This publication is a joint project with
Doing business in Saudi Arabia
Contents Executive summary
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Disclaimer
Foreword
6
Introduction – Doing business in Saudi Arabia
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This document is issued by The Saudi British Bank (the ‘Bank’) in Saudi Arabia. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient.
Conducting business in Saudi Arabia
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Taxation in Saudi Arabia
18
Audit and accountancy
24
Human Resources and Employment Law
26
Trade
28
Banking in Saudi Arabia
30
SABB in Saudi Arabia
32
Country overview
34
Contacts
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The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. This document is produced by the Bank together with PricewaterhouseCoopers (‘PwC’). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/ or PwC only and are subject to change without notice. The materials contained in this publication were assembled in November 2010 and were based on the law enforceable and information available at that time
Executive summary This report introduces a general overview of the Kingdom of Saudi Arabia’s investment environment and provides a comprehensive guide for the individuals and companies who are willing to invest in the Kingdom of Saudi Arabia. It details the country’s economic status and its position in the global markets and presents how the Saudi Arabian government draws foreign investors’ attention to the Saudi market through certain incentive packages. This guide covers several issues to be considered in evaluating the prospects of operating and investing in the Kingdom of Saudi Arabia. These include the regulatory framework of entities, tax aspects, audit and accountancy, human resource and employment issues, trade and banking. Saudi Arabia encourages foreign investors to operate in transport, education, health, information and communications technology, life sciences, and energy, and in six ‘Economic Cities’ that are in various states of development.
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In order to operate in Saudi Arabia, foreign investors need to consider the following issues: General points: • Stable political system. • Islam plays a large role in its citizens’ lives. • Cultivating solid business relationships before entering into business dealings is key to your success. • Safe and secure family environment. • Well-established infrastructure. Business points: • Strong banking system. • 100% foreign ownership of companies and property. • No minimum capital requirement. • No restriction on repatriation of capital. • The ability for foreign investors to sponsor foreign employees.
Foreword As a thriving and fast-paced economy, the Saudi Arabian market provides endless opportunities for ambitious entrepreneurial ventures. However, understanding the local market, as well as the traditions of the Kingdom, is vital to ensuring that businesses reach their full potential in this market. At The Saudi British Bank (SABB), we are uniquely positioned to provide you with the necessary insights and financial services to support and develop your business in the Saudi market. Our extensive home-grown knowledge of the financial and cultural nuances of the local market, coupled with our association with the global HSBC network, has cemented our position in Saudi Arabia as one of the premier financial groups in the Kingdom. It is this wealth of expertise and know-how that makes SABB the ideal partner to support your business ventures in Saudi Arabia. Since inception in 1978, SABB has gone from strength to strength. We currently employ over 3,000 staff (85% of whom are Saudi nationals) and operate a total of 98 branches throughout the Kingdom, providing you with
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a comprehensive range of financial services designed to meet all your business needs. SABB’s portfolio of services covers Commercial, Corporate, Treasury, Personal, Investment and Private Banking. At SABB we are also highly committed to nurturing Saudi talent and invest rigorously in extensive training programmes, establishing us as the employer of choice for high calibre Saudi graduates. In line with our commitment to providing our customers with the support they need, SABB has come together with HSBC Bank Middle East to produce this comprehensive guide to doing business in Saudi Arabia. The guide includes information and insights into the Kingdom of Saudi Arabia, its economy, its financial policies, Islamic banking, as well as the risks and incentives in this vast market. SABB, through its long experience in the market and global reach through the HSBC network, has the right combination of local and global market knowledge to help you achieve your goals in this complex market. On behalf of SABB, I would like to take this opportunity to wish you a successful and prosperous future in the Kingdom of Saudi Arabia.
David Dew Managing Director The Saudi British Bank (SABB)
Introduction Doing business in Saudi Arabia Economic environment/ why it is a good place to do business Since the first commercial oil field was discovered in Dhahran in the Eastern Province in 1938, the Kingdom of Saudi Arabia (KSA) has expanded its economy to become the largest in the region. Saudi Arabia’s economy is largely oil-based with strong government controls on most economic activities. The Saudi Arabian economy is currently the 19th largest economy in the world and the largest economy in the Middle East and North Africa (MENA) region. It also occupies 13th position as the most economically-competitive country in the world, according to the International Finance Corporation (IFC)-World Bank annual ‘Doing Business’ report in 2010. The country is a leading producer of oil and natural gas. The government continues to pursue economic reform and diversification, particularly since Saudi Arabia’s accession to the WTO in December 2005, and promotes foreign investment in the Kingdom. A burgeoning population, aquifer depletion,
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and an economy largely dependent on petroleum output and prices, are all ongoing governmental concerns. It possesses about 20% of the world’s proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 80% of budget revenues, 45% of GDP, and 90% of export earnings. Saudi Arabia is located in the heart of the MENA region and forms the largest market in the region with about 400 million consumers. Saudi Arabia is one of the world’s fastest-growing countries. The per capital income is forecast to be $33,500 by 2020 from $20,700 in 2007. The main sector in Saudi Arabia is oil and gas, but recently the non-oil sector has delivered accelerating growth rates as the economy diversifies. The primary products of Saudi Arabia are crude oil and natural gas, dates and wheat. The major industries are crude oil and natural gas production and refining, fertilizers, cement, petrochemicals and steel.
Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi nationals. Diversification efforts are focusing on power generation, telecommunications, natural gas exploration, and petrochemical sectors. Roughly 5.5 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors. The government has begun establishing six ‘economic cities’ in different regions of the country to promote economic development. Five years of high oil prices during 2004-08 provided the Kingdom ample financial reserves to manage the impact of the global financial crisis, but tight international credit, falling oil prices, and the global economic slowdown reduced Saudi economic growth in 2009, prompting the postponement of some economic development projects. The currency of Saudi Arabia is the Riyal (SAR).
Intellectual Property Protection With regard to the Intellectual Protection Regime, Saudi Arabia has been strongly committed to developing and implementing this programme in the last few years. i.
Patents The Saudi Patents Regulations of 1989 cover any new article, method of manufacture and product patent. A patent can be granted to Saudi citizens/ companies and foreign citizens/ companies as well. All patents are valid for 20 years. Applications for patents must be submitted to the Directorate of Patents at King Abdul Aziz City of Science and Technology (KACST) on the appropriate form. A patent is subject to an annuity due at the beginning of each year subsequent to the year in which the application was filed and payable within a period of 3 months.
ii. Trademarks
and Service Marks The registration of trademarks and service marks in Saudi Arabia is governed by the Trademarks Regulations of 1984. Saudi Arabia applies the International Classification of goods and services but it is important to note that trademarks covering alcoholic goods and related retail or wholesale services are not applicable within the Kingdom. Several trademarks can be registered in Saudi Arabia these include:
• Distinct shapes. • Signatures. • Words. • Letters. • Numbers.
Trademarks registered in Saudi Arabia are protected for a period of 10 (Hegira) years from the date of application. Registrants can apply for renewals of the trademark within the last year of validity or within a grace period of 6 months after expiration of the trademark. iii. Copyright
Law
• Protection is granted to authors whose works of art are expressed in writing, sound, drawing, photography or motion pictures and computer software. The rights of the author are protected for his lifetime and for a period of 50 years after his death. • Protection covers all intellectual works of any type (whether they are literary, scientific or other), as far as the distribution of those works in Saudi Arabia is allowed.
• Drawings. • Symbols. • Seals. • Prominent inscriptions.
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• Foreign intellectual works are protected in accordance with the international conventions of which Saudi Arabia is a member, namely the Universal Copyright Convention and the Berne Convention for the Protection of Literary and Artistic Works.
• Violations of intellectual property protections are punishable by stringent penalties, including fines of up to SAR250,000 ($66,667), suspension of business, confiscation of materials, and imprisonment. Transportation Saudi Arabia has a basic public transport system with domestic and international airports, road and rail networks between major cities and towns of Saudi Arabia.
Language The official language in the Kingdom of Saudi Arabia is Arabic. However, English is widely spoken and considered as the business language. Any correspondence with the Government bodies, however, should be in Arabic e.g. business agreements and contracts. Incentives for foreign investors In order to ease the procedures of foreign entities setting up in KSA, the Government established the ‘Saudi Arabian General Investment Authority (SAGIA)’. SAGIA was established to assist foreign investors in the approval process for operating in KSA. It is considered to be a onestop-shop for foreign investors where they can register an entity, obtain a licence, get labour visas, pay tax and conduct other business affairs, all under one umbrella.
SAGIA offers a number of incentives in order to attract more investors to the country. Among them are: • 100% foreign ownership of companies and property; • No minimum capital requirement; • No restriction on repatriation of capital; • The ability for foreign investors to sponsor foreign employees; and
ii. Service
There are virtually no currency exchange restrictions in Saudi Arabia. Payments abroad may be made freely and there are no taxes or subsidies on purchases or sales of foreign currency. Officially, the Saudi Riyal (SAR) is pegged to the International Monetary Fund’s Special Drawing Rights.
• Catering to military sectors.
Businesses prohibited for foreign investments
• Recruitment and employment services including local recruitment offices.
There are two categories of prohibited investment activities by foreigners in Saudi Arabia: the Industrial Sector and the Service Sector.
• Tax incentives. Key markets and trade As a significant exporter and importer in the area, Saudi Arabia maintains active relations with all major industrialised nations. While countries such as the United States, United Kingdom, Japan, Italy and France continue to maintain noticeable trade relationships, new markets are also important. Among these countries are China, India, Brazil, South Korea and South Africa.
Foreign Currency Control
i.
Industrial Sector
• Oil exploration, drilling and production (except services related to mining sector listed at CPC 5115+883 in International Industrial classification codes). • Manufacturing of military equipment, devices and uniforms. • Manufacturing of civilian explosives.
Sector
• Security and detective services. • Real estate investment in Makkah and Madina. • Tourist orientation and guidance services related to Hajj and Umrah.
• Real estate brokerage. • Printing and publishing. Except certain related activities determined by Foreign Investment Law. • Commission agents internationally classified at CPC 621.
Business etiquette It is important for foreign business executives doing business in Saudi Arabia to understand Saudi etiquette and customs in the way they run their business. It is not uncommon for many Saudi business executives to have studied and/or worked abroad such that they have a good working knowledge of the English language and are familiar with international cultures. Any business meeting with a Saudi executive should be scheduled once the interested foreign business executive has arrived in Saudi Arabia. It is essential to know that to finalise a serious negotiation, face-to-face meetings should take place since all business matters are considered personal matters.
• Audiovisual and media services. • Land transportation services, excluding the inter-city passenger transport by trains. • Services provided by midwives, nurses, physical therapy services and quasi-doctoral services internationally classified at CPC 93191. • Fisheries.
As a matter of greeting, it is always helpful to know a few Arabic greetings such as ‘Asalam alaikum’ followed by shaking hands (with the right hand). Saudi people like to be addressed by their first names. Usually, business cards are exchanged after greetings and are often in English on one side and Arabic on the other side.
Conducting business in Saudi Arabia Foreign investors can operate in Saudi Arabia through the following structures:
Forms of Business and setting up Business in Saudi Arabia The formation and operation of entities is regulated by the Companies Law which was issued under a Royal Decree in 1965, as amended in 1967, 1982 and 1985 by subsequent Royal Decree. To establish any type of entity structure, foreign investors are required to obtain an Investment Licence from SAGIA under the Foreign Investment Regulations. For certain forms of business, foreign investors need to obtain the Ministry of Commerce’s (MOC) approval before receiving the SAGIA licence.
• Limited liability companies; • Joint stock companies; • Foreign office branch; and • Technical and scientific offices (Representative Offices). The most common forms for foreign investors are limited liability companies (LLC) and joint stock companies (JSC) while other forms are less common. Foreign investors may also operate through representative offices and agencies or can set up branches.
In general, Saudi Company Law generally allows for eight forms of business entity structures, which are as follows: • General Partnerships; • Limited partnerships; • Joint Ventures; • Corporations; • Partnerships Limited by Shares; • Limited Liability Partnerships (LLCs); • Variable Capital Companies; and • Cooperative Companies (Joint Stock Company). 14
An overview about the form of these entities is presented below: i.
Limited Liability Company (LLC): A LLC, also referred to as a Saudi Limited Liability Company, is a private entity comprised of two or more partners (shareholders) who are liable for company debts to the extent of their contributed capital. A maximum of 50 partners are allowed in such a company. The capital of a limited liability partnership shall not be less than SAR500,000 ($133,333). The capital shall be divided into shares of equal value, which may not
be represented by negotiable warrants. Foreign investors can wholly own this type of company and may have one or more managers (directors) with no requirement for any to be a Saudi national. Shareholders’ agreements are permitted and enforceable only if the terms are in compliance with Shari’a (Islamic Principles) and Companies Law. There must also be a supervisory board of at least three members if the company has more than 20 shareholders. Share transfers should be approved by SAGIA and the Ministry of Commerce and must be offered to the other partners before third parties. ii. Joint
Stock Company (JSC): A joint stock company is owned by five or more individuals or entities. Capital is apportioned into negotiable shares of an equal amount, and shareholders are liable only to the extent of the value of their holdings. The minimum capital requirement is SAR2 million or no less than SR10 million if its shares are offered for public subscription. The par value of each share cannot be less than SAR50, and, upon incorporation, its issued paid-up capital must be no less than one-half of the authorised capital. A recent change to the Regulations allows a joint stock company to issue non-voting preference shares totalling up to 50% of its capital in value.
Prospective joint stock companies involving businesses such as mineral exploitation, administration of public utilities, banking and finance require authorisation by Royal Decree prior to incorporation. The management is comsposed of a board of directors. This board, appointed by the shareholders, must have a minimum of three members. Directors must own at least 200 shares in the joint stock company.
iv. Technical
and Scientific Offices (Rep Offices) A foreign-owned entity may obtain a ‘technical and scientific services office’ licence from the Ministry of Commerce. This office may provide technical and scientific support to the parent company’s Saudi distributor(s), conduct market surveys, and undertake product research. Such service offices are, however, prohibited from directly or indirectly engaging in commercial activities in the Kingdom.
iii. Branches
Foreign companies can set up a branch office in Saudi Arabia which may carry out trading activities. The parent company will assume full liability for all activity undertaken by the branch office. A minimum capital of SAR500,000 is required. A licence to establish a branch office is issued by SAGIA. Temporary branches, which do not require any minimum capital, can be established for the execution of a project for a government agency. The branch office is subject to the Foreign Investment Law and the regulatory authority of the Ministry of Commerce.
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Minimum Capital requirements It is worth knowing that the Foreign Investment Law permits foreign investors to operate in all economic sectors, except for the activities in the prohibited list mentioned earlier. The minimum capital required by foreign investors investing in the industrial sector is SAR1,000,000 for all entity types, except for the technical and scientific office where no minimum capital is required. For the services sector, the minimum capital requirement is SAR500,000. In the case of limited liability companies which operate in the trading sector, the minimum capital is SAR20,000,000 and requires a Saudi partner(s) with maximum foreign ownership of 75%.
Registration Procedures for Limited Liability Companies To incorporate a 100% foreignowned LLC in Saudi Arabia, an investment licence and a commercial registration (‘CR’) should be obtained from SAGIA and the Ministry of Commerce (MOC), respectively. Documentation requirements from SAGIA are as follows: • Completed Investment Licence Application Form; • The Company board resolution stating their desire to invest in KSA, enclosing the partners’ names, capital, each partner’s contribution percentage, activity, general manager appointment. Such a resolution should be attested by the concerned authorities and Saudi Embassy in the foreign investor’s country; • Copies of the participating companies’ CRs attested by the concerned authorities and Saudi Embassy in the foreign investor’s country; • A copy of the enterprise articles of incorporation attested by the concerned authorities and Saudi Embassy in the foreign investor’s country; • Copy of the passport of the general manager;
• Where the activity requires the approval of the concerned authority (including financial services, insurance, information, tourism, health or education), the applicant shall provide the approval of the concerned ministry; • A copy of the trade name booking in case the company intends to obtain a trade name; and • Authorisation from a lawyer’s office, approving the procedure. This authorisation shall be attested by the Saudi embassy (or by the investor) in the event that it enters the Kingdom through conformation with a commercial visa. Exchange control Saudi Arabia does not have foreign exchange controls. There is complete freedom of movement of all capital and repatriation of profits. Filing requirements Saudi companies are required to file their annual tax/zakat return with the DZIT within 120 days of the fiscal year end. Furthermore, audited financial statements must be filed with the Ministry of Commerce within 6 months of the fiscal year end.
Taxation in Saudi Arabia Tax overview The Saudi Arabian tax law was completely re-written in July 2004, applicable to all taxpayers whose financial year started after this effective date. The withholding tax regulations took effect from 30 July 2004, irrespective of when the financial year started for the taxpayer. There are two main types of taxes in Saudi Arabia, Zakat (based on Islamic concepts) which is applicable to the Saudi (and GCC nationals) ownership at 2.5%; and Income Tax which is applicable to the non-Saudi ownership. The government authority which administers and collects Zakat tax liabilities is the Department of Zakat and Income Tax (DZIT).* Who is subject to tax in Saudi Arabia? Persons subject to tax in Saudi Arabia are as follows: • A resident capital company to the extent of its non-Saudi shareholding; • A resident non-Saudi natural person who conducts business activities in the Kingdom of Saudi Arabia;
• A non-resident person who carries out activities in the Kingdom through a permanent establishment (PE); • A non-resident person who has other income subject to tax from sources within the Kingdom; • A person engaged in natural gas investment fields; and • A person engaged in oil and other hydrocarbon production. Only non-Saudi investors (and Saudi branches of any foreign company) are liable for income tax in Saudi Arabia. In most cases, Saudi nationals (and nationals of the Gulf Cooperation Council (GCC) countries, who are considered to be Saudi citizens for Saudi tax purposes) are liable for Zakat, an Islamic assessment. Where a company is owned by both Saudi and non-Saudi interests, the portion of taxable income attributable to the non-Saudi interest is subject to income tax, and the Saudi share goes into the basis on which Zakat is assessed.
Tax Rates and applicable period
Tax holidays and incentives:
The income tax rate on taxable net income allocated to foreign shareholders is a flat rate of 20%, however, corporate income tax rates differ depending upon the type of business. These rates are as follows:
The Saudi Arabian government lists the following as incentives potentially available to qualifying companies:
• 30% for those engaged in natural gas investment (where the rate of internal return exceeds 8%, graduated tax rates up to 85% will be applied);
1. There
are no restrictions on repatriation of profits, fees, capital, salaries, or other monies.
2. The
government of Saudi Arabia has granted tax concessions to six lessdeveloped regions in the Kingdom, with the intention of attracting more investment. These tax privileges are granted for a period of 10 years from the start of any project. The tax cuts will be offered in the following regions:
• 85% for those engaged in oil and hydrocarbon production; and • 20% for all other types. A taxpayer’s fiscal year shall start on the date of its commercial registration or licence, unless evidence suggests otherwise. A taxpayer may use a different fiscal year under the following conditions: • The taxpayer has been using a different fiscal year approved by the DZIT prior to the enactment of the Law;
a. Ha’il. b. Jazan. c. Najran. d. Al-Baha. e. Al-Jouf. f.
• The taxpayer is using a Gregorian fiscal year; • A company is a member in a group of companies or is a subsidiary of a foreign company using a different fiscal year.
Northern territory. The qualifying investing company’s annual tax bill can be reduced by:
• Half the annual training expenditure on Saudis; and • Half the annual salaries paid to Saudis.
*www.dzit.gov.sa/en/index.shtml
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More deductions are granted if investment capital for any project exceeds SAR1million and if more than five employees of Saudi nationality have jobs of a technical or administrative nature with contracts of at least one year.
ii. Applicable
tax penalties
Item
Penalty as per Tax Law
Non-registration
From SAR1,000 to SAR10,000
Failure to file the tax return
From 5% to 25% of the unpaid tax
Delay payment
1% of the unpaid tax for each 30 days of delay
There have been indications recently that incentives may be extended to research and development expenditure but no details have been forthcoming. 3. An
exemption from customs duties is available on machinery and raw materials that are required for approved projects, provided that they are not available in the local market. Such exemptions should be applied for prior to their importation and are subject to certain terms. Tax administration
i.
Tax Return filing Tax filings are based on the company’s fiscal-year. Returns are due to be filed with the Department of Zakat and Income Tax (DZIT) and tax due must be paid within 120 days after the taxpayer’s year end. The system is one of self-assessment.
Evasion
iii. Advance
tax payments Advance tax payments are required to be made for a current tax year under the following conditions:
a. The
taxpayer has earned income during the year;
b. An
advance payment is 25% of the amount resulting from the taxpayer’s tax liability based on the previous year’s return minus the withheld tax;
c. The
computed payment is at least SAR500,000;
d. Three
equal advance payments of tax on the last day of the sixth, ninth and twelfth months of the tax year; and
e. Late
payment of an advance payment is subject to a delay penalty of 1% of the amount due for every 30 days of delay.
25% of the unpaid tax
Tax calculation To determine the taxable income for any business, the net income (book income) should be adjusted by adding disallowable expenses and deducting allowable expenses. Disallowable expenses include, but are not limited to, salaries paid to owners, partners or shareholders, social security contributions paid abroad, all kinds of provisions, fines and penalties, board of directors’ fees, entertainment and corporate tax and withholding tax. Disallowable amounts also include the depreciation in excess of the DZIT allowable amount. Allowable expenses which could be deducted from the net book income include the utilised provisions, exempted income (capital gain realised from disposal of securities traded in Stock Market in KSA) under certain conditions and depreciation differences. If a tax payer realises losses in a year of operation, he may carry forward these losses to the years following the loss year, until the cumulative loss is fully offset. The maximum profit percentage of any year that could be used to offset cumulative losses brought forward should not exceed 25% of the year’s profit as reported in the taxpayer’s return.
As a matter of group relief and tax consolidation, there is currently no concept of taxation on a consolidated basis, or group relief, for related companies in Saudi Arabia, other than for wholly-owned subsidiaries of Saudi/Gulf Cooperation Council owned companies that are subject to Zakat. However, an entity operating in the Kingdom that has undertaken more than one project under the same commercial registration, is required to consolidate the results of such projects into the financial statements of that entity and subject them to taxation as a single operation. Withholding tax Payments made from a resident party or a permanent establishment (‘PE’) to a non-resident party for services performed are subject to withholding taxes. The rates vary between 5%, 15% and 20% based on the type of service and whether the beneficiary is a related party. The withholding tax should be paid within the first 10 days of the month, following the month during which the payment was made. The domestic rate for withholding tax is 5% on dividends, 15% on royalties and 5% on interest.
Type of payment
Rate
Management fees
20%
Royalties or proceeds; payments for services to a
15%
head-office or related company Payments for rent; payments for technical and
5%
consulting services; payments for air tickets, air freight and maritime freight; payments for international telecommunications services; dividends; loan charges; insurance or reinsurance premiums Other payments
Any resident in KSA (whether or not that person is a taxpayer under the Saudi income tax law), and any permanent establishment of a non-resident in KSA, who makes a payment to a nonresident that is from a source in KSA, shall withhold tax from such payments according to the rates above (although they may be reduced where a relevant double tax treaty is in force): Personal income tax There are no personal income tax regulations in Saudi Arabia. However, social security contributions apply. Social insurance tax is paid monthly based on the monthly basic salary plus housing with an upper limit of SAR45,000 and is computed at 2% for non-Saudi employees and paid by the employer. For Saudi employees, the rate is 20% and is paid by both the employees (9%) and the employer (11%).
15%
Sales Tax/VAT There is currently no value-added tax system in Saudi Arabia. Nor is there any form of stamp, transfer, excise, sales, turnover, production, real estate, or property taxation except in so far as they may fall within the scope of Zakat, which is applicable only to Saudi nationals.
Audit and accountancy Joint stock and limited liability companies must appoint one or more Auditors. Other companies, however, such as partnerships, are not required to do so which will have an impact from Zakat/ tax prospective. The appointed auditor must be a certified public accountant and member of the Saudi Organisation for Certified Public Accountants ‘SOCPA’ and licensed within Saudi Arabia from the Ministry of Commerce and Industry. Such licences are only given to Saudis. • What are the requirements to file accounts? Limited liability and joint stock companies have to file their accounts with the Ministry of Commerce and Industry. • Are accounts publicly available? Only open joint stock companies’ accounts are disclosed and available to the public. Other companies’ accounts are only disclosed for authorities and other concerned parties. • What is the filing fee? There are no filing fees required by the authorities. The appointed CPA or lawyers will however have their own professional fees to assist with the filing process.
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• What are the main requirements for the accounts? Accounts have to be prepared in local GAAP and Saudi Riyals. However, for banks and other international companies (especially in the Oil and Gas industry), IFRS may be used as the local GAAP and may not always include comprehensive technical guidance. • Is it a requirement to maintain local books and records? Under the law, books and records have to be maintained by ‘an individual or company whose main objective is doing business’ for at least ten years after each fiscal year. Businessmen with capital of less than SAR100,000 are exempted. The accounts have to be in Arabic. Records could be in English although the system must be able to produce reports in Arabic.
Human Resources and Employment Law All labour and work affairs in Saudi Arabia are regulated by the labour law which was issued by a Royal Decree in 2005. Contract requirements Work contracts should be in two copies, one for the employer and the other for the employee. It should state the employer’s name, his address and location, the employee’s name, his nationality, his ID number, agreed salary and nature and place of work. Employees’ rights In the case of hiring a nonSaudi employee, the employee’s contract should be in writing, specifying the contract duration. According to the labour law and regulations, the employer will be liable to pay the fees of immigration, residence visa (iqama), work permit together with their renewal and the fines resulting from their delay, re-entry visas and the final departure tickets. Minimum wage and working hours There is no minimum wage in the Saudi Labour Law. However, the Labour Regulations state that an employee may not work for: 1. More
than eight hours a day, if the employer uses the daily work criterion; or
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2. More
than forty-eight hours a week, if he uses the weekly criterion. It is important to note that during the month of Ramadan, the permissible working hours for Muslims is reduced to a maximum of six hours a day or thirty-six hours a week. The weekend in Saudi Arabia is Thursday and Friday. High level comments on recruitment of staff (e.g. how easy is it, how do foreign businesses go about it). According to The World Bank survey from 2010, Saudi Arabia is one of the easiest countries in which to hire employees. The Saudi Arabian government is committed to train and develop Saudis through a Saudization plan that is in place. High level comments on immigration rules and restrictions. To travel to Saudi Arabia, a valid visa should be obtained by all except:
• Nationals of Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates;
• Transit passengers continuing their journey by aircraft within 18 hours, provided they hold valid onward or return documentation, do not leave the airport and make no further landings in Saudi Arabia (except nationals of Burkina Faso, Mali, Niger and Nigeria who always require a transit visa); and • Holders of re-entry permits and ‘Landing Permits’ issued by the Saudi Arabian Ministry of Foreign Affairs. For business purposes, a visa can be applied for by providing the following: • Application form to the Consulate (or Consular section at Embassy); • Letter of invitation from a Saudi host company endorsed by a Saudi Chamber of Commerce (original and copy); and • Letter from company or organisation in own country. For work visas, the requirements are as follows: • Application form to Consulate (or Consular section at Embassy); • Letter of introduction from Saudi sponsor and copy of the employment contract; • Copies of academic qualifications and work experience in the field of job applied for;
• Letter of No Objection if previously employed in Saudi Arabia; and • An amount equivalent to SAR50 deposited at the Consulate’s cashier desk. Role of unions/collective bargaining Workers unions and collective bargaining are currently prohibited in Saudi Arabia. Any special rules regarding termination of employment or redundancy As per the Saudi Labour Law, any employment contract shall be terminated in the following cases: • If both parties agree to terminate it, provided that the employee’s consent is in writing. • If the term specified in the contract expires, unless the contract has been explicitly renewed in accordance with the provisions of this Law, in which case it shall remain in force until the expiry of its term. • At the discretion of either party in indefinite-term contracts. • The employee reaches the age of retirement, which is sixty years for males and fifty fi ve years for females, unless the two parties agree on continuing employment after this age.
The retirement age may be reduced in cases of early retirement as provided for in the Employer’s organisational regulations. If it is a fixed-term employment contract which extends beyond the retirement age, it shall terminate at the end of its term. • Force majeure. What benefits is it customary to provide? As per the Labour Law, upon the end of the employment relationship, the employer shall pay the employee an end-ofservice award of a half-month wage for each of the first five years and a one-month wage for each of the following years. The end-of-service award shall be calculated on the basis of the wage upon leaving and the worker shall be entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job. If an employee resigns from his job, he will be entitled to one-third of the award after a service of not less than two consecutive years and not more than fi ve years. It will be increased to two-thirds if his service is in excess of five successive years but less than ten years, and to the full award if his service amounts to ten or more years.
Trade Anti-dumping regulations
Import Duties
If a product is sold on an export market for a price that is lower than the price charged in the seller’s domestic market, the seller risks an accusation of ‘dumping’. This is regarded as an unfair trade practice.
In general, most consumer goods are duty-free in Saudi Arabia. However, there are some items that are subject to a duty of 12% of the total cost. In order to protect local products, certain commodities such as aluminium are subject to import duties at 20%.
If a person is suspected of dumping, that person may be investigated by the AntiDumping Committee and will be subject to anti-dumping duties for five years. Competition Rules In order to control the competition environment in Saudi Arabia, a Royal Decree was issued in 2004 to approve and launch the Competition Law. The Competition Law aims to protect and encourage fair competition in the Saudi markets. It also prevents monopolies and regulates merger and acquisition transactions that affect the markets. Breaking the competition law may lead to a fine of a maximum of SAR5 million ($1,333,333).
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Banking in Saudi Arabia Types of bank accounts and ease of setting up a bank account All local banks follow Saudi Arabian Monetary Agency (SAMA) regulations. Pursuant to the Foreign Investment Act, which allows entities whollyowned by a foreign investor or in the form of a joint-venture with a national investor (natural or juristic person), banks may open bank accounts in Saudi Riyals and foreign currencies for such entities after fulfilling the documentation and requirements specified by SAMA based on the entity structure. There are two types of bank accounts; saving accounts and current accounts.
It is worth mentioning that most of the documentation for the above categories can be successfully fulfilled if a SAGIA licence has been issued because the SAGIA requirements and SAMA requirements are relatively similar in terms of legality. Ability to access local financing (e.g. local lending) Granting credit facilities to foreign investors varies according to the credit appetite of local banks. Thus, the willingness of the banks to lend locally varies with the economic status of the entity, as well as the following factors:
Restrictions on accessing cash through a local bank account The foreign investor should actively operate the account, otherwise nil transactions for an extended period will freeze the account. Moreover, it is important to avoid freezing or blocking the account and to update the account prior to the expiry date of 1) the CR; and 2) the authorised signatories’ IDs. The foreign investor is fully responsible for updating the bank in the following cases: • Change in shareholders; • Change in legal type; and
Categories of documentation and requirements depend on the entity structure; the bank will consider whether the business is: • A joint venture owned by a national investor and a foreign investor; • An entity wholly-owned by a foreign investor;
• Business activity; • Type of resident company; • How long business operations have been carried on for; • Investor capacity; • Financial position; and • Company management.
• A corporate individual or mixed foreign Corporate foreign institution or individual or mixed firm investor (more than one foreign partner); or • A foreign investor – branches of foreign companies and corporations.
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For any transaction, it is important to know that the signatories of the bank accounts must have valid resident IDs (IQAMA).
• Any Amendments of Article of Association. Finally, SAMA periodically reminds local banks to update customers’ documentation and Know Your Customer forms (KYC) either every fi ve years or in the case of any of the above mentioned changes taking place.
SABB in Saudi Arabia Introduction SABB was incorporated in 1978 and is a publicly-listed joint-stock company. HSBC owns 40% of SABB’s shares with the remaining 60% owned by individual and institutional shareholders, predominantly Saudi citizens. SABB is considered an ‘associate’ member of HSBC Group. Since its incorporation in 1978, SABB has grown into a premier financial services group in the Kingdom of Saudi Arabia. The Bank currently employs over 3,000 full-time staff and has 90 branches and almost 500 ATMs. There are a considerable number of financial institutions and establishments of diverse sizes and complexity in the Kingdom, amongst which are 11 major banking entities. SABB is a major contributor to the local banking market and has substantial presence in the three provinces in the Kingdom. It is a full financial services entity providing comprehensive services in areas including Personal Banking, Corporate Banking and Private Banking. It has the reputation for being one of the best-managed banks in Saudi Arabia. It is seen as
a technological and market leader in a number of businesses. SABB’s primary objective during the past three years has been to become a ‘Joined Up’ institution, identifying with the needs of value-creating customers. The achievement of the stated objective has been made possible through a restructuring exercise which has enabled SABB to be more aligned to the needs of its target customers and by creating specialised JVs and/or subsidiaries, being: HSBC Saudi Arabia Limited, SABB Takaful, SABB Securities Limited, SABB Insurance Agency Limited and SABB Insurance Services Limited. With a paid up capital of SAR7.5 billion (US$2 billion), its assets of SAR126.8 billion (US$33.8 billion), and profit of SAR2,032 million (US$542 million) at 31 December 2009, SABB ranks among the biggest and most solid financial institutions in the Kingdom of Saudi Arabia.
2000: First bank in the Kingdom to introduce ATMs with Braille.
World Bank’s IFC Awards 2010
The Banker Magazine Awards 2009
The Most Active Confirming Bank in the MENA Region.
Bank of the Year in Saudi Arabia.
Global Finance Awards 2010
Euromoney Awards for Excellence 2009
2004: First Saudi bank to issue Euro Bonds to the value of US$600 million.
Best Online Consumer Credit Site in Saudi Arabia (for the 5th consecutive year).
2005: First Saudi bank to offer share subscription through ATMS.
Best Bill Payment & Presentment Bank in MENA Region HSBC Saudi Arabia.
2005: First Islamic bank to sign leasing contracts based on the Islamic Ijara concept.
Global Finance Awards 2009
2006: First bank to adopt Islamic hedging of interest rates. Industry Awards
Best Trade Finance Bank in Saudi Arabia. Best Consumer Internet Bank in Saudi Arabia.
1983: First local bank with a fully-integrated online computer network.
Euromoney Awards for Excellence 2009 Best Debt House in the Middle East. Euromoney Awards for Excellence 2009 Best Cash Management House in the Middle East.
Global Finance Awards 2010 Best Trade Finance Bank in Saudi Arabia (for 2nd consecutive year).
Best Online Consumer Credit Site in the Middle East and Africa.
Best Foreign Investment Bank in Saudi Arabia.
Euromoney Awards 2009
Lipper Fund Awards 2009
Best Overall Private Bank in Saudi Arabia.
Best Saudi Equity Fund. SABB Takaful.
Best Sub-Custodian Bank.
1983: First bank to issue credit cards in KSA.
Best Investment Bank in Saudi Arabia.
EMEA Finance Awards 2009 SABB
Key SABB Firsts
1984: First Saudi bank to introduce ATMs. 32
1997: First Saudi company to introduce an MBA scholarship programme.
Best Call Centre in the Middle East.
Saudi Arabia’s Best Cash Management Bank. The Asian Banker Awards 2009
Euromoney Awards 2010 Best International Islamic Bank – SABB Amanah.
Saudi Arabia’s Strongest Bank.
Euromoney Awards 2009 Global Best Takaful Provider.
Country overview
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Capital city
Riyadh
Area and population
Area: 2,240,000 sq km – Population: 28.7 million
Language
Arabic
Currency
Saudi Riyal (SAR)
International dialling code
+966
National Holidays
Eid AlFitr
30 August
Saudi National Day
23 September
Eid AlAdha
3 November
Business and banking hours
9:30am - 4:30pm Working Days – (Saturday to Wednesday) Weekend – Thursday and Friday
Stock exchanges
Tadawul
Political structure
Monarchy
Economic statistics
GDP: $370bn – FDI: $36bn
Other
Every passenger going out or coming into the Kingdom must declare at the Saudi Customs Authorities, all financial instruments, precious metals or cash exceeding SAR60,000 or equivalent in foreign currency.
Contacts Kenny Hawsey, Partner Tel: +966-1-465-4240 Ext - 1149 Email: kenny.b.hawsey@sa.pwc.com
Website: www.sabb.com Phone: 800 124 5666 Outside the Kingdom +966 1 405 2066 1st Edition: December 2010 Copyright Copyright 2010. All rights reserved. ‘PwC’ and ‘PricewaterhouseCoopers’ refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.
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