GUIDE ON SETTING UP A MANUFACTURING BUSINESS IN SAUDI ARABIA
This Article was updated on: July 11th, 2024.
This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.
Saudi Arabia has made massive strides over the years to open its market to international investors. The Kingdom of Saudi Arabia is much keen to diversify its economy and move away from oil dependency. As the needs of the region grow, Saudi Arabia aims to position itself as a central hub for production and manufacturing within the GCC.
Saudi Arabia’s Government offers various incentives and programs to promote and attract international investors to the manufacturing industry throughout the country. Saudi Arabia’s manufacturing industry is thriving, with over 10,000 factories spanning various sectors ranging from food and pharmaceuticals,production of metals, machinery, and equipment manufacturing.
Saudi Arabia’s Vision 2030 leads a series of giga projects which further transforms the industrial landscape and positions Saudi Arabia as a global leader in innovation and sustainability, shaping the future of the region. To name few of these projects:
Neom: A $500 billion futuristic city that aims to be powered entirely by renewable energy. It includes sub-projects like The Line, a linear city that stretches 170 kilometers, and Trojena, a year-round mountain tourism destination.
The Red Sea Project: A luxury tourism development encompassing over 28,000 square kilometers, featuring eco-friendly resorts and the world’s fourth-largest barrier reef system. By 2030, it aims to have 50 hotels and 8,000 rooms.
Qiddiya: An entertainment, sports, and arts hub near Riyadh, including the largest Six Flags theme park with record-breaking rides. It is set to be a leading destination for family entertainment.
Diriyah Gate: A cultural and historical destination near Riyadh, showcasing Saudi Arabia’s heritage with museums, galleries, and performance venues. This project aims to attract cultural tourism and preserve historical sites.
CHOOSING THE RIGHT LEGAL STRUCTURE FOR YOUR MANUFACTURING COMPANY IN SAUDI ARABIA
Option 1 – Branch: While offering a quick setup, branches have limitations. They operate as extensions of a foreign company, meaning the parent company bears full liability and the branch may face restrictions on business activities that often require additional approvals.
Option 2 – Limited Liability Company (LLC): This structure provides limited liability, protecting the owners’ personal assets from company’s debts beyond their initial investment. Additionally, LLCs offer greater flexibility in management and profit-sharing, making them a more favorable option for expansion and attracting future investments. Despite the minimum capital requirement of SAR 50,000, the LLC’s financial protection and flexibility make it the preferred choice for foreign manufacturing firms entering the Saudi market.
WHAT ARE THE REQUIREMENTS FOR REGISTERING A MANUFACTURING LICENSE IN SAUDI ARABIA?
A manufacturing company in Saudi Arabia can be 100% owned by a foreign shareholder (non-Saudi national). The Ministry of Investment (MISA) acts as the primary licensing authority for these ventures. To secure a manufacturing license, companies must be well established outside of KSA for at least one year and required to submit all necessary documentation requested by MISA, including audited financial statements demonstrating the parent company’s financial stability. The company structure can be established as either a subsidiary of a foreign company or a branch. There is a nominal share capital requirement based on the operation’s size, and at least 30% of production must be sold within Saudi Arabia. With a manufacturing license, companies can engage in selling their manufactured goods to businesses or distributors in the country and exporting overseas. For further details on various licensing options, explore the different Business License types available in Saudi Arabia.
WHAT IS THE PROCESS TO SETUP A SAUDI MANUFACTURING COMPANY?
Setting up a 100% foreign owned Saudi manufacturing company involves several steps. First, foreign company documents require legalization at the Saudi Embassy. After obtaining a manufacturing license from MISA, the company registers with the Ministry of Commerce for Articles of Association (AOA) drafting and Commercial Registration (CR) issuance. Securing a land contract, building permits, and registering with the municipality follows. Once commercially registered, the company obtains its final industrial license from the Ministry of Industry and Mineral Resources, obtains all relevant environmental permits, and completes post registrations with the governmental departments including Ministry of Human Resources, Zakat, Tax and Customs, and others. Upon completion, the company can hire staff, open a bank account, and begin operations. This is a general process, and specific requirements may vary.
WHAT APPROVALS ARE REQUIRED FOR A MANUFACTURING COMPANY IN SAUDI ARABIA?
All manufacturing business licenses in Saudi Arabia must be compliant with the environmental standards set by the General Presidency of Meteorology and Environmental Protection. Each company needs to ensure all environmental hazards are minimised, removed, or disposed properly. For example, chemical manufacturing companies produce harmful wastes which are hazardous and corrosive are required to be carefully collected and transported to a government approved waste management facility.
The Ministry of Industry and Mineral Resources acts as the central regulatory body for all industrial and mining licenses in Saudi Arabia. It oversees the issuance of manufacturing permits for companies with registered licenses across the country’s 13 administrative regions. The ministry is also engaged in actively promoting incentives and introducing new initiatives and reforms to attract industrial investment and facilitate access to funding for businesses.
Here are the key steps and approvals required, particularly for manufacturing chemicals, medicines, or food products:
ENVIRONMENTAL APPROVAL: Secure approval from the Ministry of Environment, Water, and Agriculture. This ensures that the manufacturing process adheres to environmental standards, which is especially crucial for industries like chemicals, medicines, and food, due to their potential environmental impact.
MUNICIPAL APPROVALS: Obtain approvals from the local municipality for the chosen industrial site. This ensures adherence to zoning and land use regulations, which is critical for setting up manufacturing facilities.
CIVIL DEFENSE APPROVAL: Obtain approval from the Civil Defense. This approval ensures that the manufacturing facility meets fire safety and emergency preparedness standards, which are particularly stringent for chemical and pharmaceutical manufacturing due to the risks involved.
SAUDI FOOD AND DRUG AUTHORITY (SFDA) APPROVAL: For manufacturing medicines and food products, obtaining approval from the SFDA is essential. This involves rigorous testing and validation to ensure that products meet safety and efficacy standards.
MINISTRY OF HEALTH APPROVAL: For pharmaceutical manufacturing, approval from the Ministry of Health is required. This ensures that the manufacturing process and the products meet health regulations and standards.
SAUDI STANDARDS, METROLOGY AND QUALITY ORGANIZATION (SASO) CERTIFICATION: For all manufacturing industries, obtaining SASO certification is important to ensure that products meet the national standards of quality and safety.
MODON LEASE AGREEMENT: If operating within a Modon-managed industrial city, signing a lease agreement for the designated industrial land is necessary. This includes complying with Modon’s infrastructure and operational guidelines, ensuring the manufacturing facility is well-supported by the provided infrastructure and services.
MODON AND THE INDUSTRIAL CITIES IN SAUDI ARABIA
The Saudi Authority for Industrial Cities and Technology Zones, known as MODON, oversees the development and management of industrial cities across the Kingdom of Saudi Arabia. As of 2024, MODON manages 36 industrial cities, encompassing over 209 million square meters of developed land, which host more than 6,443 factories and 7,946 industrial, logistical, and investment facilities.
AVAILABILITY AND POWER COSTS IN INDUSTRIAL CITIES
The availability of industrial land spans various cities including Riyadh, Jeddah, Dammam, and others. Each industrial city has its own unique attributes and facilities:
RIYADH INDUSTRIAL CITIES: There are three major industrial cities in Riyadh. The first city is centrally located and easily accessible, the second is situated along the Al-Kharj Road, and the third in the southern part of Riyadh. Power costs in Riyadh’s industrial areas average around SAR 0.18 per kWh.
JEDDAH INDUSTRIAL CITIES: Jeddah has three main industrial cities. The first is located in the southern province, the second near the Red Sea coast, and the third also along the coast, making them ideal for logistics and export activities. Power costs in Jeddah are approximately SAR 0.20 per kWh.
DAMMAM INDUSTRIAL CITIES: Dammam’s industrial cities are strategically placed near the Arabian Gulf, offering advantageous logistics for both local and international trade. Power costs here are about SAR 0.19 per kWh.
OTHER CITIES: Cities like Taif, Sudair, Waad Al-Shamal, and Najran also host significant industrial zones. Each offers unique benefits based on location, available facilities, and logistical advantages. Power costs in these cities generally range from SAR 0.17 to SAR 0.21 per kWh.
MODON also supports industries by providing ready-built factories, which numbered over 1,301 by the end of 2023.
MADE IN SAUDI” PROGRAM: BOOSTING LOCAL PRODUCTION AND GLOBAL COMPETITIVENESS
The “Made in Saudi” program is a national initiative designed to encourage local production and enhance the global competitiveness of Saudi products. Companies that meet stringent quality standards can obtain the “Made in Saudi” stamp, which signifies excellence and authenticity. This initiative boosts the reputation of Saudi products, fosters national pride, and supports economic diversification.
The program is part of the broader Vision 2030 plan, aiming to increase the country’s non-oil exports and encourage local industries. To qualify for the “Made in Saudi” stamp, a product must meet the following requirements:
LOCAL CONTENT: At least 40% of the product’s value must be added in Saudi Arabia. This includes raw materials, labor, and manufacturing processes.
WHAT IS SAUDISATION & WILL THIS APPLY TO A SAUDI MANUFACTURING COMPANY?
Saudisation is the Saudi nationalisation scheme to increase the employment of Saudi nationals within the private sectorand reduce reliance on foreign workers.
SAUDISATION RATES DEPENDS ON THE FOLLOWING FACTORS:
Activity.
License type.
Regulating Government Authority.
Manufacturing companies in Saudi Arabia must comply with Saudisation regulations. The Saudisation rate vary by company size, industry complexity, and sector. Businesses are required to evaluate and conduct thorough research on the land requirements, setup cost, labour including Saudisation targets, staff accommodation utilities, access to raw materials, and the distribution logistics, along with ongoing operationals costs to ensure a successful and on-going business operations in the country.
TAKEAWAY
Obtaining the necessary approvals from the relevant ministries and authorities, businesses can ensure a smooth and compliant establishment of their manufacturing operations in Saudi Arabia’s dynamic industrial sector. This process guarantees that all regulatory, environmental, and safety standards are met, providing a solid foundation for successful manufacturing ventures in the kingdom.
As the Saudi government continuously updates its regulations, it is advisable to stay informed about the latest changes. Consulting with experts, such as Creation Business Consultants, can facilitate a successful application process. Contact our team at [email protected] or call us at +966 54 511 2494 to learn more about setting up a company in Saudi Arabia. With professional advice, you can establish and operate a successful manufacturing firm in Saudi Arabia.
