Saudi Arabia and the UAE are making a lot of noise amongst the headlines battling for the top spot as the leading business hub for the region. Both countries are sound options for those considering expanding their business and setting up a company, below we take a closer look.
WHY ARE COMPANIES INVESTING & SETTING UP IN SAUDI ARABIA & THE UAE?
The competitive tension between the UAE and KSA is ratcheting up as Saudi Arabia, driven by the need to diversify its oil-based economy has made further moves to become the regions first choice for foreign investment. A move that is in line with its vision 2030, to use its strategic location and economic power to connect the three continents of Africa, Asia, and Europe. With forty percent of Saudi Arabia’s population under the age of 24, economic policy implemented now will significantly impact the Kingdom and expand the opportunities for young Saudi’s. The UAE’s own vision for the future, ‘Vision 2040’ focusses on developing the social infrastructure and rehabilitating older locales whilst moving to a more knowledge-based economy.
TRADING RELATIONS BETWEEN SAUDI ARABIA & UAE
The UAE is Saudi Arabia’s second largest trading partner with approximately USD $15 billion in exports to the Kingdom annually.
UAE and Dubai free zones are and remain an attractive option for the regions largely ex-pat manufacturers as they offer:
- Lower red tape and documentation requirements to set up a company;
- 100% foreign ownership; and
- 0% personal and corporation tax.
The recent move by Saudi Ministry of Finance to no longer recognise products manufactured in UAE free zones as being of ‘GCC origin’ is another shot across the bows for the UAE and has removed import duty exemption overnight to manufacturers exporting to Saudi.
Those manufacturers operating in UAE mainland areas, where the percentage of the local workforce is less than 25%, the same preferential tariffs will also disappear. This has prompted many manufacturers to consider moving their entire operations and set up a company in Saudi Arabia or lose a lucrative market to local competitors.
UAE free zone trading companies are perhaps hardest hit being faced with the choice of increased duties on exports to Saudi Arabia or set up a trading licence in Saudi Arabia that comes with a 30M SAR paid up share capital requirement. Trading as an SME in the Kingdom is clearly a space reserved for Saudi’s current and future entrepreneurs.
Saudi Arabia has also recently indicated that public-sector contracts will not be awarded to companies whose main hub is elsewhere in the region. Anecdotally, companies with existing trading/commercial relationships are being ‘encouraged’ to at least have a local licence, for now.
Looking at these policies in combination, the carrot of business opportunity in the region’s largest economy is judiciously mixed with some fiscal stick to encourage a change in international investment flows.
KEY DIFFERENCES – REGISTERING A BUSINESS IN SAUDI ARABIA & THE UAE
Those businesses considering a move and to set up an entity in Saudi Arabia, are to be fully prepared and to plan well in advance as the licence set up process is different to the UAE. The Saudi government inward investment infrastructure is still modernising, and whilst developing apace, often requires knowledgeable handling to navigate correctly and deliver robust licensing set up solutions.
LOCAL PARTICIPATION
In the UAE, certain business activities may require local sponsorship or a local service agent when setting up a company. In Saudi Arabia, depending on the business activity, an entity may be either one hundred percent foreign owned, or require mandatory participation of a Saudi national ranging between twenty percent to one hundred percent.
REGISTERING A TRADING COMPANY IN SAUDI ARABIA & THE UAE
One hundred percent foreign owned trading companies has a Saudi Riyal -SAR 30 million paid up share capital requirement. The amount of paid-up capital can be reduced equivalent to the level of ownership by a local. However, this percentage ownership by a local must be genuine or executive members of the company in question could face fines of up to SAR 5 million and even imprisonment.
Conversely, in the UAE there are no paid-up capital requirements for registering and setting up a mainland trading company. Certain trading business activities are now permitted to be one hundred percent foreign owned, yet this is to be defined by the relevant Emirate and licensing authority.
REGISTERING A PROFESSIONAL LICENSE COMPANY IN SAUDI ARABIA & THE UAE
When setting up a professional licence type in Saudi Arabia e.g., architecture business activities, there is a mandatory twenty-five percent Saudi participation required as an actual business partner within the company. In these instances, the percentage shareholding directly confers an equivalent share of profits and board representation. Interestingly, outside such specialist business activity areas, there is no requirement for Saudi participation when setting up and forming most professional licenced companies in Saudi Arabia.
Most professional licensed business activities in Dubai and the UAE already permit one hundred percent foreign ownership. However, UAE professional licenses still have the requirement for a local service agent and ordinarily there is no paid-up capital requirement.
REGISTERING AN INDUSTRIAL LICENSE COMPANY IN SAUDI ARABIA & THE UAE
Industrial licences do not require either a minimum paid up share capital figure, or Saudi participation apart from certain reserved/strategic activities.
Gaining any commercial registration licence requires many approvals from government authorities that often need to be managed individually. This can be time-consuming and complex; a key reason why a corporate service provider must have a physical presence on the ground in Saudi to expedite business set up solutions in line with your timescales. Normal setup times for setting up a company and commercial registration with licence issuance is circa three months but attempting to manage this remotely can mean timescales up to six months plus. Expanding international businesses will also need to take account of the local Saudi tax environment to take full advantage of the opportunities within the Kingdom.
Whereas, when forming an industrial license in the UAE, local participation on the business license is not ordinarily required nowadays. Most industrial business activities may require paid-up capital requirements which will vary and will be specified at the time of business registration.
JOB CREATION
With the drive to increase career opportunities for the Kingdom subjects, Saudisation is a requirement for any business in the Kingdom and is based on a one Saudi national worker per every three foreign workers. Manufacturing companies looking to enter the Saudi market have a range of labour suppliers on hand to meet their need. Covid travel restrictions have temporarily reduced labour supply, and therefore increased cost of solutions, but with the re-opening of borders, one would expect this to improve.
For most SME’s, there is no mandatory requirement for foreign companies to employ local Emiratis. Yet, Emiratisation is also at the forefront of the UAE’s government to increase job creation for nationals. The UAE has rolled out this initiative to employ its citizens in an efficient manner in the public and private sectors.
TAKEAWAY
The right advice from a knowledgeable, experienced and hands on team is vital with any investment consideration. With the scale of opportunities in Saudi Arabia and the UAE on offer for those with the means to take advantage of them, setting up a company correctly means those opportunities can be grasped with both hands. For a free no commitment consultation with our expert corporate structuring team email [email protected] or call +966 54 511 2494
