Saudi Arabia positioning itself as ‘world’s leading investment opportunity’: Expert
Saudi Arabia continues to position itself as “the world’s leading investment opportunity” with an unrivaled, fast-growing entrepreneurial landscape and “significant” venture capital opportunities, Sovereign PPG’s Managing Director, told Al Arabiya English.
“The Kingdom of Saudi Arabia continues to pro-actively position itself as the world’s leading investment opportunity. It is clearly becoming a destination of choice, particularly for businesses, as the government continues to implement reforms and regulations to attract physical talent and operations to Saudi,” said the firm’s Managing Director Paul Arnold.
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Under Saudi Vision 2030 – a transformative economic and social reform blueprint launched and initiated by Crown Prince Mohammed bin Salman in 2016 – the National Transformation Program is almost halfway through its five-year objectives. It is “successfully delivering on social and economic changes that are noticeably re-shaping the Kingdom,” Arnold added.
With many ambitious projects on the horizon, such as NEOM and ‘THE LINE’ city and the restoration of biodiversity in many parts of the Kingdom, including in ancient cultural heritage site AlUla, among several others, Saudi Arabia is undergoing a radical transformation like no other.
Earlier this month, the International Monetary Fund (IMF) said that the Kingdom is set to become one of the world’s fastest-growing economies in 2022. It updated its forecast for the year, expecting its Gross Domestic Product to expand by 7.6 percent, the fastest growth in over a decade.
The IMF said it was vital for the Kingdom to maintain its reform momentum. The continued implementation of Vision 2030 and its policies will help diversify and liberalize the economy, which will pave the way to more significant and stable economic growth.
“Post-COVID, there is effectively unrestricted travel to and from Saudi Arabia, and air connectivity continues to expand. The most recent developments include direct flights between Dubai and NEOM. In addition, direct tourism and pleasure travel, mixed with business, are also on the rise, with travelers taking advantage of new direct flights between AlUla and the UAE this summer,” said Arnold.
“Every major industry sector is benefiting from the recognizable growth opportunities in the Kingdom, including construction, engineering, energy, hospitality, manufacturing, entertainment, and professional consultancy services.”
There are various business types available to foreign companies in the Kingdom: Subsidiary Company, Branch Office, Joint Stock Company, and technical and Scientific Services Office (TSO), all of which have their advantages, requirements, and differing scope of business activities and registration requirements.
The most common type of business entities established by foreign investors entering the Saudi market are limited liability companies (LLC) which require a minimum capital investment of around $133,100 (500,000 Riyals) and can have a minimum of two shareholders and limited to a cap of 50 shareholders.
As for branch offices, foreign companies can register an entirely foreign-owned Saudi branch office in the country, provided they obtain a requisite license from the relevant authorities. Branch offices can engage in commercial activity within the scope of the license and require a minimum capital investment of $133,100 (500,000 Riyals).
A Saudi Joint Stock company also requires the same amount of minimum capital investment but requires a minimum of two shareholders and at least three directors who can be non-Saudi residents. Once the Ministry of Investment of Saudi Arabia (MISA) approves the formation of such business entities, the Commercial Registration Certificate is then issued.
Regarding Technical and Scientific Services Offices (TSOs), there is no minimum capital requirement. These entities which are meant to provide technical support to the parent company’s Saudi Arabian distributor or agent are not permitted to carry out any sale activities.
“Historically, the perception of setting up and operating in Saudi has been considered challenging and confusing. This mindset is now changing and with the proper professional support and guidance at each critical step, obtaining a Commercial Registration and ensuring the correct governance and compliance of ongoing business operations is achievable,” said Arnold.
“Businesses should be able to demonstrate a proven track record from their home country, and profitable, audited financials should be available. Most investors seek 100 percent foreign ownership available via the Ministry of Foreign Investment Saudi Arabia (MISA). A General Manager [to hold Saudi Residency – an Iqama] should be appointed to represent the company affairs locally, such as opening or operating a bank account.
“Upcoming developments include the new Companies Law, announced in June 2022, which should provide an enhanced framework for corporate structures and statutory procedures.”
The Kingdom has taken impressive steps toward improving the business environment, attracting foreign investment, and creating private-sector employment. It has positioned it as one of the region’s most prominent markets. Several new initiatives for foreign investors coupled with governance and labor market reform have boosted the country’s economy.
“The trend is clear. If you’re seeking to do business in Saudi Arabia, you need to be registered and present in Saudi,” Arnold explained.
During the second quarter of this year alone, Saudi Arabia registered a record increase of over 600 percent in the number of investment licenses.
“In my opinion, there is no other market opportunity, on such scale and quite like Saudi Arabia, anywhere in the world.
“The entrepreneurial landscape is also developing, and venture capital opportunities are significant. Investors we speak to are keenly aware that Saudi is the next place to be as they look to mitigate risk, expedite set-up and accelerate their success in the Kingdom,” Arnold said.
In 2021, Saudi Arabia announced the Regional Headquarters Programme, which requires international companies looking to operate in the Kingdom to establish their regional headquarters in Riyadh, the Saudi capital.
“In addition to the Regional Headquarters (RHQ) Programme, the Kingdom announced a business-friendly initiative in early-2022; the plan to develop up to 20 Special Economic Zones,” Arnold explained.
“There is also plenty of talk amongst the business community with reference to reducing a perceived “barrier to entry” for trading business in Kingdom, where the current share capital requirement stands at circa, SAR 30 million [approx. $7.9 million]. It is hoped that this will be reduced in the near future, enabling cross-border and domestic trade to flourish further still.
“Depending on specific projects and activity sectors, there are financial incentives for tax and duty relief.”
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