Saudi Arabia is home to a large number of skilled, semi-skilled and professional foreign workers. Many entrepreneuring expatriates have successfully set up their own businesses in the Kingdom. However, an expatriate seeking to start a business should do so only through the legal channels, failing which he can face dire consequences. “Expatriates can initiate business activities in industry, contracting and other services. The SAGIA (Saudi Arabian General Investment Authority) that was formed a decade ago has laid down relevant rules and regulations for foreign businessmen to run their businesses in the Kingdom,” said Abdul Aziz Shehzad, legal advisor in the Riyadh Chamber of Commerce and Industry (RCCI). The SAGIA offices that are located in different regions of the Kingdom will answer any queries, and the authority's website (www.sagia.gov.sa) provides all the required information, he added. Expatriates can make investments in various areas, such as, the industrial sector, services sector, real estate (except in Makkah and Madina) and in the agri-business. The most common businesses that expats invest in are garment and textile shops, baqalas (grocery shops), carpets, abayas, tailoring, and construction. The capital requirements for each of these businesses vary. They are: SR1 million for industrial licenses, SR500,000 for service licenses, project value of not less than SR30 million for real estate, and a capital of not less than SR25 million for agri-business investments. A business license should be obtained by the expat either under his name or under a Saudi national's name, along with a letter of ‘no objection', in which he is assigned a designated post in the business setup and a percentage of the sales profit is fixed between the Saudi investor and the expat. “Under the Foreign Investment Act, expats can also request to partner with their sponsors, or request approval of their sponsors for a ‘no objection' letter in order to establish their own business,” said Modar Al-Hijji, senior license analyst specialist at SAGIA. He said that expats who want to set up a business in the Kingdom should pursue legal channels in order to avoid any “unwelcome circumstances”. According to Al-Hijji, the procedure of obtaining a legal business license is quite clear. “The first step is obtaining the required information from the SAGIA website ([email protected]) or by visiting the SAGIA call center. Next, a request for obtaining a business license should be submitted through law firms only. Then the individual must visit the SAGIA office and request a consultation with an investment advisor. He should read and abide by the documentation requirements,” he explained. Some of the conditions for granting a license to a non-Saudi by the authorities include: The investment activity to be licensed should not be listed as a banned activity in the foreign investment listings; the planned product should abide by the Kingdom's rules and regulations, or the laws of the European Union or the United States in the absence of those laws, in terms of standards and specifications, raw materials and production processes; the applicant should be a natural or nominated person who has come to the Kingdom for investment; the foreign investor should not have been found guilty in the past of significant violations of the requirements of the Act; and the grant of a license shall not result in the violation of any international or regional agreement to which the Kingdom is a party. Starting any sort of business by non-Saudis in the Kingdom is illegal if they do not have a license issued by the SAGIA, along with a CR from the Saudi Ministry of Commerce and Industry. “Running business activities under the umbrella of Saudi kafils (sponsors) is illegal, if neither the Saudi national nor the expat obtains a ‘no objection' letter or neither of their names are mentioned on any legal documents. In legal terminology, this is called a “cover-up”, which is a punishable crime, which includes imprisonment and penalties for both parties (Saudi national and expat), along with the deportation of the expat and the cancellation of the kafil's license, i.e. C.R,” said Shehzad, adding that the Ministry of Interior has a special department to monitor such illegal commercial activities and take appropriate action. Going through legal channels for setting up a business is imperative for a foreign national because, otherwise, he may encounter certain drawbacks, such as, “the business may be overtaken by the kafil if he intends to deceive the expat. This is possible as the business has been registered in the kafil's name and the expat cannot file a case against him. Moreover, they had not obtained the ‘no objection' letter,” said Shehzad. Saudi nationals or members of the GCC are subject to Zakat when they make investments while a non-Saudi natural person is subject to tax if he meets any of the following conditions: a resident who does business in the Kingdom, a partner in a resident partnership (personal company), and a general partner in a resident company limited by shares. Natural person is defined as a resident in the Kingdom for a taxable year if he has a permanent place of residence in the Kingdom and physically resides in the Kingdom for 30 days or more; or he physically resides in the Kingdom for 183 days or more. The income of a foreign individual or an entity investing in the Kingdom i.e. is subject to 20% income tax. Distribution of profits (dividends) by such business to the non-resident shareholders is also subject to a 5 percent withholding tax. “A resident person earning income from a source in the Kingdom is subject to a 20 percent corporate income tax,” said Mohammad Kamran Sial, senior manager, Tax and Zakat Services at KPMG. “If a non-resident earns income from a source in the Kingdom, such as, for rendering services, the income is subject to withholding tax,” he said. If the source of the income earned by a foreigner is not considered to be from a source in the Kingdom, under the tax law, such income is not subject to tax. “For example, income earned from providing training services completely outside the Kingdom is not considered to be from a source in the Kingdom. However, if training services are performed inside or both inside and outside the Kingdom, the income becomes taxable under the mode of withholding tax,” said Sial. There are penalties/fines if the expat fails to pay, delays the settlement or evades tax.
