THE LAND OF OPPORTUNITY

Saudi Arabia 2016 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

Though highly traditional, Saudi Arabia is starting to open up its economy by reducing regulations and gradually reducing the role of the state. With an economy moving away from oil, Saudi Arabia is positioning itself as a great place to do business.

Earlier this year, Saudi authorities debuted the blueprint for an overhaul of the domestic economy, significantly reducing the oil sector's influence and giving the private sector a more prominent role by relaxing regulations. The entire scope of changes is not yet clear, with many to be implemented following the results of others over the next decade, but authorities have already started making changes to the law, some of which introduce new land taxes or allow for 100% foreign ownership in some sectors.

The Kingdom's fast-growing market allows for opportunities for businesspeople and investors. While the hydrocarbon sector still offers opportunities, many other sectors are blossoming or set to explode under the reforms of the Vision 2030. These sectors include healthcare, education, transportation and infrastructure, tourism, water, and clean energy.

Market Background

The Council of Ministers recently ratified a decision to allow foreign nationals to possess 100% ownership of companies engaged in wholesale and retail. To qualify, however, prospective investors must have at least SAR30 million ($8 million) in capital, be operating in at least three other international markets, and must oblige to investing at least SAR200 million ($53.3 million) over the first five years of operation, according to PwC.

VAT and other corporate taxation

While there is no VAT in Saudi Arabia currently, the Finance Minister has said one will be introduced in 2018. The announcement followed a meeting of ministers from six GCC states, and reports suggest it will be a GCC-wide 5% VAT applicable to all residents and citizens but exclude 95 food items, health, education, and social services.

There are no individual income taxes in the Kingdom; however, a social insurance tax must be paid either by the employer or both the employer and employee. For non-Saudis the tax is set 2% and is paid monthly by his or her employer. For Saudi citizens, the tax is computed to 22% and is split between employees, who pay 10% monthly, and employers, who pay 12% monthly. The social insurance tax has an upper limit of SAR45,000. For companies with less than 50% Saudi employment, a monthly SAR200 fee for each non-Saudi employee must be paid to the Labor Office.

In November 2015, the Shura Council approved a 2.5% tax on undeveloped land, both residential and commercial. The tax was in a move to both raise revenue and to alleviate the housing shortage by encouraging landowners to develop urban land as opposed to costly desert construction.
Income tax is only applicable to non-Saudis, which sits at 20% of adjusted profits. There are additional, petroleum-related taxes, such as the natural gas investment tax, which is based on the internal rate of return; if the internal rate of return is 8%, the tax will be 30%, and can rise up to 85% if the return rate is over 30%. There is also an 85% on hydrocarbon production.

Business etiquette

A basic understanding of local customs can be the difference between making a lucrative deal and a spectacular failure of negotiation. Business in the Kingdom is mostly personal, so do not expect to make an agreement without a face-to-face meeting. Frequently, meetings are scheduled loosely and almost never interfere with prayer times. They can extend beyond schedule in a friendly manner, and include multiple glasses of coffee and tea. Formal wear is expected at meetings, with men in a suit, shirt, tie, and no jewelry, and women in modest business attire that covers their collarbone, elbows, and knees, and in an abaya when in public. Titles are important, and “Mister" or “Misses" should be used until invited otherwise; when speaking to government minsters, “Excellency" is the appropriate title, and “Highness" is used for members of the royal family.