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German Legal Expertise in the Middle East since 1981

Fully Foreign-Owned Businesses in Saudi Arabia

Hany Kenawi

Author: Hany Kenawi
Senior Lawyer.

Guiding Principle
Contrary to what is commonly known to many, there are various activities that non-Saudi investors may practise in Saudi Arabia with no requirement to have a local partner. This permission is not limited to the boundaries of a certain region(s). Non-Saudi investors may have their own entity to practice one or more of the permitted activities all over the Kingdom. The permitted activities include the industrial sector, trading and services activities. Although the conditions set by the Saudi government for practicing certain activities are usually higher for 100% foreign shareholder than for a joint-venture with local participation it still is worth to consider this option.

A. Misconceptions of the Saudi Investment Environment

When it comes to the official conditions of practising any kind of business in Saudi Arabia for the foreign investors, there are many misconceptions. Non-Saudi investors usually expect that doing business in the Kingdom be either subject to similar rules as those prevailing in their home countries or those of other Gulf countries.

While the Saudi government does spend a lot of efforts in keeping its legal platform of doing business in line with those of the Western countries, there still a lot of rules that differs due to the cultural specificity of the country. Not observing these conditions might result in causing a lot of damage usually to the non-Saudi party.

B. Fully Foreign Owned Activities

On the other hand, there are a lot of incentives and opportunities that still unknown to many of the investors located abroad. This includes several activities at different sectors that the Saudi government has allowed non-Saudi investors to practice in the Kingdom with no requirements to have a local partner. Non-Saudi investors may practice services, industrial, commercial and real estate activities without getting into partnership with a local partner.

The following summarizes the requirements for practising the most significant activities that the Saudi government allowed non-Saudi investors to engage in without the requirement to have a local partner.

  I. 100% Foreign Wholesaler and Retailer

With a volume, reaching up to SAR 400 billion[1] the wholesale and retail market in Saudi Arabia is the largest in the MENA region. On the accession of Saudi Arabia to the WTO[2], the country pledged to open its wholesale and retail distribution activities to non-Saudi investors. The pledge, however, did not include commercial agencies activities that are restricted for Saudi citizens only.

However, forming a 100% non-Saudi owned trading company is subject to several conditions. The Saudi Minister of Commerce and Investment advised that the foreign investor desiring to form 100% foreign trading company in the Kingdom should observe the following:

  1. The investor’s legal structure is a company operating internationally in at least three different markets;
  2. The capital of the formed company, Saudi subsidiary, should be no less than SAR 30 million[3];
  3. The investor shall invest an amount no less than SAR 200 million[4] over the first five years from obtaining the license;
  4. The investor shall abide by the concerned regulations concerning the minimum limit of appointing Saudis at the local subsidiary;
  5. The investor shall train 30% of its current Saudi employees annually;
  6. The investor shall achieve one of the following requirements:
    a) 30% of the products of the investor distributed locally shall be manufactured in the Kingdom;
    b) 5% of the sales value shall be used to establish a research and development programs in the Kingdom;
    c) Setting up a unified centre to provide these services and after-sales services.

  II. 100% Foreign Industrial Activities

Non-Saudi investors may form a light products industries, which include “factories for light and simple products such as metal formation; manufacturing kitchens, windows, doors or furniture from aluminium, wood or iron; wooden works; packing and packaging food materials; etc.”

Conditions for Light Products Factories are

  1. The entity to be formed should be either structured as Limited Liability Company or Joint-Stock Company; and
  2. Project location should be within one of the industrial ( or economic ( cities; and
  3. Project site to be designed by an approved and licensed local engineer; and
  4. The purpose of the end product should be to achieve self-sufficiency for the local market or development of exports; and
  5. Employment of non-Saudis should not exceed 25% of total manpower, if necessary, and this percentage should include managers, executives and specialists with practical experience of at least three (3) years in the country of the licensed entity in the area of the enterprise’s business; and
  6. Provision of modern and sophisticated systems for the management and control of material consumption, recycling and disposal of waste, operations and production lines, energy consumption, warehouses, internal safety and security; and
  7. An approved safety plan for the factory; and
  8. Provision of an annual report on the factory’s production, raw material consumption, imports and exports. Level of production must be proportionate to the size of factory and number of employees; and
  9. Provision of all data, information and financial statements audited by such auditor as may be designated by the Saudi Arabian General Investment Authority (SAGIA); and
  10. The investor(s) shall deposit the capital at a local bank in Saudi Arabia after obtaining the investment license;
    Conditions for Industrial Projects are

  1. The site of the project, i.e. the factory, should be within a factory master plan with an area of at least 2,000 m2; and
  2. The minimum limit for the capital of the entity to be formed is Saudi Riyal one million (SR 1,000,000)[5].

   III. 100% Foreign Engineering Activities

Engineering is the most recent activity that the Saudi government allowed to be practised by 100% non-Saudi entities

Non-Saudi engineering enterprises now may form a fully owned subsidiary in Saudi Arabia for providing engineering consulting services under the following conditions:

  1. The shareholder should be existing from a period no less than 10 years;
  2. The shareholder and/or any of its subsidiaries should exist at four countries at least.

[1] About US$ 106 billion. US$ 1 = SAR 3.74.

[2] Website:

[3] About US$ 7,999,000.

[4] About US$ 53,329,000.

[5] = € 219,288.70; € 1 = S.R. 4.5

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