Company Formation in Saudi Arabia: A Comprehensive Guide for Investors

I. Executive Summary

The Kingdom of Saudi Arabia, under its ambitious Vision 2030, is a global investment destination aiming to fundamentally stimulate its economy, diversify its income sources, and improve its business environment. The National Investment Strategy seeks to enhance the Kingdom's competitiveness by leveraging its strategic geographical location connecting three continents and streamlining regulatory procedures for investors. Key objectives of this vision include increasing the contribution of non-oil exports to 50% of non-oil GDP and reducing unemployment rates to less than 7% by 2030.¹

The explicit focus on Vision 2030 objectives, such as increasing non-oil GDP to 50% and reducing unemployment to less than 7% by 2030, is not merely an expression of national ambition; it is a direct signal to investors. This indicates that the Saudi government is not just seeking to attract capital, but to attract strategic investments that align with these specific national development goals. Companies whose business models directly contribute to achieving these metrics (e.g., technology transfer, Saudization, increasing non-oil exports, or developing new strategic sectors) are likely to find a more favorable and supportive environment. This implies a selective rather than a blanket approach to attracting FDI, prioritizing quality over mere quantity in specific areas.

This report highlights the fundamental developments in simplifying company formation procedures, offering attractive investment incentives, particularly in Special Economic Zones, while emphasizing the importance of complying with Saudization requirements. It also provides practical recommendations for potential investors to ensure successful establishment and ongoing compliance with local regulations.

II. Investment Environment in Saudi Arabia

A. Vision 2030 and the Role of Investment

Saudi Arabia is currently an emerging economic hub, driven by the ambitious Vision 2030, which aims to transform its economy and diversify its income sources. Investment is a crucial component of the Kingdom's roadmap, as the second pillar of its vision aims to become a global investment powerhouse. This is achieved by stimulating the economy, diversifying total revenues, improving the investment and business environment, and upgrading the Kingdom's rankings and classification in key global indicators to create a more resilient, diverse, and sustainable economy.¹

The National Investment Strategy, issued by Council of Ministers Resolution No. (134) dated 28/2/1443 AH, aims to enhance the competitiveness of the investment environment in the Kingdom. This strategy leverages the Kingdom's immense investment potential and its strategic geographical location connecting three continents, giving it a unique competitive advantage in attracting investments.¹ Objectives include providing facilities for investors and easing regulatory procedures related to investment entry and establishment, in addition to offering a package of basic and special investment incentives for qualitative investment projects (local and foreign) according to specific and fair eligibility criteria.¹ It also aims to support the investments and businesses of national companies to enhance their global position and enable them to deliver their products and services to regional and global markets, thereby contributing to increasing non-oil exports to account for 50% of total non-oil GDP by 2030, and developing investment opportunities and supporting medium and long-term projects that contribute to creating job opportunities to support reducing unemployment rates to less than 7% by 2030.¹

The Ministry of Investment emphasizes its welcome to serious investments that positively contribute to national economic development and sustainable growth. This support includes investments that contribute to the transfer and localization of technical knowledge, diversification of income sources, increased exports, and the development of Saudi human capital.¹ Recent FDI performance in the Kingdom shows increasing attractiveness to Saudi markets, reaching $25.5 billion in 2023, exceeding the target by 16%.² This growth confirms the effectiveness of policies in attracting foreign capital. Special Economic Zones play a pivotal role in this attraction, offering enticing investment incentives, such as a 5% corporate income tax for 20 years, full VAT exemptions on intra-zone trade, and allowing 100% foreign ownership.²

The repeated emphasis on "transfer and localization of technical knowledge," "development of Saudi human capital," and "increasing non-oil exports" within the context of Vision 2030 objectives indicates a clear government priority. This is not just about attracting capital; it's about leveraging FDI as a catalyst for human capital development and economic diversification. These objectives are integral to the Kingdom's strategy for sustainable development. Companies that can demonstrate a strong commitment and a clear plan for these aspects (e.g., training programs for Saudis, R&D initiatives, or export-oriented production) are likely to receive preferential treatment or enhanced support. This implies that the investment climate is designed to incentivize value-added FDI that aligns with long-term national strategic goals, rather than purely commercial investments.

B. Legal and Regulatory Framework

The updated Investment Law seeks to develop and enhance the competitiveness of the investment environment in the Kingdom, and effectively contribute to economic development and create sustainable job opportunities by providing an attractive investment climate, in accordance with relevant laws.¹

Key Principles and Characteristics of the Updated Law ¹:

• Transparency and Clarity: One of the fundamental principles is to draft a unified law that clarifies the rights and duties of both domestic and foreign investors in line with international best practices.

• Easing Regulatory Restrictions: A fundamental shift is the replacement of foreign investor licensing requirements with a simplified registration process, reducing bureaucratic complexities.

• Promoting Equal Treatment: Re-evaluating restrictions on economic activities to ensure equal treatment between domestic and foreign investors under similar circumstances, without prejudice to public order.

• Grant of Investment Incentives: Attracting qualitative investments by offering incentives based on specific, objective, and pre-announced eligibility and evaluation criteria.

• Promoting Investors' Rights: Re-emphasizing fundamental investor rights, such as protection from expropriation without fair compensation, fair treatment, protection of intellectual property and confidential commercial information, freedom to manage and transfer funds without delay, facilitating administrative procedures, and providing necessary statistical data.

• Fair Competition: Enhancing the principle of fair competition by ensuring the public sector does not compete with the private sector.

• Effective Dispute Resolution Mechanisms: Granting investors the right to resort to arbitration, mediation, and conciliation, in addition to competent courts for dispute resolution.

• Streamlining Procedures and Investment Governance: Providing a comprehensive service center that offers necessary facilities to streamline government transaction procedures related to investment.

The explicit shift from "licensing requirement" to a "simplified registration process" for foreign investors represents a significant regulatory trend. This is not merely a semantic change; it indicates a fundamental move towards reducing bureaucratic hurdles and accelerating the entry of foreign investment into the market. This simplification directly addresses a common pain point for foreign investors—complex and lengthy approval processes. It signals a more investor-friendly regulatory environment, potentially leading to faster establishment times and reduced initial administrative burdens, thereby enhancing Saudi Arabia's attractiveness as an investment destination.

The Ministry of Investment (MISA) is the primary government entity responsible for registering new investments and facilitating amendments to them in the Kingdom. Its main objective is to attract and enable promising investments that positively contribute to national economic development and sustainable growth.[1, 1] The Ministry continuously works to improve the investment environment by providing value-added services to investors and offering advanced and flexible electronic services that ensure speed and efficiency in transactions. It also coordinates its efforts with various relevant government entities to provide post-registration services through its comprehensive service centers.[1, 1] The Ministry issues investment licenses and oversees investors' adherence to regulations and laws to ensure full compliance.[1, 1]

MISA's role extends beyond mere licensing to include providing "value-added services" such as "Miza" and the "Strategic Investor Program" and coordinating with other government entities through "comprehensive service centers."¹ This indicates a holistic approach to investor support, aiming to facilitate not just market entry but also ongoing operations and growth. This integrated system suggests that MISA positions itself as a strategic partner for investors, not just a regulatory body. This reduces the fragmentation of government interactions for investors, potentially saving time and resources, and fostering a more supportive environment for long-term investment.

III. Company Formation Steps in Saudi Arabia

A. Investor Journey for Establishment

The process of establishing a company in Saudi Arabia involves several essential stages, starting with obtaining a Ministry of Investment license and leading to operational readiness. These stages aim to ensure legal compliance and facilitate business commencement for investors.

Key Establishment Stages:

• Stage 1: Issuance of Investment License: This is the first and fundamental step for entering the Saudi market. It requires submitting a copy of the parent company's commercial registration authenticated by the Saudi Embassy, along with certified financial statements for the last fiscal year. This process is done through MISA's e-services portal (MERAS). The expected time for this service is one to two working days.[1, 1]

• Stage 2: Documentation of Articles of Association: After obtaining the investment license, the Articles of Association are notarized. For branches of foreign companies, this requires submitting the parent company's resolution to open the branch in the Kingdom. This step is completed by visiting the Ministry of Commerce.[1, 1]

• Stage 3: Issuance of Commercial Registration: After notarizing the Articles of Association, the commercial registration is issued. This requires submitting the parent company's commercial registration, the Board of Directors' resolution to open a branch (for foreign company branches), the Articles of Association (for new companies), the resolution appointing the General Manager, and proof of identity for owners and the General Manager. This step is also completed by visiting the Ministry of Commerce.[1, 1]

• Stage 4: Opening Establishment Files with Relevant Government Entities: This stage includes obtaining a file with the Zakat, Tax and Customs Authority, opening a file with the Ministry of Human Resources and Social Development, and opening a file with the General Organization for Social Insurance. These procedures are usually done through the respective government entities' websites or via the "MERAS" platform.[1, 1]

• Stage 5: Issuance of General Manager's Visa: This step is essential for the General Manager's presence in the Kingdom. It requires a letter of appointment for the General Manager and proof of identity. The application is submitted through MISA's e-services portal (MERAS).[1, 1]

The expected time for the investment license service is "one to two working days." This speed in initial licensing is a strong indicator of MISA's commitment to efficiency in streamlining the entry point for foreign investors. This can significantly reduce the initial waiting period and uncertainty for companies, making Saudi Arabia a more attractive option for rapid market entry. It also suggests that bottlenecks, if any, might occur in subsequent stages involving other ministries, highlighting the importance of coordinated support (such as "Motaded" services).

Key Government Entities Involved and Their Roles:

The company formation journey requires coordination with several key government entities, each playing a vital role in completing the process:

• Ministry of Investment (MISA): The pivotal entity responsible for granting investment licenses, facilitating all investment-related procedures, and providing a wide range of post-registration services to ensure business continuity.[1, 1, 1]

• Ministry of Commerce (MoC): Responsible for notarizing Articles of Association, issuing commercial registrations for companies and their branches, and managing trade name reservations.[1, 1, 1]

• Ministry of Human Resources and Social Development (MHRSD): Oversees labor files, updating establishment data, regulating expatriate service transfers, and amending professions in line with labor market policies.[1, 1, 1]

• Zakat, Tax and Customs Authority (ZATCA): Responsible for managing Zakat and tax files and ensuring compliance with tax and customs requirements.[1, 1, 1]

• General Organization for Social Insurance (GOSI): Manages social insurance files for employees and ensures their insurance rights.[1, 1, 1]

• Ministry of Justice: Provides legal notarization services, regulates mortgage procedures, approves property ownership, and notarizes trademark usage.¹

• General Directorate of Passports (Ministry of Interior): Responsible for issuing, canceling, and renewing visas (exit/re-entry, final exit), issuing and renewing Iqamas (residency permits), and taking biometric fingerprints for investors and workers.¹

• Ministry of Foreign Affairs: Provides commercial document authentication services and facilitates family visit services for high-level professions.¹

The company formation process in Saudi Arabia involves multiple stages requiring interaction with a significant number of different government entities. MISA explicitly states its role in "coordinating and aligning its efforts with relevant government entities to provide post-registration services by government entities represented in the Ministry's comprehensive service centers."¹ This centralized coordination, especially through comprehensive service centers, is a crucial factor in streamlining and facilitating bureaucratic procedures. It significantly reduces the burden on the investor to deal with each entity individually, providing a single point of contact or facilitator, which is a real added value for foreign investors who may not be fully familiar with complex local procedures. Effective coordination between government entities is not just a procedural improvement, but a strategic pillar that enhances the attractiveness of the investment environment in the Kingdom. It reduces operational risks for investors and accelerates investment entry into the market, directly supporting Vision 2030's goals of comprehensive economic development.

Table 1: Company Formation Stages, Responsible Entities, and Estimated Timeframes

This table summarizes the essential stages and procedural steps for company formation in Saudi Arabia, from obtaining the Ministry of Investment license to operational readiness. The table clearly identifies the government entities responsible for each stage and the estimated time for completion. This table provides investors with a quick and clear overview of the expected timeline for the entire formation process, aiding in effective financial and operational planning. It also clearly indicates the responsible authority for each step, reducing confusion and directing the investor to the correct source of information or assistance. By specifying estimated times, investors can anticipate and plan for any potential delays, thereby mitigating risks. This table serves as a practical checklist for investors to ensure no essential step is overlooked in their formation journey.

B. Types of Investment Licenses and Their Requirements

The Ministry of Investment offers a wide and diverse range of licenses to cover various economic activities, providing investors with multiple options tailored to the nature of their businesses.

Overview of Available Licenses:

• General Licenses:

  • Service License: Includes a wide range of activities such as construction, high-level administrative consulting, information technology, tourism, training, health, insurance and reinsurance, education, advertising and media, sea and air cargo shipping services, exhibition organization, catering and food services, financial services, and aviation and handling services, etc.[1, 1]

  • Industrial License: Provided for all types of industries, including heavy, light, and manufacturing industries.[1, 1]

  • Real Estate License: Dedicated to investments in real estate development, with the condition that the project cost is not less than SAR 30 million (land and construction) and is outside the boundaries of Makkah and Madinah.[1, 1]

  • Transport Activities License: Provided for international companies wishing to offer public transport services, whether by land buses within cities, or metro trains within cities, or other land transport activities such as taxis (public and private), school and tourist transport, materials transport, pilgrim and visitor transport, and car, truck, and bus rental.[1, 1]

  • Commercial License: Available in two options: commercial license with a Saudi partner (minimum 25% share), or 100% foreign-owned commercial license.[1, 1]

• Special Licenses:

  • Scientific and Technical Office License: For foreign companies with a Saudi agent or authorized distributor in the Kingdom wishing to open an office to provide scientific and technical services to agents, distributors, and consumers of the company's products.[1, 1]

  • Temporary Certificate for Bidding on Government Projects: Enables establishments to qualify for bidding on government projects.[1, 1]

  • Temporary License for Executing a Government/Semi-Government Contract: Granted to foreign companies that have won a government or semi-government contract and do not hold a foreign investment license for the contract's activity.[1, 1]

  • Entrepreneurial Licenses: Provided for entrepreneurs wishing to establish scalable and growing technical, innovative, or distinguished startups to offer a better and different product or service in the Saudi market.[1, 1]

  • Regional Headquarters (RHQ) License: For multinational groups wishing to establish the Kingdom as their regional headquarters to support, manage, and provide strategic direction to their branches and subsidiaries operating in the MENA region.[1, 1]

  • The Ministry also offers other specialized licenses such as: foreign law firms, recruitment agents and domestic labor services, audiovisual media activities, printing and publishing activities, mining licenses, agricultural licenses, and consulting licenses for engineering offices.[1, 1]

General and Special Requirements for Each License Type:

• General Requirements: Include a copy of the participating entity's commercial registration authenticated by the Saudi Embassy, and certified financial statements for the last fiscal year of the foreign company applying for the license. Premium Residency holders are exempt from these requirements.[1, 1, 1]

• License Fees: SAR 2,000 annually for a maximum of 5 years.[3, 1, 1]

• Investor Relations Services Subscription Fees: SAR 10,000 for the first year, then SAR 60,000 for subsequent years. Service fees must be paid within 60 days from the invoice issuance date, otherwise the service will be canceled.[3, 1, 1]

  • Exceptions: RHQs are exempt from subscription fees after the first year ¹, and entrepreneurial licenses have different fees after the third year.¹

  • The fixed annual license fee (SAR 2,000) is a low and predictable initial cost. However, the "Investor Relations Services" subscription fee, which jumps from SAR 10,000 in the first year to SAR 60,000 annually thereafter, constitutes a significant recurring operational cost that may not be immediately apparent to investors. This structure suggests that MISA provides ongoing support and facilitation services for a substantial fee, meaning investors need to budget for this higher recurring cost, which could act as a hidden cost if not explicitly noted, especially for long-term operations.

• Minimum Capital and Saudi Participation Percentage: These requirements vary significantly depending on the type of economic activity and will be detailed in Table 2.

• Special Requirements (Examples):

  • 100% Foreign-Owned Commercial License: Requires the company to have a presence in at least three regional or international markets, and a minimum capital of SAR 30 million. The company must also achieve specific Saudization and training ratios (30% of Saudi employees annually) or invest at least SAR 300 million (or SAR 200 million with additional criteria) within five years from the license issuance date.[1, 1]

  • Regional Headquarters License: Requires the parent company to be licensed in at least two different countries (excluding Saudi Arabia and the home country), and the RHQ must be established as an independent legal entity. The RHQ must not engage in direct revenue-generating commercial activities (other than specified licensed activities). It must also commence three mandatory activities within six months and three optional activities within one year, employ at least 15 full-time staff within one year (including three at executive level), and 50% of the entity's assets must be cash balance.[8, 1, 1]

The Kingdom offers a wide spectrum of licenses, including general licenses (service, industrial) and highly specialized licenses (entrepreneurial, scientific offices, RHQs, transport, law firms). Some of these specialized licenses impose strict entry conditions, such as international presence, significant capital, commitment to Saudization and training, or substantial financial investment. This diversity in license types, coupled with high entry requirements for some, indicates that the Kingdom is not just seeking to attract any investment, but strategically targets "qualitative" and "strategic" investments.¹ These qualitative investments directly contribute to achieving Vision 2030 objectives, such as knowledge transfer, localization of leadership positions, and enhancing the Kingdom's position as a regional hub. Specialized licenses are a tool to filter investments and ensure their alignment with national goals. This strategy means that investors aiming to enter the Saudi market must understand not only the basic requirements but also the added value they can bring to the Kingdom, and how their investments align with long-term strategic objectives. This requires deeper investment planning than mere procedural compliance.

Table 2: Key Investment License Types, Minimum Capital, and Saudi Participation Percentage

This table provides an overview of the main investment license types available in Saudi Arabia, specifying the minimum capital required for each and the required Saudi participation percentage (if any). This table provides investors with crucial information about initial financial requirements, helping them estimate the necessary investment size. It also clarifies whether an activity requires mandatory Saudi partnership and its percentage, which is vital for determining the company's legal structure. This table allows investors to quickly compare requirements across different activity types to identify the most suitable for their objectives, and helps mitigate risks by avoiding starting incorporation procedures that do not align with the basic requirements of the targeted activity.

Activities Excluded from Foreign Investment:

MISA emphasizes that investment is open in all fields except those specified in the "Negative List."1 This list reflects sectors where the Kingdom retains full control or imposes restrictions on foreign ownership for strategic or sovereign reasons.

• Industrial Sector:

  • Oil exploration, drilling, and production, with the exception of services related to the mining sector listed under CPC 5115+883 in International Industrial Classification codes.[9, 10, 11, 1, 1]

• Service Sector:

  • Catering to military sectors.[9, 10, 11, 1, 1]

  • Security and detective services.[9, 10, 11, 1, 1]

  • Real estate investment in Makkah and Madinah.[9, 10, 11, 1, 1]

  • Tourist orientation and guidance services related to Hajj.[9, 10, 11, 1, 1]

  • Recruitment services.[9, 10, 11, 1, 1]

  • Commission agents internationally classified under CPC 621.[9, 10, 11, 1, 1]

  • Fishing and hunting marine living resources.[9, 10, 11, 1, 1]

Other sources indicate additional restrictions in older laws that may not be explicitly listed in the official negative list, such as some areas in the healthcare sector, and restrictions on land transportation and printing and publishing. These restrictions aim to ensure that essential services remain under direct local supervision.³ This highlights that the Kingdom's economic openness is not absolute, and there are red lines reflecting the Kingdom's national priorities in maintaining control over vital and strategic sectors, or those related to religious and cultural identity. This requires investors to conduct thorough and precise research on permitted and restricted activities before embarking on any investment, to ensure full compliance and avoid any potential conflicts.

IV. Special Economic Zones (SEZs): Investment Opportunities and Incentives

Special Economic Zones are a fundamental pillar in the Kingdom's strategy to attract qualitative investments and achieve Vision 2030 objectives. These zones offer a unique investment environment characterized by competitive incentives and advantages not available in the base economy.

A. Definition and Objectives of Special Economic Zones

SEZs 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 obligations under international treaties.⁵

Their Role in Achieving Vision 2030 and Attracting Qualitative Investments:

SEZs are one of the most prominent initiatives of the National Investment Strategy in Vision 2030. These zones aim to expand investment horizons by attracting qualitative investments that contribute to technology transfer and the development of strategic sectors.6 SEZs seek to enhance the Kingdom's global competitiveness by providing an attractive regulatory environment for investment with competitive sector-specific incentives and enablers, highly efficient integrated government services, and a stimulating living environment with global quality of life standards.

Regulatory Framework and Governance:

The Economic Cities and Special Zones Authority (ECZA) establishes the ideal regulatory framework to enable key developers to build and operate these zones. ECZA oversees the development of the overall strategy for SEZs, and determines incentives and fees before submitting proposals for approval by the Council of Ministers.5 SEZ governance includes strategy development, zone evaluation and licensing, incentive and exemption determination, framework and guideline setting, regulatory issuance, interoperability assurance, and performance management.

B. Prominent Special Economic Zones

SEZs in the Kingdom are geographically distributed to target specific industrial sectors, reflecting a national strategy to diversify the economy and distribute development across different administrative regions.

Examples of Existing Zones:

• King Abdullah Economic City (KAEC) SEZ: Located in Makkah, covering an area of 60 square kilometers. It focuses on ICT (light electronics), consumer goods, pharmaceuticals, medical technology, logistics, and automotive supply chain/assembly. This city is a leading manufacturing and logistics hub in the region.²

• Jazan Special Economic Zone (Jazan SEZ): Located in Jazan, covering an area of 24.6 square kilometers. It focuses on food processing, metal conversion, and logistics.²

• Ras Al-Khair Special Economic Zone (Ras Al-Khair SEZ): Located in the Eastern Province, covering an area of 20 square kilometers. It focuses on maritime value chains, shipbuilding and MRO (Maintenance, Repair, and Overhaul), and rig platforms and MRO.²

• Cloud Computing Special Economic Zone (Cloud Computing SEZ): Located in Riyadh, headquartered at King Abdulaziz City for Science and Technology. It focuses on cloud computing services, data centers, and digital technology.²

• Riyadh Integrated Logistics Zone (Riyadh Integrated Logistics Zone): Targets the growth of vital industries such as consumer products, computer parts, pharmaceuticals, and food and medical supplies.⁹

The specialized sectoral targeting of each SEZ, along with their geographical distribution, reflects a broader strategy to diversify the economy not only at the national level but also at the regional level. This approach aims to develop economic strengths in different regions of the Kingdom, contributing to balanced development across the Kingdom's administrative regions, which is one of MISA's objectives.¹ It also helps build specialized industrial clusters that enhance efficiency and competitiveness. For investors, this means that choosing the appropriate economic zone depends not only on general incentives but also on the alignment of their activity with the zone's industrial specialization, which can provide additional advantages in terms of specialized infrastructure, local supply chains, and trained personnel.

C. Investment Incentives and Advantages

SEZs offer a comprehensive package of investment incentives and advantages that surpass those available in the base economy, making them highly attractive to international investors.

Tax Incentives:

• Corporate Income Tax (CIT): A 5% CIT rate applies for 20 years in most SEZs, such as KAEC, Jazan, and Ras Al-Khair.² The Riyadh Integrated Logistics Zone offers tax exemptions for 50 years.⁹ Regional Headquarters (RHQ) benefit from a 0% CIT rate on qualifying income for 30 renewable years.¹⁰

• Withholding Tax (WHT): A permanent 0% WHT applies to profit repatriation from SEZs to foreign countries.² A 0% rate also applies to dividend payments, payments to related parties, and payments for services essential to RHQ activities.¹¹

• Value Added Tax (VAT): A 0% VAT rate applies to all goods exchanged within and between SEZs.⁹ Exemptions also apply to VAT for goods under customs duty suspension.⁹

Customs Exemptions:

• Deferred customs duties on goods imported into SEZs.⁹

• Exemption from customs duties on inputs and capital equipment.²

Operational Incentives:

• Flexible and supportive regulations regarding foreign talent during the first five years.²

• Exemptions from expatriate levy fees for company employees and their families within the SEZ.⁹

• Competitive energy prices: For example, $0.05 USD/kWh in the Cloud Computing SEZ.²

• 100% foreign ownership for all companies operating in free zones.⁹

• Simplified regulatory requirements for company formation compared to the mainland.⁹

• Long-term contractual land leases of up to 50 years in Jazan.¹⁵

SEZs offer a comprehensive package of incentives that go beyond mere tax advantages to include customs and operational aspects. This multifaceted approach aims to reduce overall operating costs and increase investment attractiveness, positioning the Kingdom competitively on the global stage. These comprehensive incentives make SEZs a very attractive option for companies seeking to expand their operations in the region, and position the Kingdom strongly compared to other markets.

Table 3: Comparison of Key Incentives in Special Economic Zones

This table compares the main incentives offered in prominent Special Economic Zones in Saudi Arabia, focusing on tax, customs, and operational advantages. This table provides investors with a comprehensive overview and easy comparison of the different incentives in each zone, helping them choose the optimal location for their investments based on their specific needs. It also highlights the unique advantages of each zone, enabling investors to identify the zone that offers the best support for their business activity, and aids in long-term strategic planning by clarifying the duration of tax incentives.

D. Establishment and Operating Costs in Special Economic Zones

The costs of establishing and operating companies in Saudi Arabia include a range of government fees and additional expenses, which investors must accurately estimate to ensure sound financial planning.

Government Licensing Fees:

• Ministry of Investment (MISA) License Fees: SAR 2,000 annually, for a maximum of 5 years.¹⁶

• MISA Investor Relations Services Subscription Fees: SAR 10,000 for the first year, then SAR 60,000 annually for subsequent years. Service fees must be paid within 60 days from the invoice issuance date.¹⁶ (Exceptions exist for RHQs and entrepreneurs).

• Ministry of Commerce Fees:

  • Commercial Registration: Approximately SAR 1,200 + 15% VAT.¹⁷

  • Publication of Articles of Association in Official Gazette: Approximately SAR 500 for Limited Liability Companies (LLC), and SAR 1,000 for Joint Stock Companies (JSC).¹⁷

• Municipal License (Business Permit): Cost varies by city and business activity, starting from approximately SAR 1,000 and potentially higher.¹⁹

• Chamber of Commerce Subscription: Ranges from SAR 1,000 to SAR 10,000 annually, depending on the activity type and capital.¹⁹

• Trade Name Reservation: Free for the first reservation, and renewal fees are approximately SAR 200.¹⁹

• Work Visa Fees: SAR 2,000.¹⁷

• Work Permit Fees (Ministry of Human Resources and Social Development): SAR 700 per month for each foreign employee not exceeding the number of Saudi employees, and SAR 800 per month for each foreign employee exceeding the number of Saudi employees.¹⁷

Additional Costs (as needed):

• Office/Work Premises Rental Agreement: Required, and cost depends on location and size.¹⁹

• Notarization of Articles of Association Electronically: Costs between SAR 300 to SAR 500.¹⁹

• Lawyer and Legal Consultant (optional): Fees range from SAR 1,000 to SAR 5,000+ or more, depending on the complexity of services required.¹⁹

• Minimum Capital for Limited Liability Companies (LLC): The company's capital must be sufficient for its purpose, and in no case less than SAR 500,000, with at least a quarter paid upon establishment.¹⁹

• Estimated Total Establishment Costs: The total cost for company formation generally ranges from SAR 15,000 to SAR 30,000.²⁰

Operating Costs in Special Economic Zones:

• Labor Cost: The most significant cost driver in most sectors, accounting for approximately 62% of total costs in logistics case studies.²¹

• Warehouse and Office Rental: Costs vary significantly between SEZs.²¹

• Utilities and Fuel: Costs can be substantial, especially for energy-intensive activities.²¹

While SEZs offer significant tax and customs incentives, investors must not overlook other substantial operational costs, especially labor costs, which can constitute a large proportion of total expenses. This means that tax exemptions alone may not be sufficient to ensure economic viability if other operating costs are not carefully planned. Investors need to conduct a comprehensive feasibility study that includes not only government fees and incentives but also variable operating costs to ensure the long-term financial sustainability of the project. This requires a precise understanding of the full cost structure in the targeted zone.

Table 4: Estimated Costs for LLC Company Formation in Special Economic Zones (Example)

This table provides an estimate of the initial costs for establishing a Limited Liability Company, the most common legal form, in Saudi Arabia, detailing government fees and additional expenses. This table offers investors transparency regarding expected costs, aiding in initial budget preparation and reducing the likelihood of unexpected costs during the formation process. It can be used as a preliminary tool to estimate the capital needed for startup.

V. Saudization Requirements (Developed Nitaqat Program)

Saudization requirements, also known as "Saudization," are an integral part of the business environment in Saudi Arabia, aiming to enhance the participation of the national workforce in the private sector.

A. Definition and Objectives of Saudization

Saudization is a service imposed on Saudi or foreign establishments to demonstrate their commitment to a specified percentage of Saudi employees, as determined by the Ministry of Human Resources and Social Development.¹ Saudization is defined as the ratio of Saudi employees to the total number of employees (Saudi and non-Saudi) within an establishment, and it is used to determine the establishment's classification within the Ministry.¹

Saudization aims to provide suitable job opportunities for the national workforce in a safe and attractive work environment, develop Saudi human capital, and reduce unemployment rates.²² Saudization is a protectionist measure intended to raise the living standards of Saudi nationals and ensure their inclusion in high-value industries.²²

B. The Developed Nitaqat Program

The Developed Nitaqat Program, issued by Ministerial Decision No. 182495 dated 11/10/1442 AH (23/05/2021 AD), is a key initiative to develop and improve the labor market in the Kingdom.

Color Ranges (Red, Low Green, Medium Green, High Green, Platinum):

MHRSD classifies establishments into five levels or ranges based on their Saudization ratio 22:

• Red Zone: Indicates the lowest compliance levels, with a Saudization ratio ranging from 0% to 16.21%.²²

• Low Green Zone: With a Saudization ratio ranging from 16.22% to 19.25%.²²

• Medium Green Zone: With a Saudization ratio ranging from 19.26% to 23.11%.²²

• High Green Zone: With a Saudization ratio ranging from 23.12% to 26.51%.²²

• Platinum Zone: Indicates the highest compliance levels, with a Saudization ratio ranging from 26.52% to 100%.²²

Mechanism for Calculating Saudization Ratio and Establishment Classification:

The Saudization ratio is calculated by dividing the average total number of Saudi employees in the entity's branches by (the average total number of Saudi employees + the average total number of expatriate employees) multiplied by 100.1 The developed program relies on a smooth relationship between the total workforce and the required Saudization ratio, instead of fixed bands, using a logarithmic equation:

y=m∗ln(x)+c. In this equation, (y) is the minimum required Saudization for the range, (m) is the curve gradient which varies by economic activity, (c) is the y-axis intercept which varies by economic activity and year, and (x) is the total workforce in the entity.¹ The entity's range classification is determined by comparing its current Saudization ratio (n) to the calculated minimums for each range.¹

The Developed Nitaqat Program, by shifting from fixed bands to a smooth relationship between workforce size and the required Saudization ratio, represents a significant evolution. This relatively complex mechanism, which uses a logarithmic equation with varying curve gradient and y-intercept values for each economic activity and year, means that companies cannot simply target a fixed Saudization percentage. Instead, businesses need to continuously monitor their workforce size and composition, and may need to use specialized tools or consultants (such as "Motaded" which offers Saudization compliance services ¹) to accurately forecast and manage their Saudization ratios. This requires proactive strategic HR planning rather than reactive adjustments, especially for growing establishments.

This shift indicates that Saudization policy is no longer merely a rigid numerical imposition, but has become a dynamic system that incentivizes companies to genuinely invest in recruiting and developing Saudis. The smooth relationship reduces compliance "shocks" when certain thresholds are crossed, encouraging growth. Furthermore, linking government services to Saudization performance transforms compliance into a competitive advantage for businesses. Companies that adopt sustainable and effective Saudization strategies will not only meet legal requirements but will also gain greater operational flexibility and easier access to government services, enhancing their ability to grow in the Saudi market. This requires companies to integrate Saudization into their core HR strategies.

Table 5: Nitaqat Ranges and Their Impact on Available Government Services

This table illustrates the Developed Nitaqat Program ranges (Red, Low Green, Medium Green, High Green, Platinum) and the key government services that establishments can access based on their classification within each range. This table clearly shows the operational advantages gained by companies with high Saudization rates, and the consequences (service restrictions) faced by non-compliant companies. This encourages companies to strive for higher Saudization rates to ensure business continuity and access to vital services, and helps them in strategic human resource planning to ensure they remain in the higher ranges.

C. Saudization Exemptions in Special Economic Zones

Saudi Arabia offers exceptional incentives in Special Economic Zones, including exemptions from Saudization requirements, representing a dual policy for attracting investments.

• The Ministry of Human Resources and Social Development has announced an exemption for companies located in Special Economic Zones (such as Riyadh, Jazan, Ras Al-Khair, and King Abdullah Economic City) from Saudization requirements.²³

• However, companies that choose to employ Saudi nationals in these zones will be able to obtain additional benefits from the Human Resources Development Fund, although specific details have not yet been disclosed.²³

• The Regional Headquarters (RHQ) program also offers a ten-year exemption from Saudization requirements, in addition to unlimited work visas for foreign workers, making it an attractive option for multinational companies.²²

There is a clear disparity in Saudization policies between the mainland and SEZs. In the mainland, government service restrictions are used as a tool to enforce Nitaqat compliance. In SEZs, explicit exemptions from Saudization requirements are offered. This represents a dual strategy by the Kingdom: using the "stick" in the core economy to enforce compliance, and offering the "carrot" (exemptions) in SEZs to attract high-value foreign investments that might find it difficult to meet Saudization ratios in initial stages. This reflects policy flexibility to attract different types of investments. Investors have a strategic choice: either comply with mainland Saudization requirements to benefit from the broader local market, or leverage SEZ exemptions to focus on international growth or activities requiring rare global skills, knowing that this might come at the expense of some other benefits. This requires a careful analysis of the economic and operational feasibility of each option.

VI. Investor Support and Digital Platforms

Saudi Arabia recognizes the importance of providing a supportive environment for investors, and therefore, the Ministry of Investment, in cooperation with other entities, offers a range of services and digital platforms to facilitate the investor's journey.

A. Ministry of Investment Services for Investor Support

The Ministry of Investment (MISA) offers a comprehensive range of services that go beyond mere license issuance to empower investors at every stage of their journey.

• "Miza" Program and "Strategic Investor" Program.

  • "Miza" Program: Aims to enhance the investor experience through an electronic portal that facilitates access to private sector business service providers.¹ The program offers services across 12 portfolios, including financial and accounting services, digital and technical services, talent solutions, market entry support, legal, tax, and compliance services, marketing and public relations, market analysis, and real estate, among others.¹

  • "Strategic Investor" Program: Offers a package of services and benefits to national and foreign companies that meet eligibility criteria, aiming to improve the investment environment and attract qualitative investments.¹ Support includes developing investment opportunities, providing specialized sectoral economic information, advisory support for legislation and regulations, facilitating obtaining Premium Residency, and guidance on industrial and economic zones.¹

• Investor Relations Centers.

  • MISA provides Investor Relations Centers to offer integrated support and services to investors.[1, 1]

  • Services provided through these centers include: trade name reservation, commercial registration issuance, notarization of Articles of Association, passport services (such as exit/re-entry visas, final exit visas, Iqama issuance and renewal, and biometric fingerprinting), and MHRSD services (such as updating establishment data and expatriate service transfers), among others.[1, 1, 1]

  • Subscription fees for these centers are SAR 10,000 for the first year, then SAR 60,000 annually for subsequent years.¹⁶ (Exceptions exist for RHQs, whose services are free after the first year, and entrepreneurs, whose fees differ after the third year).

MISA, through its various programs such as "Miza" and "Strategic Investor" and its Investor Relations Centers, adopts a comprehensive approach to empowering investors. These programs go beyond merely issuing licenses to provide advisory support, market information, operational facilities, and centralized government services. This reduces post-establishment complexities and helps investors achieve "long-term success."¹ This comprehensive approach means that investors are not just purchasing a license, but gaining access to an integrated support ecosystem. This mitigates risks associated with unfamiliarity with the local market and regulatory compliance, making investment in the Kingdom more attractive and secure.

B. Role of Consulting Firms

Specialized consulting firms play a vital role in facilitating the investor journey, especially for foreign investors, in the Saudi business environment, through their deep local expertise.

• "Motaded" (Motaded) Company Services in Facilitating Establishment and Post-Establishment Procedures.

  • "Motaded" provides comprehensive strategic support to foreign investors entering the Saudi market, simplifying complex regulatory procedures and ensuring full compliance with Saudi laws.¹

  • Its services include: legal consultations, document translation and authentication, trade name reservation, drafting and notarization of Articles of Association, commercial registration, Chamber of Commerce setup, and facilitating work visa issuance for general managers.¹

  • It provides support for post-establishment operations such as registration with the General Organization for Social Insurance (GOSI), tax and Zakat authorities, address registration, Saudization compliance, and Wage Protection System integration.¹

  • It offers office space solutions (whether physical or ready-to-use virtual offices) and ongoing administrative support.¹

  • It assists in registering foreign companies as approved suppliers to government agencies and major companies, and provides support in recruiting qualified Saudi talent to meet Saudization targets, in addition to accounting services including bookkeeping, tax filings, and Zakat, Tax and Customs Authority compliance.¹

  • "Motaded's" statistics indicate a strong track record of achievements, having established over 750 companies, issued over 380 investor visas, secured over 1500 government approvals, and served over 750 clients across various sectors, while maintaining a high client satisfaction rate of 98%.¹

Despite continuous government efforts to streamline procedures, the complexity of company formation and the multiplicity of involved government entities still pose a challenge for foreign investors. Here lies the true value of specialized local consulting firms like "Motaded." Their deep expertise in local laws and government relations enables them to accelerate the process and avoid common mistakes, significantly reducing risks and hidden costs for the investor. Engaging local experts is not just a luxury, but a necessary investment to ensure efficiency, compliance, and success in a market with specific regulatory characteristics. This contributes to turning "investment into reality."¹

C. Government Digital Platforms

Government digital platforms in Saudi Arabia significantly contribute to accelerating and facilitating company formation procedures and regulatory compliance, thereby enhancing the attractiveness of the business environment.

• MISA's E-Services Portal: This portal is a central platform for submitting various license applications (service, industrial, real estate, transport, commercial, etc.), amending them, and renewing them. It also offers property ownership services, entity conversions, and license cancellations.¹

• "MERAS" Platform: Used as an application mechanism for vital services such as issuing investment licenses and General Manager visas. It also facilitates opening files with the Zakat, Tax and Customs Authority, the Ministry of Human Resources and Social Development, and the General Organization for Social Insurance.[1, 1]

• "Absher" System: Used to verify national identity data for Saudi partners, and facilitates issuing exit/re-entry visas and Iqamas.[1, 1, 1]

• "Muqeem" System: Used for some Iqama and visa services related to expatriate workers.[1, 1]

• "YESSER" System: Aims to achieve integrated e-services by updating government data for investment establishments through direct linkage, eliminating the need for manual document submission and enhancing efficiency.[1, 1]

• "Qawaem" Program: Used for depositing audited financial statements for companies, a fundamental requirement for some government services.[1, 1]

• "A'amali" Portal (Ministry of Commerce): Used for publishing a summary of the Articles of Association and depositing financial statements for companies, enhancing transparency and disclosure.[1, 1]

• Ministry of Commerce, Justice, and Human Resources Websites: Used for reserving trade names, publishing Articles of Association, updating company data, and other specialized services.¹

Government investment in digital infrastructure and the provision of e-services reflects a strong commitment to facilitating the business environment. These platforms reduce the need for in-person visits, accelerate application processing, and increase transparency. They are a crucial element in attracting investors who expect efficiency in government dealings. Digital transformation is not limited to improving internal government efficiency; it is a strategy to enhance the Kingdom's competitiveness as a global investment destination by providing a seamless experience for investors.

VII. Conclusion and Recommendations

Saudi Arabia offers a dynamic and attractive investment environment, driven by the ambitious Vision 2030, which focuses on economic diversification and sustainable development. The Kingdom has undergone fundamental reforms in its legal and regulatory framework, leading to simplified company formation procedures and attractive investment incentives, especially in Special Economic Zones. However, challenges remain that require investors to have a precise understanding and strategic planning.

Key Opportunities:

• Supportive Investment Environment: The Kingdom offers a clear and enabling government vision for investment, aiming to attract qualitative capital that contributes to national development goals.

• Attractive Investment Incentives: SEZs provide a comprehensive package of tax, customs, and operational advantages, in addition to Saudization exemptions, enhancing their attractiveness.

• Streamlined Procedures: The shift from a licensing system to registration, and the centralization of government services through Investor Relations Centers, contributes to accelerating company formation.

• Government and Consulting Support: MISA offers specialized programs (such as Miza and Strategic Investor) and encourages leveraging local expertise (such as "Motaded") to ensure compliance and facilitate operations.

• Digital Transformation: Significant investment in government digital platforms enhances service efficiency and reduces administrative burdens.

Key Challenges:

• Compliance with Saudization Requirements: Despite flexibility in SEZs, companies operating in the mainland are still required to adhere to strict Saudization ratios under the Developed Nitaqat Program, necessitating careful human resource planning.

• Understanding Evolving Regulations: The dynamic regulatory environment requires continuous monitoring and a precise understanding of regulations and laws to ensure ongoing compliance.

• Operational Costs: Despite incentives, some operational costs, particularly labor costs, can pose a challenge requiring comprehensive financial analysis.

• Excluded Activities: Investors must pay attention to the list of activities excluded from foreign investment, which may include additional restrictions not explicitly mentioned in the official negative list.

Practical Recommendations for Potential Investors:

To maximize the opportunities available in Saudi Arabia and ensure a successful establishment and operational journey, the following is recommended:

• Conduct Thorough and Detailed Research: Investors must meticulously study the specific licensing requirements for their activity, including minimum capital and Saudi participation ratios (if any), and ensure the activity does not fall within the excluded list.

• Evaluate Special Economic Zones: It is advisable to assess the unique advantages of each SEZ (tax, customs, operational, Saudization exemptions) and their alignment with your investment objectives. These zones can offer a significant competitive advantage.

• Strategic Workforce Planning: Saudization requirements must be integrated into the HR plan from the outset. If meeting these requirements poses challenges, consider the exemption options available in SEZs.

• Engage Local Expertise: Collaborating with specialized consulting firms experienced in the Saudi market, such as "Motaded," is crucial for streamlining procedures, ensuring compliance with local regulations, and leveraging practical knowledge.

• Utilize Digital Platforms: Investors should effectively use available government e-portals and systems to accelerate processes and reduce bureaucratic complexities.

• Comprehensive Cost Assessment: Focusing solely on initial fees and incentives is insufficient; a precise analysis of total operational costs is essential to ensure the long-term financial viability of the project.