What multinational companies should know about doing business in KSA
Although it’s not necessarily the right time for companies to expand abroad, open new offices, or explore new markets, the latest reforms in Saudi Arabia (KSA) have spotlighted growing opportunities in this market, unique in the Middle East. The latest UN Conference on Trade and Development’s Report highlights the positive performance of foreign direct investments in Saudi Arabia while labor and immigration regulatory changes multiply.
Once considered too conservative, Saudi Arabia has transformed this perception by introducing many game-changing economic and legal reforms over the past few years. In parallel, the Kingdom’s economic diversification positions Saudi Arabia for a strong bounce back from the Covid-19 pandemic and the low oil price impact. Currently, non-oil exports reach $200 billion, but Saudi Arabia has set an ambitious non-oil export target of $1 trillion by 2030.
Therefore, Saudi Arabia offers more and more business opportunities for foreign investors. The world’s largest oil exporter has evolved into an up-and-coming market for multinational investors in many oil-alternative industries. However, doing business in Saudi Arabia has its unique challenges. Understanding them and tackling them beforehand can help increase the possibility of successfully establishing a Saudi Arabia business.
A local context transformation opening a world of opportunities for foreign companies
Despite the ongoing global pandemic, and according to government-accredited sources in KSA, many foreign companies are lining up to enter the Saudi market in 2021 and beyond. Thus, the choice of moving into KSA appears obvious, not only because Saudi Arabia is the largest economy in the Middle East, but also because the Saudi Vision 2030 strategy – moving away from oil-dependency – comes with exciting developments.
The new regulatory policies in the Kingdom allow for more flexibility and independence for foreign businesses. For example, ownership limits for international investors have been removed. The desire to invest in KSA has accelerated as Saudi leaders have also included foreign investment incentives in the Vision 2030 reform plan. Since 2019, there has been a yearly +55% increase in the number of companies willing to do business in Saudi Arabia.
These reforms will advance the country’s objective of diversifying its oil-dependent economy by increasing transparency in the employment process and streamlining immigration rules. Regulatory support to SMEs and opening up the market to foreign investors while awarding strategic contracts to foreign companies in consortium with local companies has boosted local capabilities. Those good results show that the country’s widespread economic reforms are starting to bear fruit.
The recent dynamic reforms are leading to higher “Ease of Doing Business” in the Kingdom
Moved by a progressist mindset, the Saudi authorities are adopting international best practices, and after many policy reforms – for example on company ownership – have been implemented, more transformations are announced for the upcoming months, in line with the Saudi government’s efforts towards 2030, creating a more sustainable and business-friendly social and economic environment.
As proof, the Kingdom moved up 30 places from the year before in the World Bank’s 2020 Doing Business Report, ascending to 62nd and being the most improved out of all 190 assessed economies, making the Kingdom the world’s top improver. Ultimately, the changes will help create jobs for many people and impact consumption behaviors significantly.
If you plan to do business in Saudi Arabia, Mercans will help identify and address the local market challenges. Over the years, we have accompanied many multinational companies to successfully expand to the Saudi Arabian market and other GCC countries. From cultural awareness to the language barrier, respect of the business and social etiquette, branding adaptation, and corporate workflows, understanding and embracing the KSA business environment is a must before attempting to expand your business or hiring staff in Saudi Arabia.
How can Mercans help you set up your business in Saudi Arabia?
The Saudi culture shapes the business environment, and it is vital to avoid missteps caused by prejudice and stereotypes. Mercans consultants have direct in-country experience and knowledge, and they help prevent possible missteps, which is a strong competitive advantage in a sensitive market. Besides, with Mercans, all your paperwork and employment tasks are culturally aligned with the Saudi requirements. From payroll services to PEO GEO EOR HRM services, Mercans is the go-to-partner for your business in Saudi Arabia.
Although we can help you do business in Saudi Arabia without creating a local legal entity, it’s essential to know that Government tenders are limited to Saudi-based companies, like in other GCC countries. Most foreign companies willing to do business in Saudi Arabia establish a local office to bid on the various government projects currently being tendered.
Here is a list of some of the formalities Mercans can help you with: investment license from the Saudi Arabian General Investment Authority (SAGIA); bank account with a local bank in KSA for depositing the initial capital; commercial registration (CR) from the Ministry of Commerce and Industry (MOCI); registration with the Chamber of Commerce, the Ministry of Labor, the General Organization for Social Insurance (GOSI), the Customs department and the General Authority of Zakat and Tax (GAZT); and municipality license.
How can Mercans help you handle human resources and payroll management in Saudi Arabia?
Compliance with Saudization regulations (Nitaqat) and KSA labor and immigration laws is very technical and must be supervised by professionals like Mercans. The government has established strict quotas for hiring nationals in Saudi Arabia; it is also difficult for some companies to obtain visas for the expatriate workforce. Mercans in-country teams handle these issues thoroughly on your behalf; they know the system inside-out and speed up formalities from visa processing to getting licensed or registered.
Of course, we are also ready for the new Labor Laws, effective 14 March 2021, which will apply to millions of foreign workers in the Saudi private sector. The Labor Reform Initiative (LRI), prepared by the Saudi Arabian Ministry of Human Resources and Social Development, will replace the existing sponsorship system (Kafala) for foreign worker mobility. Foreign workers sponsored by employers in KSA will no longer require their sponsor’s permission (Kafeel) to change or leave jobs, open a bank account, or travel out of the country. The LRI places greater emphasis on the contractual relationship between employers and foreign employees.
Whereas the Ministry of Human Resources and Social Development addresses the LRI’s labor mobility component, the Ministry of Interior should ease restrictions on exit and re-entry visa issuance rules. Until now, a foreign employee could not exit Saudi Arabia without first obtaining an exit and re-entry visa through his Kafeel (e.g., his employer). Under the LRI, the Kafeel’s permission to leave or re-enter the country is no longer required; instead, workers may make the request themselves through the Saudi government’s online platform. However, the Saudi authorities may deny exit if any debts or fines are outstanding, but this is common in the GCC countries.
In conclusion, the Saudi authorities must still implement the LRI legislation. Only after that will it be possible to determine the actual scope and breadth of the reform. Furthermore, amendments to the immigration laws (as differentiated from the Labor Law) have yet to be announced. Mercans is here to help you every step of the way during the reform’s implementation. We are here in case of issues related to the language barrier and cultural differences; the complexity of your company set-up (direct foreign investment regulations, choice of a legal entity, investment license, prohibitions and restrictions on the license, registrations, capital requirements, or Saudi partnerships); and we advise you on statutory compliance (filing deadlines, corporate income taxes, specific regulations like Zakat, GOSI, Iqama, personal taxations, and more).