SETTING UP A SUPPLY CHAIN BUSINESS IN SAUDI ARABIA

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.

With Saudi Arabia’s focus on economic diversification, the demand for efficient supply chain services has become much more prominent in recent years. Major new infrastructure projects such as the Saudi Landbridge railway, which is set to connect the Red Sea with the Arabian Gulf, and government incentives for new modern technologies are examples of how this market and particular sector are rapidly evolving, and new opportunities are presenting themselves every day.

The logistics market in Saudi Arabia is projected to reach USD 27.14 billion by 2025, growing at a compound annual growth rate (CAGR) of 5.76% to USD 35.90 billion by 2030.

Strategic Location

Saudi Arabia’s geographic position places it at the centre of the Middle East, Africa, and Asia. This centralised location, similar to the United Arab Emirates, gives businesses easy access to key international markets. The Kingdom’s logistics market, valued at over USD 10 billion, has seen major investments in infrastructure, including major ports and airports that enhance trade connectivity.

CBC consultants have seen a multitude of global logistics entities enquire about the market, as there has been a massive demand in enhanced delivery systems, with there being a massive spike in e-commerce over the last 5 years.

Government Investment and Economic Diversification

Saudi Arabia’s Vision 2030 initiative has driven investments in infrastructure and logistics. The private sector is expected to contribute SAR 550 billion (about USD 147 billion) to the logistics sector, representing 65% of total investments. This investment covers large-scale projects, including railways, ports, and highways, which boost the region’s connectivity and offer opportunities for businesses entering the market.

WHERE TO SET UP YOUR SUPPLY CHAIN COMPANY IN SAUDI ARABIA

1. Special Economic Zones Saudi Arabia offers several economic free zones that provide distinct advantages, such as 100% foreign ownership and tax exemptions. Key locations relating to the logistics sector are:
   • King Abdullah Economic City (KAEC): A major industrial hub focused on logistics.
   • Jeddah Economic City: Another great choice, a key benefit of this SEZ is the strategic positioning located near the Red Sea, ideal for sea freight.
   • Riyadh’s KKIA Logistics Zone: A fantastic location for air freight transportation companies and businesses.
2. Mainland Setting up a supply chain company in Saudi Arabia as a mainland entity presents unique challenges, particularly for foreign-owned businesses looking to engage in trading activities that are controlling the import duties. Companies must meet stringent requirements for this type of activity, including having a minimum of three global offices to demonstrate international credibility and a substantial capital investment of at least SAR 30 million (approximately USD 8 million) – This capital must be deposited within their corporate bank account within the first year of trading. This capital does not need to stay within the region but available liquidity must be presented adequately available.

However, Creation has helped many foreign companies navigate these regulatory challenges and successfully establish their business operations in Saudi Arabia, ensuring compliance and a smooth market entry despite the obstacles. This is done by looking at alternative business activities and identifying strategic import partners to relieve the burden of large capital requirements.

On the other hand, logistics or other service-related business activities fall under a service license, which allows 100% foreign ownership with minimal capital requirements. Thus, we ensure our clients obtain the right kind of license to operate compliantly and within the bounds of the law.

CORPORATE COMPLIANCE & LEGAL CONSIDERATIONS

Saudi Arabia has a well-established framework for starting a supply chain business, and it is important to ensure that your company complies with the various regulatory bodies and industry standards.

Below are some of the key considerations:

• Custom and Import/Export Regulations: Businesses conducting supply chain operations are required to comply with Saudi Customs regulations. This includes obtaining registration with the Saudi Electronic Data Interchange (FASAH) for customs clearance as well as confirming that import/export documentation meets standards, such as commercial invoices, certificates of origin, and shipping manifests. Some products may require further approvals from the Saudi Food and Drug Authority (SFDA) or the Saudi Standards, Metrology and Quality Organization (SASO), among other agencies.
• Ministry of Commerce (MoC): Issues Commercial Registration Certificates (CR) to locally owned and foreign owned companies and verifies that the entities are experienced in the business activity areas that they are practising within Saudi Arabia.
• Ministry of Investment of Saudi Arabia (MISA): Grants investment licenses to foreign companies entering the market, again similar to the MOC, documentation must be provided to showcase experience and profitability, and experience to practice the activities.
• Transport General Authority (TGA): Oversees the transportation and logistics sector, including freight forwarding and warehousing. Depending on the business activity, there will be specific requirements laid out, such as professional space requirements, fleet size, etc. – A CBC consultant can help you understand what your business activity will be and identify the specific requirements laid out by the TGA.
• Zakat, Tax and Customs Authority (ZATCA): VAT, customs duties, and other taxation obligations related to the supply chain. – CBC offers extensive support in this regard and can help organisations manage compliance within the ZATCA portal.

As mentioned above, specific business activities and license types may require specific qualifications of the shareholders/ General Manager; specific examples of these qualifications may be: 

• Capital: Certain licenses, particularly for trading acts, might require a minimum capital investment within the first year of trading; this capital is written as actual paid-up capital. Most times, this capital is not required to remain in a KSA Corporate account as a minimum balance, just a display of adequate liquidity.
• Physical Office Space: For companies in the mainland, a physical local address with specific spacing requirements may be required to be displayed; this will relate to warehousing and storage activities. Creation Business Consultants has its own business center in the heart of Riyadh, offering a range of services to help you secure your business’s registered address and complete your setup in Saudi Arabia more efficiently. We provide comprehensive turnkey office solutions tailored to your business needs, including registered addresses, virtual offices, flexible office spaces, workstations/desks, serviced private offices, and meeting room facilities. Our offerings are designed to accommodate all types of businesses, regardless of industry or workforce size.
• Saudization: The Kingdom enforces its Saudization policies through the Ministry of Human Resources and Social Development (HRSD), mandating firms to employ a certain number of Saudi national talent. Certain business activities have higher ratio requirements than others, and this will be determined when the MOHRSD portal is opened after the company has been established.

GOVERNMENT SUPPORT AND INCENTIVES

1. Public-Private Partnerships (PPP): The government encourages Public-Private Partnerships (PPPs), particularly in infrastructure projects like railways, ports, and digital trade platforms. These partnerships offer businesses avenues for growth and alignment with national development goals. CBC has experience in working with multiple PPP’s, including the Red Sea Utilities Company.
2. Funding and Grants: The Saudi Arabian government can offer funding options and grants to startups and industry innovators within the logistics sector, particularly those introducing tech-driven solutions. As opposed to grants, the KSA government may offer an invitation to startups to grow their operation within the Kingdom by the form of an “Entrepreneurs license”, this is a license that does not possess the same requirements as a standard MISA license application, such as the need for a documented history of a company’s previous financial year. These financial and operational incentives help enhance the competitiveness of the market and the innovation of businesses operating in the Kingdom.

HOW CREATION BUSINESS CONSULTANTS CAN HELP

At Creation Business Consultants, we provide comprehensive support for businesses looking to enter Saudi Arabia’s logistics market. From navigating legal regulations to securing necessary permits and licenses, our team offers tailored solutions to ensure smooth market entry.

CONCLUSION

Saudi Arabia presents ample opportunities for businesses to establish and optimize their supply chain operations. With a growing market, strategic location, and government support, the Kingdom is positioning itself as a global logistics hub. By choosing the right location, ensuring compliance, and leveraging advanced technologies, businesses can secure long-term success in this thriving sector.

For expert guidance on setting up your supply chain business in Saudi Arabia, contact Creation Business Consultants today.