Foreign Company Branch Set up in KSA

About Foreign company branch set up in KSA

These branches are considered to be an extension of their parent company. Branches can be established relatively quickly in comparison to LLCs and JSCs.

A branch can be permitted by MISA licensing to perform a full range of activities. The branch can engage in both public and private sector projects and can promote/solicit its MISA licensed activity throughout the Kingdom. Otherwise, branches are not allowed to conduct promotion, marketing or trading activity.

What is the share capital requirement for a KSA foreign company branch?

MISA generally requires foreign company branches to have a minimum of SAR 500,000 share capital.

In most cases, this does not need to be paid down, or deposited in a local bank, it appears on the balance sheet of the business and can we used as working capital.

For certain types of activity, MISA prescribes differing minimum capital:

Property investment projects – SAR30 million

Contracting – SAR500,000 (also have revenue/asset value requirements)

Commercial – SAR30 million and a commitment to invest a minimum of SAR200 million over the first 5 years (for 100% foreign ownership)

Certain activities require a Saudi partner/shareholder or are for Saudi nationals only – This list is issued by MISA and can be subject to amendments. Speak to your contact at PRO Partner Group for more information on specific activities, share capitals and local ownership requirements.

Branches must set aside minimum 10% net profits until the statutory reserve reaches 30% of the branch’s original capital.

What are the documents required to set up a KSA foreign company branch?

Ministry of Commerce and Industry (MOCI) registration.
MISA registration – foreign company branches must renew their foreign investment license with MISA, commercial registration certificate with MOCI and renew their chamber of commerce subscription annually.
A local KSA bank account.
Wasel registration - mandatory provision of local address to the government. Company branches require a local physical office lease and address – a virtual office is not sufficient.
Commercial Registration or business license (CR) - CR certificate issued by MOCI to outline and enable the foreign company branch to conduct business activities in the KSA, allowing the same rights given to a citizen.
Registration with Ministry of Labour and Social Development (MLSD) - The visa issuing authority to labour in-country.
General Organisation of Social Insurance (GOSI) registration - a mandatory social insurance for processing salaries monthly and maintains government record for Saudization quota system.
Additionally, certain types of activity require specific licensing from relevant government departments – e.g. pharmaceutical companies require a Saudi Food and Drug Association license.

The formation process for a branch is similar to that of a LLC, except there are no Articles of Association that need to be approved so the process can be expedited. However, it may take longer if the manager is not a Saudi national or resident because then the manager must obtain a residence permit as part of the formation process.

What are the Tax requirements with a KSA foreign company branch?

General Authority of ZAKAT and tax (GAZT) registration. The mandatory submission of audited financial statements for financial transparency.

20% corporate/capital gains tax to which a 5% levy is added.

Withholding taxes (WHT) rates are between 5% and 20%.

Zakat is charged on the company's Zakat base at 2.5%.

Standard 15% VAT of all goods and services.

The KSA foreign company branch must file tax returns within 120 days from end of financial year. Tax year starts on 1^st January and ends 31^st December – delays can lead to 1% revenue penalties or 5-25% depending on lateness.

Other requirements and specifications to set up a KSA foreign company branch

Establishing a foreign company branch in KSA can take be significantly faster to achieve from application submission to MISA than a LLC or JSC.

The company is required to hold at least 1 annual shareholders meeting (AGM), within 4 months of the end of the financial year. This AGM is the annual shareholders meeting where managers of the company prepare financial statements, operations reports, proposal for appropriation of net profits within 3 months from end of financial year and to be prepared to submit a report copy to MOCI within 1 month of preparation.

There’s no requirement to have a board of directors or specific nationality of the directors, this is at the discretion of the company - branches in KSA may be managed by a General Manager (GM) or Board of Directors.

If a board is formed, there’s no requirement for frequency of meetings, other than the AGM.

The GM needs to be a KSA resident, with an Iqama – other Directors do not need to hold residency or nationality requirements, depending on activity. PPG can provide Resident GM services if required to fulfil this requirement to have a GM with a KSA Iqama.

There is no requirement to publicly disclose the identity of directors and shareholders.

No requirement for a local corporate secretary. No requirement, beyond managers or directors, for a local legal or admin representative.

A branch can sponsor its employees for residency.

A branch doesn’t have separate/independent legal personality, therefore a foreign company operating a branch in KSA can be subject to suit in its home country, as a result of a claim from in-Kingdom activity.