; French nationals can get upto 4 years visa validity; othernationality can obtain maximum 2years multiple entry visa

Single entry visa – 90 days allowedduration of stay

1 years, 2 years multiple entry visa – 30 or 90 days allowed duration of stay

4 years, 5 years multiple entry visa – 180 days allowed duration of stay

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visitors are not permitted to open a bankaccount or lease a house. However,business visitors are authorized to lease a car with an international driver’s license.

General requirements to obtainBusiness Visa • Valid passport or travel document with

at least six months’ validity

• Health insurance from Saudi Arabia

• Commercial registration from the invitingcompany in Saudi Arabia

• Letter of invitation/support from a Saudicompany, and,

• Letter of introduction from the visitorcompany that contains the applicant’s job title and purpose of visit

There may be additional requirementsdepending on the country of residence ornationality.

Employment of GCC nationalsNationals of the Gulf Cooperation Council(GCC) may work and reside in Saudi Arabiawithout work authorization. Thesecountries include Bahrain, Kuwait, Omanand the United Arab Emirates. Currently,Qatari nationals are not eligible for thisexemption. However, GCC citizens mustdeclare their GOSI (social insurance) intheir home country and have a validCountry Smart ID.

Employment of Foreign NationalsForeign nationals intending to engage inactive, productive work that cannot beundertaken under a Work Visit Visa mustobtain work authorization. For long-termstays, a Saudi Work Visa and Work Permit

are required. Additionally, a ResidencePermit is required to lawfully work andreside in Saudi Arabia. However, in order to sponsor a foreign national for a workauthorization, the Saudi company must have or obtain a Block Visa approval andhave a High Green or Platinum Saudizationrating.

Block Visa/quotaTo employ any foreign national in SaudiArabia on a Work Visa, the intendedemployer must obtain approval from theMinistry of Labor in the form of a BlockVisa (or quota). At a central level, these areregulated by the ministry to oversee howmany foreign nationals are coming into the country, from which country and whatwork activities they will be engaged in.

The requirement to obtain to a Block Visais the first step in obtaining a Work Visa,following which there is a consular processthat is typically initiated in the country ofcitizenship of the foreign national. Theapplication for a Block Visa must contain a specific job title for the foreign employeeto be sponsored, which corresponds to the foreign employee’s professionalqualifications. When filing a Block Visaapplication, the company must know inadvance the exact position to be filled. The MOL strictly enforces the activitiesperformed by the foreign nationalaccording to the job title. The profession of an employee must relate to the activitiesstated in the Commercial Registration ofthe company.

SaudizationOver the past few years, the country hasimplemented an increasingly regulatedSaudization policy, tightening theemployment of foreign nationals, toincrease the proportion of Saudi in the

workforce of companies operating in thecountry. The scheme, known as Nitaqat,applies to all private sector companies with six or more employees, and appliesstandards differing on the size of thecompany and sector in which it operates.With these two factors set, each companyis then rated based on the thresholds setby the Ministry of Labor for the proportionof Saudis it employs. In addition, certainjobs are reserved only for local nationals,including HR and secretarial positions.

Foreign nationalsintending to engage inactive, productive workthat cannot beundertaken under a WorkVisit Visa must obtainwork authorization.

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The Nitaqat ratings impact the ability of the company when it comes to hiring additionalstaff as well as other factors as identified in the table below.

As an alternative to hiringSaudi employees, theauthorities haveintroduced a monthly fee that equates to‘Saudization credits’ thatcan boost a company’sSaudization rate.

Red

Not able to renew Work Permits, apply for residence permits, apply for newBlock Visas, hire non-Saudi nationals, or transfer sponsorship (can onlytransfer employees to a company with higher Nitaqat category but cannotreceive new employee). Commercial Registration will be blocked until companymoves to a Green category.

Yellow

Not able to apply for Block Visas, transfer of sponsorship, or hire non-Saudis(can only transfer employees to a company with higher Nitaqat category butcannot receive new employee). Companies will be given one-month to correcttheir Saudization before their Commercial Registration is blocked; nogovernment contract granted. Cannot renew Work Permits of employees whohave completed two years of service.

Low green Not able to apply for Block Visas or transfer sponsorship of more than oneemployee.

Medium greenNot able to apply for Block Visas; government contracts granted if promise toincrease Saudization; eligible to receive a transferred foreign employee andrenew a foreign employee’s visa without limitations.

High green

Able to apply for Block Visas; preferred by government in awarding a businesscontract if competing against low-Saudization companies in a bid; eligible toreceive a transferred foreign employee and renew a foreign employee’s visawithout limitations.

Platinum

Fast-track services at MOL; adequate number of Block Visas granted; givenpreference as suppliers for government projects and bids; eligible to receive atransferred foreign employee and renew a foreign employee’s visa withoutlimitations.

Parallel saudizationAs an alternative to hiring Saudiemployees, the authorities haveintroduced a monthly fee that equates to ‘Saudization credits’ that can boost acompany’s Saudization rate. The fee isbased on how many Saudi employees areunder employment as well as how manycredits are required. This scheme is usedto fund a national program to train Saudicitizens.

Student training ProgramAll Saudi companies with 25 or moreemployees must hire and train Saudinationals as interns under the ‘Saifiprogram’. The duration of the internship

is generally four weeks long. Interns mustbe paid a minimum salary of SAR 1,500(about US$ 400) per month and can workup to 40 hours per week. Companies maychoose either of two payment options tocomply with the program:• They may employ students internally

within the company for summer trainingand pay the minimum salary of 1500riyals per month directly to the intern, or

• They may choose to pay for the intern’ssummer training outside the companyand pay the minimum monthly salary of1500 riyals to an authorized trainingcenter plus 500 riyals to the student.

Headcount Number of students to be trained

25 - 500 4% of total headcount

501 - 3000 3% of total headcount

3001 and higher 2% of total headcount

The number of interns a company musttrain depends on the size of the company:

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Ajeer, transfers and third partysponsorshipCompanies can also temporarily engageforeign national employees from anotherfirm in Saudi Arabia through a regulatedsystem called Ajeer, and can also engageemployees through dedicated and licensedmanpower companies. In both instances,the requirement to obtain a block is notrequired. The same is true where anexisting employee of another firm in Saudi Arabia transfers their employment.

Wages and benefitsA unified system for salaries and wagesbased on experience and qualifications isapplied in the government sector. Salariesin the private sector are determined by themarket but are generally higher to reflectthe increased risk associated with workingin Saudi Arabia.

Other mandatory employee benefits to bepaid by the employer include the following:• Annual paid vacation of 21 days is due

after one year of service and up to fiveyears. If the employee is with the sameemployer for more than five years, he willbe entitled to 30 days paid annualvacation.

• End of service benefit is due upon theterm or termination of the contract: theemployee will be entitled to half a monthof pay for each of the first five years ofservice, and one month’s pay for eachsubsequent year. If the employee resigns,he will be entitled to (i) one-third of theend of service benefit if he spends aminimum of two years and up to fiveyears in service, (ii) two-thirds of the endof service benefit if he spends five to tenyears in service and (iii) the full end ofservice benefit if he spends more thanten years in service.

• Workers are allowed sick leave with fullpay for the first 30 days and three-quarters pay for the next 60 days.

• There is no compulsory annual bonus,but a bonus is paid by most companies.

A pregnant woman is entitled to onemonth maternity leave before the deliveryand six weeks after the birth. Employersbear the cost of medical check-ups,treatment and birth expenses and may not terminate a female worker duringpregnancy or during her time off after the birth.

Expatriate packages for skilled workersgenerally include provisions for housing,schooling, annual leave tickets, and restand recreation trips. Unskilled workersrequire accommodation and transportpaid to and from the Kingdom.

Employee share plansBefore April 2018, when an organisationissued its KSA resident employees withshares (or other equity awards) in a non-Saudi entity as part of an employeeincentive arrangement or otherwise, itwould have had to comply with certainlegal requirements, for example, the awardhad to be made through an “authorisedperson”.

New legislation introduced from April 2018has removed many of the administrativeand reporting requirements. The keyrequirement remaining is that the relevantregulatory authority should be notifiedwhen shares (or other equity awards) areawarded to KSA resident employees by the end of the relevant quarter. Certaininformation in relation to the award alsoneeds to be disclosed.

Wages protection system The Ministry of Labor launched the WagesProtection System (WPS) from March 1,2014. The aim of this system is for theMinistry of Labor to have a timely andaccurate record of bank account paymentsmade between an employer andemployee. This applies to Saudi citizensand Saudi expatriates in the private sector.

By implementing the above system, notonly is the Ministry of Labor maintainingthe salaries record and ensuring thepayment of salaries to employees in Saudi bank accounts, but other revenueauthorities are also monitoring, such as:• GOSI department will ensure that the

salaries (e.g. basic and housing subject toGOSI contribution) reported to the GOSIdepartment also match the employmentcontract.

• GAZT may use this information for taxpurposes and start comparing thesalaries as reported in WPS and asreported in the tax returns, and maydisallow any unreconciled differences.

There could also be implications forcompanies using the services of payrollproviders or paying directly to employee’sbank accounts outside KSA.

The Ministry of Laborlaunched the WagesProtection System (WPS)from March 1, 2014. Theaim of this system is forthe Ministry of Labor tohave a timely andaccurate record of bankaccount payments madebetween an employerand employee.

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Deloitte in Saudi Arabia – How can you benefit?Deloitte Middle East (DME) is committed to providing client insight and deliveringthought leadership to help our clients keep abreast of key developments in thetax landscape. Deloitte has more than 90 years of presence in the Middle East,making it the longest standing professionalservices firm in the region. We will outlinesome key areas where we have offered adifferentiated value added service toclients in KSA.

DME launched an International TaxServices Center of Excellence in Dubai in2009. The center offers our clients as wellas investors in the region services whichinclude structuring groups with inboundand outbound investments within theMiddle East and North Africa. The Centerleads some of our largest global taxengagements.

Deloitte’s Middle East practice has beenawarded a Tier One ranking in tax servicesfor five consecutive years by theInternational Tax Review’s World Tax

Awards. Top tier rankings are provided tofirms that have “an international networkand leading reputation” which is “reflectedin the size and quality of transactions” inthe relevant jurisdiction.

We would welcome the opportunity todiscuss your needs further and provideyou with a better understanding of theissues discussed in this material. Please do not hesitate to contact one of ourspecialists.

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We are here to help. Deloitte and Touche & Co. – CharteredAccountants

Al Khobar ABT BuildingAl Khobar, Saudi ArabiaPhone: +966 (0) 13 668 5700 Fax: +966 (0) 13 887 3931

Jeddah 40th Floor, The Headquarters BusinessPark TowerCorniche RoadJeddah, Saudi Arabia Phone: +966 (0) 12 578 1000Fax: +966 (0) 12 578 1002

Riyadh Prince Turki Bin Abdullah Al-Saud Street, Sulaimania AreaRiyadh, Saudi Arabia Phone: +966 (0) 11 282 8400 Fax: +966 (0) 11 282 8428

We welcome the opportunity to discussyour needs further and provide you with a better understanding of the issuesdiscussed in this material. Please do nothesitate to contact one of our specialists.

The ‘Doing business guide’ series issupplemented by the Middle East TaxHandbook, which provides a summary ofbasic tax information in a country-by-country snapshot.

Want to do business in Saudi Arabia?

Farhan FaroukTel +966 (0) 12 578 [email protected]

Nauman AhmedTel +966 (0) 13 668 [email protected]

Ali K. KhamisTel +966 13 668 5753 [email protected]

Sajjadullah Khan Tel +966 (0) 12 578 [email protected]

Syed M. NaqviTel +966 (0) 12 578 [email protected]

Dinesh KhatorTel +966 (0) 13 668 5733 [email protected]

Wissam MerhejTel +966 (0) 11 282 [email protected]

Nasser AlSaggaTel +966 (0) 13 668 [email protected]

Aamir MajeedTel +966 (0) 13 668 [email protected]

Issa AyashTel +966 (0) 13 668 [email protected]

This publication has been written in general terms and therefore cannot be relied on to coverspecific situations; application of the principles set out will depend upon the particularcircumstances involved and we recommend that you obtain professional advice before acting orrefraining from acting on any of the contents of this publication.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network ofmember firms, and their related entities. DTTL (also referred to as “Deloitte Global”) and each ofits member firms are legally separate and independent entities. DTTL does not provide services toclients. Please see www.deloitte.com/about to learn more.

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, riskadvisory, tax and related services. Our network of member firms in more than 150 countries andterritories, serves four out of five Fortune Global 500® companies. Learn how Deloitte’sapproximately 280,000 people make an impact that matters at www.deloitte.com.

Deloitte & Touche (M.E.) (DME) would be pleased to advise readers on how to apply the principlesset out in this publication to their specific circumstances. Deloitte & Touche (M.E.) accepts no dutyof care or liability for any loss occasioned to any person acting or refraining from action as a resultof any material in this publication.

DME is a licensed member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is a leadingprofessional services firm established in the Middle East region with uninterrupted presencesince 1926. DME’s presence in the Middle East region is established through its affiliatedindependent legal entities, which are licensed to operate and to provide services under theapplicable laws and regulations of the relevant country. DME’s affiliates and related entitiescannot oblige each other and/or DME, and when providing services, each affiliate and relatedentity engages directly and independently with its own clients and shall only be liable for its ownacts or omissions and not those of any other affiliate.

DME provides audit and assurance, tax, consulting, financial advisory and risk advisory servicesthrough 25 offices in 14 countries with more than 3,300 partners, directors and staff. It has alsoreceived numerous awards in the last few years which include, Middle East Best Continuity andResilience provider (2016), World Tax Awards (2017), Best Advisory and Consultancy Firm (2016),the Middle East Training & Development Excellence Award by the Institute of CharteredAccountants in England and Wales (ICAEW), as well as the best CSR integrated organization.

© 2019 Deloitte & Touche (M.E.). All rights reserved.

Documents

Doing business guide KSA 2019...06 Doing business guide | Understanding Saudi Arabia’s tax position• Saudi Arabia is an oil-based economy with the largest proven crude oil reserves