In the last decade, Saudi Arabia has emerged as a leading country encouraging domestic and national investments. Revolutionizing its economy by opening it to foreign investments, Saudi Arabia is set to expand even more in the next 10 years. A booming economy, streamlined licensing procedures, and an innovative and creative take on all types of businesses are some of the various reasons why starting a business in Saudi Arabia is currently quite a popular option among entrepreneurs, businessmen, and investors alike
In its goal to expand manifold, the Saudi Arabian government is making quite a few reforms to make its procedures streamlined and thus easier to navigate. By compressing multiple processes into one format, reducing the number of formalities, and developing an infrastructure that encourages foreign investments, Saudi Arabia, which was once very limited in its foreign expansion, is changing and evolving a lot. These types of transformations are sure to be fruitful not only for Saudi Arabia but also for businessmen looking to invest in this country.
These transformations are not only useful for foreign investors and entrepreneurs but even more so for domestic businessmen wishing to diversify their portfolios. Understanding the processes properly is sure to get your business running successfully in Saudi Arabia.
To know how to start a business in Saudi Arabia, one must be aware of the rules and regulations with regard to starting a business, conducting a business, and employment for the business. Foreign businessmen wondering how to start a new business in Saudi Arabia must first fulfill immigration and working visa requirements. Thereafter, the processes for local and foreign investors are alike. The steps to start a business successfully in Saudi Arabia are uniform for all types of businessmen. However, as far as permits are concerned, some businesses may require more or different permits and licenses specific to that work category.
Process of setting up a business in Saudi Arabia
As in every country, the process of setting up a business in Saudi Arabia starts with coming up with a marketable idea. This is followed by thorough research related to the business, followed by understanding regulations to set up the business, coming up with a legal structure of the company, getting credit, acquiring land or office for the company, getting all permits and licenses, and hiring employees and finally conducting business. These steps require careful planning and in-depth research at every step. Here is how you can understand the process better:
- Business Idea: The first step in starting a business in Saudi Arabia is coming up with a business idea. This idea can be any product or service for which there is a significant demand in the market. It can also be a completely new product or solution to a common problem; however, you need to test out prototypes before deciding on establishing a full-fledged business.
- Determining Legal Structure: Before starting a business in Saudi Arabia, you need to determine the legal structure of your company. There are three legal structures of companies and businesses recognized in Saudi Arabia: Limited Liability Company; Joint Stock Company, and A Branch of a Foreign Company.
- A Limited Liability Company (LLC) is one wherein the liabilities and obligations of each partner are determined and limited by the shares they own in the company. Their personal assets are not included or affected in any case.
- A Joint-Stock Company is one wherein the shares belonging to a company can be bought by shareholders or sold by them to other people.
- A Branch of a Foreign Company usually refers to MNCs. It is a company that is owned by a parent company entirely. The parent company can be situated anywhere in the world.
- Licensing: The first and foremost requirement for a foreign investor is to obtain a foreign investment license from SAGIA (Saudi Arabia General Investment Authority). All companies would also need to register their company with the Ministry of Commerce and Investment and obtain the Memorandum of Association, followed by receiving the Commercial Registration Certificate in order to start a new business in Saudi Arabia.
Companies that are branches of a parent company or a foreign company would have to collect and present a document of registration of the parent company and would also need to have a detailed document signed by the board of directors which lays down the reasons explaining why the company plans to expand in Saudi Arabia.
- Premises: If you are starting a business in Saudi Arabia, you need to get an office space and address. This is compulsory if the business is not a branch of a foreign company. A company address is essential for all new businesses being established in Saudi Arabia. You can get premises either within the mainland of Saudi Arabia or in the Free Economic Zone. Both options are made available to businesses. However, the premises must be chosen wisely to ensure that you are closely located to your target market.
- Registrations: Apart from Company Registrations, new businesses also need to register themselves for taxes and social security. The concerned departments for these registrations are The General Authority of Zakat and Tax, the Saudi Ministry of Labour and Social Development, and the General Organization for Social Insurance.
- Hiring Employees: Employees are an essential feature of any business. To run a business smoothly and to expand it exponentially, every company needs a dedicated team of employees and experts in their particular fields. Every business has multiple vertices to take care of, business development, sales, HR, finance, accounts, legal, and much more. HR policies and procedures in Saudi Arabia are quite different. It is thus necessary to learn about these in order to be in compliance and avoid conflict before starting a business in Saudi Arabia. With the help of experienced HR consultants like Zimyo, the entire process of hiring and onboarding employees becomes a seamless experience.
Hiring Employees in Saudi Arabia
Hiring Employees is one of the most important parts of establishing and running a successful business. The business culture in Saudi Arabia is quite different than most other countries. It is quite a conservative nation, which, while becoming more inclusive, is still heavily hierarchical in nature. This means that while employees are hired and taken care of, the decision-making process continues to happen behind closed doors and between a select few higher-ups.
Group discussions, brainstorming, and strategic meetings are not common features here. However, HR policies and procedures in Saudi Arabia are required to be drawn out by every company, no matter the size. Saudi Arabia has very comprehensive workers’ rights, and companies need to abide by these.
- Trial Period/Probation Period: The probation period is the time when an employee is tried out by the employer. This just means that the employer hires them, but before the employee can be provided the full benefits, their suitability to the company is gauged. In Saudi Arabia, the Probationary period lasts for a maximum of 90 days. However, if the employer so requires, this period can be extended to 120 days if the employee agrees to it as well.
- Leave and Holidays: Employees are entitled to 21 days of paid vacation time. However, if an employee has been associated with the same employer for more than five years, then this duration goes up to 30 days. Employees who have not performed Hajj before are also entitled to 10-15 days of leave for this purpose after having completed two consecutive working years for the same employer.
There also are nine paid public holidays in Saudi Arabia. Sick leave is allowed in three variations. 30 days of fully paid sick leaves, 60 days of 75 percent paid sick leaves, and 30 days of unpaid sick leaves. Employees can also choose to combine their annual leaves with this to extend the duration.
- Maternity Leave: Maternity benefits for pregnant employees start four weeks before the due date of childbirth and extend to 6 weeks after the birth of the child. In the event a baby is born with special needs, the employee can be granted another month of paid leave and an additional month of unpaid leave, totaling up to 18 weeks.
- Termination of Services: Termination of Services is comprised of several layers in Saudi Arabia. Employers must give a 15–30-day notice to the employees if their services are being terminated. The length of the notice depends upon the employment status as well as the duration for which an employee has been associated with the firm. In the event the employer wishes to terminate services immediately, they need to pay the employee in lieu of the notice.
Payments upon the termination of services are calculated on the basis of the wages in the last three months. A severance, also known as End of Service Payments, is awarded to employees. These are also calculated on the basis of the number of years the employee has been employed, the average wages as well as the housing allowance. These also vary on the basis of the type of termination. If the employer has terminated an employee, they are differently liable as compared to when an employee quits.
- Pension: Pension schemes for male employees kick in when they complete 60 years of age and for female employees when they complete 55 years of age. An important requirement is that the employees must have made at least 120 months’ worth of contributions to the Social Insurance Fund. Both the employers and employees contribute 9% of the payroll to this fund. Those employees who have paid 300 months’ worth of contributions can retire at any time.
- Work Hour Norms: The maximum working hours in Saudi Arabia are set at 48 hours per week. The number of working days in a week is set at five days. This goes on from Sunday to Thursday. Friday and Saturday are usually off. However, some businesses start on Saturday and only allow Fridays off, with daily working hours coming to 6 hours per day. Employees must also be allowed a rest period and five breaks each day for praying. During the month of Ramadan, Employees can only be expected to work for 6 hours a day.
How easy is it to conduct business in Saudi Arabia?
To find out how easy or difficult it is to conduct business in Saudi Arabia, the Ease of Doing Business Index is a reliable source. This index compared about 190 countries across various parameters to rank them on the basis of how easy it is to start and conduct business in them. Saudi Arabia currently ranks at the 62nd position overall. Some of the parameters assessed in this report are:
- Starting a Business: Starting a business refers to completing the initial formalities and setting up a shop in Saudi Arabia. In terms of this parameter, Saudi Arabia ranked at the 38th position. It scored 93.1 out of 100 points in this area. While there are merely 3-3.5 procedures required to start a business, it can take up to 11 days to actually complete all these formalities and start a business.
- Managing Permits: Business Owners and Investors need to acquire a lot of permits in Saudi Arabia. Construction permits are one of the most important ones. In this regard, Saudi Arabia ranked 28 and scored a mere 78.3 out of 100. This low score is due to the fact that it takes about 100 days to get these permits, and there are nearly 28 procedures to complete.
- Getting Electricity: Getting electricity is relatively easy in Saudi Arabia, and as such, the country ranked 18 on this parameter. It merely takes 35 days on average and completing two procedures to obtain an electricity connection up and running.
- Getting Credit: Getting credit can be quite difficult in Saudi Arabia as the credit bureau has a very low coverage rate. The country ranked at the 80th position in this parameter and scored a mere 60 out of 100. Getting credit is extremely important when starting off a new venture, which means that Saudi Arabia needs to improve massively in this field.
- Managing Payroll: Managing payroll is dependent entirely on HR policies and procedures in Saudi Arabia. Employers need to register with the Records of Employment and PEO, which would help in streamlining this process. This is where the expertise of consultants at Zimyo comes to your rescue by taking care of all types of HR-related tasks.
- Paying Taxes: Paying taxes can take up quite a bit of time in Saudi Arabia. There are just four taxes that need to be paid annually, but it can take individuals over 100 hours to complete the processes. As such, the country ranked 57 and scored 80.4 in this parameter.
- Enforcing Contracts: Enforcing contracts in Saudi Arabia is quite difficult. The processes of resolving any disputes regarding contract enforcement are quite time-consuming as they can take nearly two years. No wonder the country ranked at 51.
- Resolving Insolvency: There are no set practices when it comes to resolving insolvency in Saudi Arabia, and thus, there is no score assigned to the country in this regard. Needless to say, it ranked among the bottom few and was positioned at number 168. The means and methods of resolving insolvency of a business have not been published specifically anywhere.
While there are a ton of things to do and a daunting number of processes and procedures to follow, those who can patiently and consistently work towards starting a business in Saudi Arabia would find it to be a very lucrative place for their business. While Oil exports have been the major trade in the region for decades and centuries and still continue to be so, a huge number of new industries are also flourishing in this part of the world. Health Science, Technology, and Tourism are some of the many industries booming in Saudi Arabia currently. Starting a business in any of them would be a chance for major expansion.
Zimyo is a leading HR and Payroll management services provider in Saudi Arabia with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.