Greg Hastings, head of Corporate Structuring and Compliance at PRO Partner Group, says that in a rapidly evolving business landscape, the Kingdom of Saudi Arabia is actively transforming its economy and attracting international investments through a series of strategic measures. From the introduction of the New Companies Law to the opening up of the real estate market and the establishment of special economic zones, the Kingdom is taking significant steps to diversify its economy, promote sustainability and create a business-friendly environment.
This brief exploration sheds light on the new company-formation requirements, visa applications and the anticipated impact of these developments on the business landscape in Saudi Arabia.
Foreign Real Estate Ownership
The real estate market in Saudi Arabia is one of the most rapidly expanding and dynamic in the world. The country’s strategic location, budding business environment, stellar infrastructure and social transformation have made it an increasingly attractive destination for foreign investment and tourism. In November 2022, real estate transactions in Saudi Arabia had increased by 6 percent from the previous year.
As part of the Saudi Vision 2030 initiative, the Kingdom’s economic diversification plan aims to build millions of housing units worth billions. This focus on the real estate sector will aid significantly in diversifying income and shifting the economy away from its heavy reliance on the oil and gas industry, improving sustainability, well-being, and environmental friendliness.
It is anticipated that foreign nationals may be eligible to purchase property in Saudi Arabia both as individuals and through corporate entities. Previously restricted to foreigners, ownership of commercial, residential and agricultural properties will likely be permissible anywhere in the Kingdom. Managing a property as a corporate entity, in particular, may be easier if purchased as part of a larger investment portfolio or as a commercial real estate venture.
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Enabling foreigners to own property in Saudi Arabia could create more opportunities and incentives for foreign businesses. Business owners may consider making Saudi Arabia their long-term investment home base, which could indirectly increase demand in various economic sectors as the population grows.
By 2030, Saudi Arabia is projected to become the largest construction site in the world, featuring over 555,000 homes, 275,000 hotel rooms, 4.3 million square meters of new retail space, and 6.1 million square meters of new office space.
New Companies Law
In January 2023, the Kingdom of Saudi Arabia announced the publication of the New Companies Law, which will regulate all types of entities operating in the Saudi market, including commercial, non-profit, family-run and professional businesses, all of which will fall under this comprehensive law.
Companies operating in the Kingdom will have a two-year grace period to comply with the new regulations. While there have been no significant changes to the business landscape in Saudi Arabia since the introduction of the new law, it serves as a precursor to the upcoming changes in the business ecosystem.
The key features of the New Companies Law are centered around flexibility and protection of companies, with an emphasis on empowering the private sector to keep up with international best practices and standards.
Double Taxation
Saudi Arabia has Double Taxation Treaties with over 50 countries from all over the world, which signifies its growing international business relationships. For businesses expanding operations from the UAE to the Kingdom, there is a KSA-UAE Tax Treaty, which centers around Permanent Establishments. A PE is a fixed business location where enterprises carry out operations, partially or fully, including management, branches, offices, factories, workshops and more.
The Tax Treaty recognizes two additional categories of PE, including Construction and Service PEs. A Construction PE relates to construction or building sites, or an installation project that lasts for six months or more (or 12 months, as per the Organization for Economic Cooperation and Development Model). On the other hand, a Service PE involves the presence of employees on the ground who render services to the parent company for a period of 183 days or longer within 12 months.
The Most Recent Announcement of Four Special Economic Zones
Saudi Arabia has recently announced four new special economic zones, located in Riyadh, Jazan, Ras Al-Khair and King Abdullah Economic City, which aim to open up new opportunities to international investors and entrepreneurs. The Economic Cities and Special Zones Authority will be the regulating body for the new zones.
These special economic zones are designated areas that facilitate specific economic activities, such as trade and investment, by providing advantages and legal frameworks that differ from those of the base economy. The aim of establishing the four special economic zones is to create business hubs for growing key sectors and enabling their continued expansion and future growth. These zones are aligned with other national strategies and linked with international frameworks to support key sectors and position the Kingdom as a global investment destination. The expected impact of these zones on the Kingdom’s economy is significant, as they are projected to create thousands of jobs, localize supply chains, and contribute billions to the gross domestic product (GDP).
The companies operating within these zones can benefit from corporate tax rates, custom duties exemptions on imports, 100 percent foreign ownership, and other benefits. The four zones will cover a wider range of differing industries, with KAEC being the destination for manufacturing and logistics, Jazan as an industrial center for trade of resources, Ras Al-Khair for the maritime industry, and the Cloud Computing special economic zone, located in King Abdulaziz City for Science and Technology, acting as a hub for emerging digital technologies.
It is evident that the new special economic zones will generate an attractive environment, akin to the thriving commercial growth observed in the free-zone areas of the UAE. These multifaceted and innovative centers will provide prospects for knowledge sharing, talent acquisition and human capital enrichment for businesses setting up in these zones. This expansion is a rational move towards the Kingdom’s pursuit of being competitive in luring international investment.
Saudi Arabia’s recent initiatives, including the implementation of the New Companies Law, the opening up of the real estate market to foreign ownership, and the establishment of special economic zones, demonstrate its commitment to attracting foreign investment and fostering a competitive business environment. These measures will drive economic diversification, create job opportunities and contribute to the Kingdom’s overall growth. As Saudi Arabia continues to adapt to global trends and embrace innovation, it is poised to become a leading destination for international businesses seeking a vibrant and dynamic market.
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