Doing Business In Saudi Arabia - Bna

accordance with the requirements defined in the Ministry's Resolution 264 from 1982.
These regulations, in theory, permit the registration of Saudi-foreign joint venture
consulting firms. As part of its WTO accession commitments, Saudi Arabia generally
allows consulting firms to establish an office in Saudi Arabia without a Saudi partner.
However, offices practicing law, accounting and auditing offices, design, architectural,
and engineering, civil planning, healthcare services, dentistry, and veterinary services,
must have a Saudi partner; the foreign partner’s equity cannot exceed 75 percent of
the total investment.
In 2002, the Supreme Economic Council announced the approval of a privatization
strategy and procedures, sectors on offer to domestic and foreign investors, and a
timetable to transfer certain public services to the private sector. 20 state-owned
companies handling water and drainage; saline water desalination;
telecommunications; mining; power; air transportation and related services; railways;
some sectors of roadways; post services; flour mills and silos; seaport services;
industrial cities services; government portions of SABIC, banks, and local refineries;
government hotels; sports clubs; some municipality services; some educational
services; some social services; some agricultural services; and some health services
were slated for privatization.
As a result of the privatization strategy, the Saudi Telecommunications Company
(STC) floated a minority stake (approximately 20%) on the stock market in January
2003, netting close to $4 billion in proceeds. An additional 10% has since been
offered for private ownership. The initial public offering of 50% of the formerly stateowned
National Company for Cooperative Insurance (NCCI) was completed in
January 2005. The first SABIC offering went public on December 17, 2005 for 35
percent of the newly-formed Yanbu National Petrochemical Company (YANSAB),
capitalized at $1.5 billion. YANSAB will be SABIC’s largest petrochemical complex
and the IPO represents $533 million of the company’s capital.
In July 2003, the government took significant, long-awaited steps to lower the
corporate tax rate on foreign investors to a flat 20%; however, separate rates apply to
investments in hydrocarbons. The flat tax replaced a tiered system with tax rates as
high as 45%. While this is a welcome step toward a more balanced treatment for
foreign and Saudi owned capital, there are privileges and preferences in Saudi Arabia
that favor Saudi companies and joint ventures with Saudi participation. For example,
domestic corporate partners do not pay corporate income tax, but are subject to a 2.5
percent tax on net current assets, or "Zakat."
Companies or citizens from Gulf Cooperation Council (GCC) countries (Saudi Arabia,
Kuwait, Bahrain, Qatar, UAE, and Oman) may currently own land or engage in internal
trading and distribution activities. Similarly, only joint ventures with at least 51 percent
GCC ownership interest are permitted to export duty-free to other GCC countries.
Together, these conditions can disadvantage a foreign investor attempting to operate a
wholly foreign-owned company in Saudi Arabia. Conditions are expected to improve,
as SAGIA becomes more engaged in identifying and reducing barriers to foreign
investment.
Conversion and Transfer Policies Return to top
5/13/2008