Establishing Subsidiary Companies in Saudi Arabia for Foreign Investors: A Comprehensive Guide to Legal and Procedural Aspects

I. Executive Summary

The Kingdom of Saudi Arabia is undergoing an unprecedented economic transformation as part of Vision 2030, which aims to diversify income sources and reduce reliance on oil. Foreign direct investment (FDI) is a key pillar for achieving this ambitious vision, as the Kingdom seeks to triple annual investments and increase annual FDI inflows by more than 20 times to reach SAR 388 billion by 2030.

Establishing subsidiary companies is the most common and preferred form for foreign investors to enter the Saudi market. This preference reflects the Kingdom's commitment to providing an attractive investment environment, as the new Foreign Investment Law allows 100% foreign ownership in most sectors, often eliminating the need for a local partner. This shift represents a fundamental turning point, significantly reducing the complexities and risks associated with control and profit-sharing that were previously prevalent, and enhancing foreign investors' confidence in their ability to fully manage their operations and define their strategies without restrictions. This approach is not merely about regulatory updates; it is an integral part of a sustainable national strategy for economic transformation, providing investors with significant stability and continuous government support for their projects.

II. Legal and Regulatory Framework for Foreign Investment

The legal and regulatory environment in Saudi Arabia is a key driver for attracting foreign investment, designed to be transparent and supportive.

Saudi Foreign Investment Law and its Main Objectives

The Foreign Investment Law in the Kingdom aims to develop and enhance the competitiveness of the investment environment, contribute to economic development, and create job opportunities. The most prominent objectives of this system include:

• Facilitating Investment Establishment: This includes the smooth acquisition, divestment, or liquidation of assets.

• Ensuring and Enhancing Investor Rights: The system focuses on protecting investors' interests and providing a secure environment for them.

• Ensuring Equal Treatment: The system emphasizes equality between local and foreign investors under similar circumstances, promoting competitive neutrality and equal opportunities.

• Providing Transparent, Efficient, and Fair Procedures: The system ensures clarity, speed, and fairness of procedures for the investor and their investment.

Foreign investors enjoy a set of fundamental rights that guarantee them a fair and protected investment environment:

• Equal Treatment: Foreign investors receive equal treatment with local investors under similar circumstances. This principle represents a strategic shift from protectionism to fostering an open and competitive market, where the Kingdom prioritizes attracting capital and expertise and generating employment opportunities.

• Fair and Equitable Treatment: The system ensures fair and equitable treatment of investors.

• Protection of Investment from Expropriation: Investment cannot be wholly or partially confiscated except by a final judicial ruling, and expropriation is only permitted for public interest, with fair compensation, and in accordance with legal procedures.

• Freedom to Transfer Funds: Investors have the freedom to transfer their funds within and outside the Kingdom without delay, including investment returns, profits, and proceeds from sale or liquidation, through legal channels and in any recognized currency.

• Freedom of Management and Disposal: Investors have the right to manage and legally dispose of their investment, and to own what is necessary to conduct their business.

• Protection of Intellectual Property: The system guarantees the protection of intellectual property and confidential commercial information.

• Facilitation of Administrative Procedures: Competent authorities provide the necessary support and assistance to facilitate administrative procedures for investors. These comprehensive rights aim to build investor confidence and mitigate perceived risks in emerging markets.

Role of the Ministry of Investment (MISA) and Relevant Government Entities in Facilitating Investment

The Ministry of Investment (MISA) is the primary and central authority that oversees foreign investment and issues licenses to foreign investors. The Ministry was established in 2020, succeeding the Saudi Arabian General Investment Authority (SAGIA). MISA aims to achieve ambitious targets, such as tripling annual investments and increasing annual FDI inflows by more than 20 times to reach SAR 388 billion by 2030. MISA provides integrated services and comprehensive support to investors through the "Invest in Saudi Arabia" platform to facilitate business initiation and investment expansion.

The ambitious goals of the Ministry of Investment, along with simplified procedures, reflect a strong, proactive, and performance-driven government approach. The targeted increase in FDI, reaching 30% of GDP, indicates that MISA is not merely a regulatory body but an active catalyst for investment. The provision of "instant licenses" in some sectors and the existence of the "Saudi Business Center" as a unified platform for electronic government services demonstrate a shift from traditional bureaucracy to a more flexible and investor-friendly environment. This approach aims to reduce friction and accelerate business establishment, directly supporting ambitious economic transformation goals.

MISA collaborates with several other government entities to facilitate the investor's journey, including:

• Ministry of Justice.

• Ministry of Human Resources and Social Development (MHRSD).

• Ministry of Interior and the General Directorate of Passports.

• Public Investment Fund (PIF): The main driver of the economy and investment in the Kingdom.

• National Competitiveness Center: Aims to improve the competitive environment.

• Saudi Business Center: Concerned with facilitating procedures for starting, conducting, and ending economic activities, and providing all related services as a unified platform for electronic government services.

• Monsha'at (Small and Medium Enterprises General Authority): To support and develop the SME sector.

• Saudi Exchange: For listing and trading securities.

• Zakat, Tax and Customs Authority (ZATCA).

• General Organization for Social Insurance (GOSI).

Principle of 100% Foreign Ownership in Most Sectors

The new Foreign Investment Law allows 100% foreign ownership in most sectors without the need for a local partner. This change represents a significant transformation that expands opportunities for international businesses and increases the Kingdom's attractiveness as an investment destination. By explicitly guaranteeing investor rights, including the freedom to transfer funds and intellectual property protection, the Kingdom seeks to build confidence and mitigate perceived risks in emerging markets. This strategic move aims to make the Kingdom a safe and reliable investment destination, enhancing its position in the global economy.

III. Definition of Subsidiary Company and Available Legal Forms

Understanding the differences between various legal entities is crucial for foreign investors when deciding to enter the Saudi market.

Definition of a Subsidiary Company in Saudi Law and its Distinction from a Branch

Subsidiary Company: A subsidiary is a separate legal entity wholly or partially owned by a holding company. A subsidiary enjoys legal independence and its own legal personality, and can have a different nationality and headquarters from the holding company. The holding company controls its management and strategic decisions, while the subsidiary maintains its operational and financial independence. The parent company's liability is limited to its share in the subsidiary.

Foreign Branch: In contrast, a foreign branch is not a separate legal entity; it is an extension of the parent company. The parent company bears full responsibility for the branch, and its accounts are integrated with the parent company's accounts. It is 100% controlled by the parent company and is closed if it incurs significant losses.

The clear legal distinction between a subsidiary and a branch, especially concerning legal personality and liability, directly impacts a foreign investor's market entry strategy and determines their risk exposure and operational flexibility. If a foreign company establishes a branch, the Company bears full responsibility for the branch's obligations and debts, meaning the parent company's global assets may be at risk. In contrast, a subsidiary, being an independent legal entity, limits the parent company's liability to the extent of its investment in the subsidiary. This consideration is crucial for risk management. Therefore, the subsidiary model (especially LLC or JSC) is preferred for most large and long-term investments to provide liability protection, while a branch may be suitable for temporary projects or initial market testing where full parent company control and liability are acceptable without the need for a separate legal shield.

Legal Forms of Companies Available to Foreign Investors

Saudi Arabia offers a variety of legal forms for companies that foreign investors can choose from, suitable for the nature of their activity and the size of their investments.

• Limited Liability Company (LLC):

  • Considered the most preferred form for foreign investors due to its flexibility and limited liability.

  • Partners' liability is limited to their capital contributions.

  • Can be established by one or more persons, and its financial liability is separate from that of the partners.

  • There is no specific capital requirement in the new system, but some activities may have capital requirements.

  • Cannot engage in certain activities such as banking, insurance, and savings.

• Joint Stock Company (JSC):

  • Its capital is divided into equal and tradable shares.

  • Shareholders' liability is limited to the extent of their shares.

  • The minimum issued capital is SAR 500,000, and the paid-up capital must be at least one-quarter of that.

  • Can be public or closed (private), with closed JSCs requiring shareholder approval for share sales.

• Simplified Joint Stock Company:

  • Offers similar advantages to a traditional JSC but with greater flexibility and fewer regulatory requirements, making it suitable for startups.

• One-Person Company:

  • A form of LLC owned by a single person, whose liability is limited to the company's capital only.

  • It should be noted that a foreign investor cannot establish more than one "one-person company" at the same time.

• Other Forms:

  • General Partnership: Established by two or more persons, where partners are personally and jointly liable for the company's debts.

  • Limited Partnership: Consists of a general partner with unlimited liability and a limited partner whose liability is limited to their share.

  • Professional Company: Dedicated to individuals or entities licensed to practice specific professions (e.g., law or accounting).

The simplification of LLC and Simplified Joint Stock Company structures reflects a broader trend to make corporate structures more accessible, especially for SMEs and startups, aligning with economic diversification goals. The new Companies Law has simplified capital and shareholder requirements for LLCs and introduced the Simplified Joint Stock Company. This indicates the government's effort to accommodate a wider range of investors, from large corporations to agile small ventures. Reducing barriers to these common legal forms aims to stimulate business establishment and growth across various sizes, fostering a more inclusive and dynamic investment ecosystem, consistent with Vision 2030's focus on private sector growth.

However, restrictions on certain activities for LLCs (such as banking and insurance), and limiting the number of "one-person companies" a foreign investor can establish, highlight the existence of specific regulatory boundaries that investors must heed, despite the general flexibility. While 100% foreign ownership is allowed, this is not a blanket authorization for all activities or structures. These specific exceptions for LLCs (which are otherwise highly flexible) and the one-person company rule (only one per investor) demonstrate that the regulatory framework, though liberalized, still retains strategic controls in sensitive sectors (such as the financial sector) and prevents the potential misuse of simplified structures. This means that investors need to conduct thorough due diligence on permitted activities and structural limitations relevant to their specific business model before committing to a legal form, as these restrictions can significantly impact their scope of operations or necessitate alternative structuring.

Table 1: Comparison of Legal Forms for Subsidiary Companies for Foreign Investors in Saudi Arabia

IV. Procedures for Establishing a Subsidiary Company and Required Documents

The process of establishing a subsidiary company in Saudi Arabia is increasingly organized and facilitated, with a focus on digitalization and streamlining procedures.

Detailed Steps for Company Establishment, Starting with Obtaining an Investment License

1. Choosing the Company Type: The process begins by determining the most suitable legal form for the intended commercial activity, whether it is an LLC, JSC, or other.

2. Obtaining an Investment License from the Ministry of Investment (MISA):

   • The license application is submitted through the Ministry of Investment's platform.

   • Required Documents: These include a copy of the parent company's commercial registration attested by the Saudi Embassy, and the financial statements for the last fiscal year of the foreign company attested by the Saudi Embassy. A copy of the general manager's passport and a detailed business plan outlining the project's contribution to GDP and job creation are also required, in addition to preliminary approvals from specialized bodies if the activity requires it.

   • Important Note: Holders of Premium Residency are exempt from submitting the parent company's commercial registration and financial statements. This exemption reflects a deliberate policy to attract high-net-worth individuals and skilled professionals, linking immigration policy with investment facilitation. By easing the documentation burden for Premium Residency holders, the government creates an additional, tailored incentive for a specific category of foreign investors, which indicates a multifaceted approach to attracting FDI, where talent and capital are seen as interconnected assets for national development.

   The requirement to submit attested financial statements and the commercial registration of the parent company is not merely an administrative procedure but a due diligence mechanism. This requirement ensures that foreign entities allowed to enter the Saudi market are financially sound and legitimate, protecting the local economy from speculative or undercapitalized ventures and maintaining the integrity of the investment environment.

3. Opening a Bank Account: The company must open a bank account in an approved Saudi bank.

4. Registering the Company with the Ministry of Commerce and Obtaining a Commercial Registration:

   • This step is completed through the Saudi Business Center platform.

   • Required Documents: These include the parent company's commercial registration, partners' resolution to open a branch or establish a company, authenticated articles of association, resolution appointing the general manager, and identification of owners and general manager. This step includes registering the commercial registration and publishing the articles of association in the "A'mali" newspaper.

5. Obtaining Additional Licenses: The company may need additional licenses from municipalities and relevant ministries depending on the type of activity.

6. Registration with Other Government Entities:

   • Zakat, Tax and Customs Authority (ZATCA).

   • Ministry of Human Resources and Social Development (MHRSD).

   • General Organization for Social Insurance (GOSI).

   • Subscription to the approved business address with Saudi Post "Subul".

   • Subscription to Chambers of Commerce.

7. Providing a Physical Premise: A premise must be leased for conducting commercial activity.

8. Appointing a Legal Accountant: Appointing a certified legal accountant to manage financial accounts is essential.

The shift towards integrated electronic services through platforms like the Saudi Business Center demonstrates a strong government commitment to digital transformation and streamlining bureaucratic procedures, significantly reducing establishment time. The emphasis that many registration steps can be completed electronically "without the need to visit a branch", and that company establishment can take "only minutes", represents a clear move towards efficiency and ease of doing business. This transformation directly addresses common challenges related to bureaucracy and delays, leading to a significant improvement in the investor experience and positioning the Kingdom among leading nations in digital government services for business establishment.

Estimated Fees and Costs Associated with Establishment

Fees and costs associated with establishing a subsidiary company in Saudi Arabia vary based on the type of activity and the legal form of the company. Estimated fees can be summarized as follows:

Table 2: Estimated Fees for Establishing a Subsidiary Company in Saudi Arabia

V. Incentives and Guarantees for Foreign Investors

Saudi Arabia offers a comprehensive set of incentives and guarantees for foreign investors, aiming to create an attractive and stable investment environment.

Equal Treatment with Local Investors

Foreign investors enjoy all the advantages, incentives, and guarantees enjoyed by national projects. This includes equal treatment with other investors, and equal treatment between local and foreign investors under similar circumstances. This parity in treatment aims to build a highly predictable and secure investment environment, directly addressing common hesitations among investors in emerging markets.

Protection of Investment from Confiscation and Expropriation

The system guarantees the protection of foreign investors' properties. Investment cannot be wholly or partially confiscated except by a final judicial ruling. As well, expropriation, whether direct or indirect, is not permitted except for public interest, in accordance with legal procedures, and against fair compensation.

Available Tax and Customs Incentives

The Kingdom offers various tax and customs incentives to support investment:

• Tax Exemptions: Tax exemptions are granted for certain strategic sectors such as manufacturing industries, technology, and renewable energy.

• Customs Exemptions: Exemptions apply to machinery, equipment, certain spare parts, and raw materials imported for investment projects, contributing to reduced production costs.

• Special Economic Zones: These zones provide additional tax and customs exemptions to encourage investment in specific locations.

• Loss Carryforward: Businesses are allowed to carry forward losses incurred to subsequent years to deduct them from future profits, providing financial flexibility for investors.

The provision of specific tax and customs incentives for certain sectors, and the mention of Special Economic Zones, indicate a targeted strategy to direct investment towards priority areas aligned with Vision 2030. This focus on sectors like industry, technology, and renewable energy, and the establishment of free zones, demonstrates a deliberate policy to foster specific industries and vital geographical areas for economic diversification and job creation. These incentives are designed to channel FDI towards strategic sectors that contribute to technology transfer, local content development, and non-oil GDP growth. This means that investors whose projects align with these national priorities are more likely to receive preferential treatment and support, making an understanding of the Kingdom's strategic development plans essential for investors.

Facilitating Entry and Residency Procedures for Non-Saudi Employees and Their Families

The Kingdom facilitates procedures for obtaining visas and residency permits for investors and their non-Saudi technical and administrative employees and their families. The sponsorship of the foreign investor and their non-Saudi employees is borne by the licensed establishment.

Access to Industrial Loans

Foreign investors have the right to obtain industrial loans in accordance with the provisions of the Saudi Industrial Development Fund, supporting expansion and growth in the industrial sector.

Intellectual Property Protection

The system guarantees the protection of intellectual property and confidential commercial information, which is vital for an innovation-driven business environment.

VI. Tax Aspects and Profit Repatriation

Understanding the tax system in Saudi Arabia is crucial for foreign investors to ensure compliance and effective financial planning.

Income Tax on Foreign Companies

An income tax of 20% is imposed on the net annual profits of companies wholly or partially owned by foreign investors or non-GCC citizens. In mixed-ownership companies, the foreign share is subject to income tax at 20%, while the Saudi/GCC share is subject to Zakat.

Zakat

Zakat is calculated at a rate of 2.5% of the Zakat base (net zakatable assets) and applies to companies owned by Saudis or GCC citizens. Subsidiaries of a holding company may submit consolidated accounts and a unified Zakat declaration.

Value Added Tax (VAT)

VAT is an indirect tax imposed at a rate of 15% on most goods and services in the Kingdom. Companies are obliged to collect this tax from consumers and remit it periodically to the Zakat, Tax and Customs Authority.

Withholding Tax (WHT)

WHT is a direct tax deducted from amounts received by non-residents from a source in the Kingdom. Its rate varies depending on the type of income or service provided and may be affected by the existence of double taxation agreements or for regional headquarters companies. The WHT declaration must be submitted within 10 days of the month following the transfer or payment to the non-resident.

Table 3: Summary of Main Taxes on Foreign Companies in Saudi Arabia

Table 4: Withholding Tax Rates on Income for Non-Residents in Saudi Arabia

The multi-layered tax system in Saudi Arabia, which includes income tax, Zakat, VAT, and withholding tax, with varying rates and specific application rules, makes tax planning and compliance essential for foreign investors. The system is not merely a single corporate tax; it requires a deep understanding of each component to determine the optimal tax burden and ensure accurate reporting and avoidance of penalties (such as fines for delays or manipulation). This means that foreign investors should engage specialized local tax and legal advisors to effectively navigate these complexities and ensure full compliance.

Double Taxation Agreements and Their Impact

The Kingdom has signed double taxation agreements with over 50 countries. These agreements aim to prevent tax evasion and determine how income and capital are taxed, and may reduce withholding tax rates. These agreements are a crucial mechanism for foreign investors to reduce their overall tax burden. While local withholding tax rates can be high (for example, 20% on management fees, 15% on royalties), double taxation agreements can override these local rates, providing relief for investors from countries with such agreements, either by reducing the withholding tax rate or exempting certain income from tax in the Kingdom if it is taxed in the home country. This means investors should proactively check if a double taxation agreement exists between their home country and Saudi Arabia, as this can significantly impact their financial projections, overall profitability, and cash flows, making it a key element of financial due diligence.

Freedom to Repatriate Profits, Capital, and Liquidation Proceeds Abroad

Foreign investors have the right to repatriate their share from the sale of their stake, liquidation surplus, or profits earned by the establishment abroad without delay. They also have the right to transfer necessary amounts to fulfill any contractual obligations related to the project. The explicit guarantee of freedom to repatriate profits and capital is a fundamental assurance for foreign investors, directly addressing one of the main concerns related to liquidity and return on investment. The ability to freely transfer capital and profits from the host country is a cornerstone of attractive investment environments, as investors need to realize returns and, when necessary, liquidate their investments. By repeatedly emphasizing this right in various regulations and official statements, Saudi Arabia sends a strong signal of financial openness, stability, and commitment to investor protection. This means investors can trust their ability to manage their cash flows and realize their returns without facing capital restrictions, undue delays, or arbitrary limitations, which is a key factor in attracting and retaining long-term FDI.

VII. Labor Laws and Saudization

Labor laws and Saudization programs are vital aspects that foreign investors must understand and comply with when establishing subsidiary companies in the Kingdom.

Saudi Labor Law and its Provisions Related to Foreign Employment

Foreign companies must comply with all Saudi laws and regulations, including the Labor Law. The sponsorship of the foreign investor and their non-Saudi employees is borne by the licensed establishment.

"Nitaqat" Program for Job Localization (Saudization) and Establishment Classification

The "Nitaqat" program classifies establishments into five categories: Platinum, High Green, Medium Green, Low Green, and Red. This classification is based on the Saudization rate (percentage of Saudi employees) and the total number of employees in the entity. The method for calculating the Saudization rate varies based on the establishment's economic activity and size.

Saudization Rate Calculation:

• Employees Calculated at a Higher Rate: Saudis with special needs are calculated at double the normal rate (up to a maximum of 10% of total employees), as are Saudis with criminal records and those released from prison (at double the normal rate, up to a maximum of 10%).

• Employees Calculated at a Lower Rate: Saudis classified as students are calculated at half the normal rate (up to a maximum of 10% of the workforce, except in the food sector where it can reach 40%), as are part-time Saudi employees (at half the normal rate).

• Employees Calculated as One Saudi Employee: This includes the son or daughter of a Saudi female citizen, mother or widow of a Saudi citizen, employees from nomadic tribes, GCC citizens, GCC players or athletes, the owner, and seconded Saudi employees.

Compliance with the "Nitaqat" system is required by employing a certain percentage of Saudis based on the number of employees.

Requirements for Work Visas and Residency for Non-Saudi Employees

The Kingdom facilitates procedures for obtaining visas and residency permits for investors and their non-Saudi technical and administrative employees and their families. The sponsorship of the foreign investor and their non-Saudi employees is borne by the licensed establishment.

VIII. Permitted and Excluded Sectors for Foreign Investment

Saudi Arabia shows significant openness to foreign investment in most sectors, with a specific list of excluded activities for strategic or security considerations.

Activities Permitted for Foreign Investors

According to the Services Guide issued by the Ministry of Investment, activities permitted for foreign investors include a wide range of sectors, including but not limited to:

• Industry: Such as chemical industries.

• Trade, Contracting, and Real Estate Development

• Health Sector: Hospitals, medical centers, and clinics.

• Environment, Water, and Agriculture: Well drilling, poultry projects, greenhouses.

• Advertising, Printing Presses, Production and Sale of Computer Software

• Digital Media Activities: Visual and audio advertising, and cinemas.

• Senior Management Consulting, Technical and Scientific Offices, Engineering Consulting Offices

• Entrepreneurial Activities: Establishing technology, innovative, or distinguished startups capable of scaling and growth to offer a better and different product or service in the Saudi market.

• Communications and Information Technology: Wireless internet services, parcel delivery services.

• Transportation and Logistics Activities

• Education: University and general education, private schools, nurseries.

• Technical and Vocational Training

• Sports, Tourism, and Entertainment Fields

• Exhibition and Conference Organizing Activities

• Energy Projects

• Security and Fire Prevention Activities

• Mining, Financial Services, Catering and Food Services, Aviation and Handling Services, Insurance and Reinsurance

• Regional Headquarters and Foreign Law Firms

Activities Excluded from Licensing for Foreign Investors

Despite the significant openness, some activities remain excluded from foreign investment, namely:

• Industrial Sector: Licensing for petroleum exploration, drilling, and production activities is excluded, except for services related to the mining sector classified internationally.

• Services Sector: Licensing for the following activities is excluded:

  • Insurance and catering services for military sectors.

  • Investigations and security.

  • Real estate investment in Makkah and Madinah.

  • Hajj-related tourism guidance services.

  • Private employment services.

  • Commission commercial agents classified internationally under number (621).

  • Fishing of living aquatic resources.

  • Media and press sectors.

  • Some Hajj and Umrah services.

  • Social insurance services.

  • Practicing advocacy and law before general courts (exclusive to Saudis only).

IX. Comparison of Other Forms of Presence (Branch and Joint Ventures)

Foreign investors have several options for entering the Saudi market, each with its characteristics, advantages, and disadvantages.

Foreign Branch

As mentioned earlier, a foreign branch is not a separate legal entity; it is an extension of the parent company. The parent company bears full responsibility for the branch, and its accounts are integrated with the parent company's accounts. A branch is characterized by full control by the parent company and may be a suitable option for short-term projects or market testing where the need for a separate legal entity is not a priority. However, the lack of independent legal personality means that any liabilities or lawsuits against the branch can extend to the parent company, exposing its global assets to risks.

Joint Ventures

Joint ventures are a common form of cooperation between local and foreign investors. These projects have several advantages and disadvantages:

• Advantages:

  • Ease of Starting and Less Formality: Their legal requirements can be less costly and complex compared to limited companies, especially if they are in the form of a "Musharakah company" which facilitates cooperation without complex procedures.

  • Risk and Reward Sharing: Profits and losses are distributed among partners, reducing the burden on each partner and encouraging entry into riskier projects.

  • Flexibility of Contributions: Allows flexibility in contributions for individuals with diverse resources to enter into partnership, whether financial contributions or expertise.

  • Compliance with Islamic Sharia: Some partnership contracts comply with Islamic Sharia principles.

• Disadvantages:

  • Unlimited Liability: In some forms of partnership (such as general partnerships within a joint venture), liability may be unlimited, exposing partners' personal assets to risk.

  • Scattered Decision-Making: An unorganized management structure can lead to slow decision-making or disputes among partners.

  • Difficulty in Raising Additional Capital: The nature of the partnership does not include a mechanism for issuing shares, which may hinder capital raising through share sales.

  • Difficulty in Exiting the Partnership: There may not be a specific mechanism allowing a partner to exit by selling their share without terminating the entire project.

Subsidiary Company

A subsidiary company is the preferred option for many foreign investors seeking a long-term strategic presence in the Kingdom. A subsidiary is characterized by being an independent legal entity with limited liability for the parent company, providing a legal shield for the parent company's assets. It also offers operational flexibility and autonomy in business management, with the ability to access local financing independently.

Table 5: Comparison of Presence Forms for Foreign Investors in Saudi Arabia

X. Frequently Asked Questions and Challenges

Despite significant facilitations, foreign investors may face some questions and challenges when entering the Saudi market.

Frequently Asked Questions

• Can a foreign investor own 100% of a company? Yes, a foreign investor can establish and wholly own a Limited Liability Company in most sectors.

• What sectors are excluded from foreign investment? Excluded sectors include petroleum exploration and production, security and military services, real estate investment in Makkah and Madinah, some Hajj and Umrah services, private employment services, and commission commercial agents.

• How long does it take to establish a company and obtain licenses? Thanks to digital transformation, company establishment procedures and obtaining a commercial registration can take only a few minutes.

• Are there any tax incentives or exemptions for foreign investors? Yes, the system offers tax and customs incentives and exemptions in certain sectors and special economic zones.

• Can profits be easily repatriated outside Saudi Arabia? Yes, the Foreign Investment Law guarantees the freedom to transfer profits, capital, and liquidation proceeds abroad without delay.

• Can a foreign investor purchase commercial or industrial real estate in their name? Yes, a licensed foreign investor can own the necessary real estate for their economic activity, private residence, or employee housing.

Challenges

Despite the attractive environment, foreign investors may face some challenges:

• Bureaucracy and Delays in Some Procedures: Although improvements have been made, some procedures, especially when obtaining licenses, may still experience delays.

• Continuous Changes in Regulations: Continuous regulatory changes require constant monitoring of laws and updates.

• High Competition: Some sectors experience high competition, requiring good planning before entering the market.

• Understanding Local Regulations and Laws: Foreign investors may find it difficult to understand the complex and constantly changing legal systems.

• Dispute Resolution Risks: Commercial dispute resolution procedures in Saudi Arabia differ from international standards, which may affect investors unfamiliar with the Saudi judicial system.

Dealing with Saudi business culture and government procedures can be complex for investors unfamiliar with the local environment. To overcome these challenges, it is highly recommended to seek specialized legal expertise in foreign investment to ensure full compliance with Saudi laws and avoid potential risks.