Focusing the Vision

ince Saudi Arabia’s 2016 launch of Vision 2030, the Kingdom has begun to implement a series of changes to ultimately create a more diversified, less oil-dependent economy. These reforms leave no sector or stakeholder untouched, spanning all industries from finance to tourism. Notably, privatization efforts and a new VAT are beginning to take shape in 2017.

Privatization

In efforts to privatize the fuel market and spark investment into the capital markets, 5% of state oil company Saudi Aramco will be publically listed—paradoxically a small USD100 billion drop in Aramco’s USD2 trillion bucket and the largest IPO in history. This comes as Saudi Arabia was recognized as an economy that strengthened minority investor protections, expanding shareholders’ role in company management, according to World Bank’s Doing Business 2017 report.

Vision 2030 schedules the public listing for early 2018,though delays could push this back to late 2018 or even early 2019. Ownership will be transferred to the Public Investment Fund (PIF), Saudi Arabia’s investment arm with stakes already in SABIC and the National Commercial Bank. By transferring shares to PIF, technically investments rather than oil will become the major source of revenue. The privatization of Aramco offers investors an incredible opportunity, and represents the larger goals of Vision 2030 to diversify the economy and prioritize private-sector participation in the Kingdom’s economic growth.

Taxation

On January 1, 2017, Saudi Arabia ratified the GCC VAT Framework Agreement and has drafted a VAT law to be implemented on January 2, 2018. Saudi Arabia is the only country so far to publish its national VAT law, setting the precedent for other GCC members. The VAT is another response to decreased revenue following the 2014 oil-price crash and preparation for a post-oil economy. The 5% tax rate on most goods and services will be consistent GCC wide; however, many specifics, such as zero-rated and exempt supplies, taxation of financial services, and implementation in free trade and special economic zones will vary by country.
Businesses with over USD100,000 in annual revenue will be required to register for VAT, and businesses with annual revenue between USD50,000-100,000 have the option to register. The registration process is available online through the General Authority of Zakat and Tax’s online filing system, ERAD. As Saudi Arabia will be one of the first countries to implement and enforce the VAT, businesses will need to take immediate steps to comply with the pending VAT law and by laws.

In further efforts to increase and diversify state revenue, the Kingdom introduced two other taxes in 2017. A selective tax on tobacco by 100% and on soft drinks by 50% is effective June 11, 2017. More interesting, Saudi Arabia is implementing a family levy tax on expatriates, starting at USD26.6 per each dependent of expatriates in 2017, with plans to double the fee in July 2018 and triple in 2019.

Business Etiquette

A little effort to understand local customs will prove to be highly beneficial for doing business in the Kingdom. There is minimal separation between what is business and what is personal, thus face-to-face meetings are very much the norm, if not a social mandate. Meetings are especially important for building rapport and trust in business relations, sometimes going long and including several glasses of tea or coffee. They may be scheduled loosely; however, they seldom conflict with prayer times. Modest and understated business attire is expected. For men, this means a suit, shirt, tie, and no jewelry. Women are expected to wear clothes covering their collarbones, knees, and elbows in addition to an abaya in public. Just as formal business attire is warranted, so too are formal titles. “Mister,” “Misses,” or “Miss” should be used until invited otherwise; when speaking to government ministers, “Excellency” is appropriate, and “Highness” is used for members of the royal family.