The Ministry of Human Resources and Social Development in Saudi Arabia: A Pillar of Economic Growth and Human Development – A Comprehensive Guide to Business Establishment and Operations

I. Executive Summary

The Ministry of Human Resources and Social Development (MHRSD) is a fundamental pillar in achieving Saudi Arabia's ambitious Vision 2030, actively contributing to shaping the country's economic landscape and enhancing human capital. Its strategic initiatives, particularly the "Developed Nitaqat Program," aim to improve labor market efficiency, increase national workforce participation, and create a competitive and dynamic environment for both local and foreign businesses.

For investors looking to open business in Saudi Arabia, understanding MHRSD regulations and the broader investment framework is crucial. The Kingdom offers a streamlined process for setting up a business in Saudi Arabia, supported by the Ministry of Investment (MISA) and various digital platforms. Special Economic Zones (SEZs) provide unique incentives, including significant tax advantages and, in some cases, exemptions from Saudization requirements, making them attractive hubs for strategic investments. Navigating these interconnected regulatory bodies and leveraging digital tools like the "Qiwa" platform is essential for successful and compliant operations.

II. Introduction: Saudi Vision 2030 and the Evolving Investment Landscape

Saudi Arabia's Vision 2030 outlines a transformative blueprint aimed at diversifying the economy away from oil, fostering sustainable development, and enhancing global competitiveness. The strategic development of human capital is a core component of this vision, aligning educational outputs with labor market demands and creating high-quality job opportunities for Saudi nationals.¹ This national agenda underpins all regulatory reforms and investment initiatives.

There is a high degree of coordination between regulatory bodies in the Kingdom. Vision 2030 clearly articulates goals such as diversifying income sources, increasing exports, and developing the Saudi workforce.¹ The updated Investment Law also aims to enhance competitiveness, economic development, and job creation.¹ In this context, MHRSD's "Nitaqat" program works to achieve Saudization and labor market efficiency objectives.¹ This coordination indicates an integrated approach where the Ministry of Investment facilitates investment entry, while MHRSD ensures these investments directly contribute to human capital development and Saudization goals. Consequently, the regulatory environment is not just about compliance but extends to active participation in broader national strategic objectives, meaning companies aligning with these broader goals (e.g., technology transfer, training Saudis, contributing to non-oil GDP) are likely to find the most favorable operating conditions.

The Ministry of Investment serves as the primary gateway for foreign investors, committed to attracting and enabling serious investments that positively contribute to the national economy.¹ MISA's services are designed to simplify complex regulatory procedures, ensure full compliance with Saudi laws, and guide investors from initial legal consultations to post-establishment operations.¹ This includes managing the entire incorporation process, from trade name reservation to commercial registration.¹

The updated Investment Law, which replaced the previous Foreign Investment Law, is a cornerstone of the Kingdom's efforts to enhance its investment environment.¹ Key principles of the law include transparency and clarity, and easing regulatory restrictions by replacing foreign investor licensing with a simplified registration process.¹ The law also promotes equal treatment between domestic and foreign investors, grants investment incentives based on objective criteria, and re-emphasizes fundamental investor rights such as protection from expropriation without fair compensation and freedom to transfer funds.¹ The law also emphasizes fair competition and provides effective dispute resolution mechanisms.¹ This shift from licensing requirements to a simplified registration process, and MISA's role in providing strategic support and streamlining procedures, indicates a fundamental change in the government's approach from a control-based model to a facilitative and partnership-oriented one. The goal is no longer just to regulate foreign investment, but to actively attract and integrate it into the national economic fabric, viewing foreign investors as strategic partners in achieving Vision 2030. This transformation means reduced bureaucratic hurdles and a more attractive environment for investors, encouraging long-term commitment rather than transient engagements.

III. Ministry of Human Resources and Social Development (MHRSD): Leading Human Development and Labor Market Efficiency

The strategic mandate of the Ministry of Human Resources and Social Development is deeply intertwined with Saudi Arabia's economic growth, focusing on national workforce development and labor market efficiency. The Ministry is responsible for implementing policies that ensure suitable job opportunities for Saudi nationals in a safe and attractive work environment.¹ This includes managing labor laws, social development programs, and compliance frameworks that affect every business operating in the Kingdom.

The Developed Nitaqat Program: A Cornerstone of Saudization

The "Developed Nitaqat Program," introduced by Ministerial Decision No. 182495 (dated 23/05/2021 AD), is a crucial initiative by MHRSD to develop and improve the labor market.¹ The program primarily aims to enhance Saudization, ensuring that Saudi nationals have suitable employment opportunities. Key amendments include simplifying "Nitaqat" by consolidating sectors, publishing a fixed three-year Saudization plan for regulatory stability, and transitioning to a smooth relationship between worker count and the required Saudization rate, instead of fixed size bands.¹ This aims to remove barriers to business growth by allowing Saudization requirements to increase smoothly with company size.¹

Saudization is defined as the ratio of Saudi employees to the total number of employees (Saudi and non-Saudi) within an establishment, and this is used to determine the establishment's classification.¹ The ratio is calculated by dividing the average total number of Saudi employees in the entity's branches by the sum of the averages of Saudi and non-Saudi employees in the entity's branches, multiplied by 100.¹ For compliance, a Saudi employee's monthly salary must be at least SAR 4,000 to be counted as a full employee, while a salary from SAR 3,000 to less than SAR 4,000 counts as half an employee.²

The "Nitaqat" program classifies establishments into five ranges: Red, Low Green, Medium Green, High Green, and Platinum, based on their Saudization ratio.³ Each range determines the services an establishment can access via the "Qiwa" platform and other MHRSD channels.¹ For instance, Platinum and High Green ranges allow applications for new expatriate worker visas, occupation changes, work permit renewals, and sponsorship transfers, while Red and Low Green ranges impose significant restrictions on these services.¹

The transition of the "Nitaqat" program from fixed size bands to a smooth relationship between worker count and the required Saudization rate, along with the publication of a fixed Saudization plan for the next three years, indicates that compliance is not a static target but a dynamic and evolving requirement demanding continuous monitoring and strategic workforce planning.¹ Companies must proactively forecast their hiring needs, conduct Saudi workforce gap analyses, and develop employee retention initiatives to maintain or improve their "Nitaqat" status.³ Failure to do so can result in significant financial penalties ranging from SAR 5,000 to SAR 20,000 per employee, and restrictions on essential HR services, directly impacting operational efficiency and growth.² This shifts the focus from reactive compliance to proactive human capital strategy.

Table 1: MHRSD Nitaqat Ranges and Related Service Eligibility (Qiwa Platform)

In addition to "Nitaqat," businesses must adhere to broader labor laws. These include requirements for written employment contracts (two copies, one for each party), which are mandatory for non-Saudi workers and must be for a fixed term.⁴ Contracts must detail the employee's name, start date, duration, workplace, type of work, job title, basic wage, working hours, and holidays.⁴ Employers must also comply with daily and weekly rest period regulations.⁴ Fines for non-compliance with Saudization regulations are substantial, ranging from SAR 5,000 to SAR 20,000 per employee depending on company size.² The Ministry also regulates work permit fees, which range from SAR 700 to SAR 800 per month per foreign employee.²

IV. Setting Up a Business in Saudi Arabia: Navigating the Regulatory Framework

Commercial License in Saudi Arabia: Essential Steps for Market Entry

Starting a business in Saudi Arabia begins with obtaining an investment license from the Ministry of Investment, a crucial step for foreign investors.¹ MISA offers various license types tailored for diverse business activities. These include: service licenses (e.g., construction, IT, tourism, healthcare, financial services), industrial licenses (heavy, light, and manufacturing industries), real estate licenses (for development projects exceeding SAR 30 million outside Makkah and Madinah), and commercial licenses (for wholesale and retail trade, with options for Saudi partner participation or 100% foreign ownership).¹ Other specialized licenses cover transportation, engineering consulting, entrepreneurship, regional headquarters, and foreign law firms.¹

Foreign investors looking to set up business in Saudi Arabia can choose from several legal entities, with LLC company formation Saudi being the most common.⁵ Other options include a one-person limited liability company, a joint-stock company, a foreign company branch, and a professional solidarity company.¹ The choice of legal entity impacts ownership structure, capital requirements, and regulatory obligations.

To open business in Saudi Arabia, foreign companies generally need to submit a copy of their commercial registration authenticated by the Saudi Embassy and their financial statements for the last fiscal year.[1, 1] For a 100% foreign-owned commercial license, the company must have a presence in at least three regional or international markets and a minimum capital of SAR 30 million.⁶ Entrepreneurial licenses require a letter of support from accredited Saudi universities or business incubators.¹

The costs of setting up a business in Saudi Arabia involve several government fees. MISA license fees are SAR 2,000 annually, with an additional subscription fee of SAR 10,000 for the first year of investor services, followed by SAR 60,000 annually for subsequent years.⁶ Commercial registration costs SAR 1,200, plus SAR 500 for publishing the Articles of Association, and 15% VAT.² Municipal license fees range from SAR 1,000 upwards, and Chamber of Commerce subscriptions vary from SAR 1,000 to SAR 10,000 annually.⁵

The tiered fee structure for MISA services, coupled with the presence of private consulting firms like "Motaded Management Consulting," indicates that while basic licenses have a fixed cost, access to ongoing support and streamlined procedures comes at an additional expense.¹ Companies should conduct a thorough cost-benefit analysis to determine whether the higher annual subscription for MISA investor services or engaging private consultants provides better value in terms of accelerating progress, ensuring compliance, and navigating complexities. This also highlights the added value of MISA's Investor Relations Centers as a paid service.

Table 2: Ministry of Investment (MISA) License Fees and Exemptions for Key Business Activities

The Investor Journey: From Initial Setup to Operational Readiness

Starting a business in Saudi Arabia involves a structured journey that begins with obtaining an investment license from MISA.¹ This is followed by the notarization of the Articles of Association, a fundamental legal step that defines the company's structure.¹ Subsequently, the commercial registration is issued, serving as the company's legal identity.¹ After this, the company must

set up business in Saudi Arabia by opening essential files with relevant government agencies, such as the Zakat, Tax and Customs Authority, the Ministry of Human Resources and Social Development, and the General Organization for Social Insurance.¹ These steps are crucial for ensuring regulatory compliance and commencing operations properly.

For setting up business in KSA, management consulting firms, such as "Motaded Management Consulting," offer comprehensive support to foreign investors. These firms facilitate the entire process, from initial legal consultations and document management, through the company incorporation process including trade name reservation, drafting and notarization of Articles of Association, and commercial registration, to expediting work visa issuance for general managers.¹ They also provide support for post-establishment operations such as registration with the General Organization for Social Insurance, tax authorities, Saudization compliance, and Wage Protection System integration.¹ This integrated support aims to remove complexities and accelerate progress, giving investors the confidence to

open business in Saudi Arabia with ease and professionalism.

V. Special Economic Zones (SEZs): Catalysts for Strategic Investment and Labor Market Flexibility

Special Economic Zones (SEZs) are a pivotal initiative within Saudi Arabia's National Investment Strategy, aiming to expand investment horizons by attracting quality investments that contribute to technology transfer and the development of strategic sectors.⁸ These zones are defined as geographically delimited areas that facilitate specific economic activities by providing competitive advantages and legislative frameworks that differ from the base economy, while adhering to the Kingdom's international treaty obligations.⁹

SEZs offer attractive investment incentives to draw businesses. These incentives include a 5% corporate income tax for 20 years, a permanent 0% withholding tax on profit repatriation to foreign countries, deferred customs duties on imported goods, and VAT exemptions on goods and services exchanged within and between zones.¹⁰ These zones enable 100% foreign ownership for all operating companies.¹³ They also provide flexible and supportive regulations regarding foreign talent during the first five years, and exemptions from expatriate levy fees for employees and their families.²

Some SEZs offer specific advantages related to Saudization requirements. Reports indicate that companies operating in the SEZs in Riyadh, Jazan, Ras Al-Khair, and King Abdullah Economic City (KAEC) will not be required to meet Saudization requirements.¹⁸ However, companies that choose to employ Saudi nationals in these zones will be able to obtain additional benefits from the Human Resources Development Fund.¹⁸ These Saudization exemptions, along with expatriate levy exemptions, are a significant incentive for multinational companies to

set up business in Saudi Arabia and establish their operations in these zones.² These benefits suggest that SEZs offer an investment environment specifically designed to attract investments that may require greater flexibility in expatriate hiring, while still maintaining incentives to encourage voluntary Saudization.

Prominent SEZs in the Kingdom include King Abdullah Economic City (KAEC), Jazan SEZ, Ras Al-Khair SEZ, Cloud Computing SEZ, and the Riyadh Integrated Logistics Zone.² KAEC focuses on manufacturing, logistics, shipping, light and processing industries, and financial services.²¹ The Cloud Computing SEZ offers incentives such as a 5% corporate income tax for 20 years, and exemptions from customs duties, VAT, and withholding tax, along with flexibility in foreign talent hiring.¹⁶ The Riyadh Integrated Logistics Zone (SILZ) offers a 0% income tax exemption for 50 years, and exemptions from withholding tax, VAT, and customs duties.²² These zones provide attractive environments for

starting a business in Saudi Arabia in specific sectors.

Although SEZs offer broad investment freedom, some activities remain excluded from foreign direct investment. This "negative list" includes oil and gas exploration and production, catering to military sectors, security and detective services, real estate investment in Makkah and Madinah, recruitment services, Hajj and Umrah tourist guidance services, certain internationally classified commission agents, specific healthcare services, fishing marine living resources, and poison centers, blood banks, and quarantine services.²³ Restrictions also apply to land transportation and printing and publishing activities.²³

VI. MHRSD Services and Qiwa Platform: Streamlining HR and Labor Compliance

MHRSD Services for Establishments

MHRSD offers a range of essential services for establishments to ensure compliance with labor regulations and facilitate human resource management.

• Data Updating (10.04.01): This service allows establishments to update their registered data with the Ministry. This requires submitting a copy or number of the commercial registration, Zakat and Income Tax Certificate, Social Insurances Certificate, and Municipality License. The "Data Updating Form" approved by the Ministry and Chamber of Commerce must be completed. The service is available via the e-services portal and is typically completed in one working day.¹

• Expatriate Services Transfer (10.04.02): This service enables foreign establishments to transfer an expatriate worker's services to their company. Required documents include a letter to the MHRSD representative stating the establishment's desire to transfer the expatriate, authenticated by the Chamber of Commerce. For establishments with fewer than 50 employees, an authenticated authorization for the applicant with proof of identity or a power of attorney is also required. Sponsorship transfer is conducted via the electronic labor office, with exceptions for certain professions like engineers or those in the Red Nitaqat range. This service is specifically for dependents and those with system issues due to deletion or other reasons. The "Services Transfer Form" approved by the Ministry must be completed. The service is completed in two working days.¹

• Establishment Name Amendment (10.04.03): This service is for foreign establishments wishing to amend their licensed name. Required documents include a copy or number of the commercial registration or municipal license, and the Articles of Association if the amendment is for a company. Original copies of employee passports may be required for comparison, or a written commitment on the establishment's letterhead confirming data integrity. An authenticated authorization for the applicant is also needed. The service is provided at MISA's Investor Relations Centers and is completed in two working days.¹

• Profession Amendment (High Professions) (10.04.04): This service is provided electronically to companies via the MHRSD website, except for engineers or dependents. Required documents include a copy or number of the commercial registration, Social Insurances Certificate, Zakat and Income Tax Certificate, passport and Iqama (with originals for comparison), authenticated academic qualification, and a letter requesting profession amendment on company letterhead. An authenticated authorization for the applicant is also needed. The service is completed in two working days.¹

Table 3: Key MHRSD Services for Establishments and Application Mechanisms

Qiwa Platform: The Digital Gateway for HR and Labor Operations

The "Qiwa" platform is the main digital gateway that enables businesses to effectively access MHRSD services and manage labor-related procedures.¹ The platform offers a comprehensive suite of services, including managing employment contracts, issuing work permits, amending professions, transferring services, and monitoring compliance with Saudization requirements.

The "Qiwa" platform offers significant benefits to businesses in ensuring compliance with Saudization requirements and other labor regulations. By providing a unified and user-friendly interface, the platform simplifies complex processes, reducing administrative burdens and enhancing transparency. Businesses can continuously monitor their "Nitaqat" compliance status, receive alerts, and access necessary data for informed workforce decisions.¹

For setting up business in Saudi and managing ongoing labor compliance, leveraging digital platforms like "Qiwa" is crucial. These platforms enable businesses to efficiently process transactions, ensure data accuracy, and avoid violations that could result in fines or service restrictions. The continuous updating of government data for the investment establishment through direct linkage with the "YESSER" system is essential for achieving a reliable and updated government database, eliminating the need for manual attachment of government documents.¹ This digital transformation contributes to streamlining procedures and enhancing the business environment in the Kingdom.

Table 4: Key Services Available on the Qiwa Platform

VII. Conclusion and Recommendations

The Ministry of Human Resources and Social Development is an integral part of Saudi Arabia's comprehensive economic development efforts and Vision 2030. Through programs like the "Developed Nitaqat Program" and its evolving regulatory framework, the Ministry actively contributes to shaping a dynamic labor market that supports Saudization and enhances the efficiency of the national workforce. The shift in investment law towards facilitation and partnership, along with the unique advantages in Special Economic Zones, demonstrates the Kingdom's commitment to attracting quality investments and integrating them into its economic fabric.

For foreign investors and companies looking to set up business in Saudi Arabia or expand their operations, the following strategic recommendations are offered:

1. Proactive Compliance with Saudization Requirements: Given the dynamic nature of the "Nitaqat" program and the penalties associated with non-compliance, companies must integrate strategic workforce planning into their core operations. This includes conducting Saudi workforce gap analyses, developing employee retention programs, and leveraging additional incentives available for employing Saudis in SEZs.

2. Leveraging Special Economic Zones and Regional Headquarters: SEZs offer significant tax and customs incentives, and employment flexibility, including exemptions from Saudization requirements in some cases. Companies should carefully evaluate these zones as strategic investment destinations, considering the long-term benefits they offer, such as tax exemptions for Regional Headquarters.

3. Embracing Digital Platforms: The "Qiwa" platform and other government e-portals are vital tools for streamlining HR-related operations and labor compliance. Businesses should invest in understanding and effectively utilizing these platforms to ensure efficiency, accuracy, and continuous compliance.

4. Engaging Local Experts: Specialized consulting firms can provide invaluable support in navigating complex regulatory procedures, from starting a business in Saudi Arabia to managing ongoing compliance, thereby mitigating risks and accelerating market entry.

The evolving landscape of human resources and investment in Saudi Arabia points to a promising future. As the Kingdom continues to implement its Vision 2030, the business environment is expected to become even more attractive and efficient, solidifying its position as a global hub for investment and human development.