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.

With its wealth of resources, strategic location, and a growing receptiveness to foreign capital, Saudi Arabia is becoming an increasingly attractive destination for businesses looking to expand their regional footprint and leverage the Kingdom’s ongoing economic reforms.

Establishing a branch office is an ideal strategy. It allows full foreign ownership, offers direct access to Saudi’s large and growing consumer base and the eligibility to engage with both public and private sector projects.

Features of a branch office in Saudi Arabia

A branch office is an unincorporated extension of a parent company in a foreign jurisdiction. It offers a quick and cost-effective means to access the Saudi market without the need for establishing a separate legal entity.

This setup allows foreign companies to engage directly in business activities under their existing corporate identity, but it also means that the parent company is fully liable for all activities of the branch, including any legal or financial obligations incurred.

Unlike local companies, branch offices aren’t permitted to engage in promotional, marketing, or independent trading activities. Their operations are generally limited to executing contracts and projects that the parent company has been awarded or fulfilling specific tasks that support the main activities of the parent company.

What are the requirements to setup a branch in Saudi Arabia?

Establishing a branch office in Saudi Arabia comes with specific financial and operational requirements that are crucial for legal and business compliance. These are designed to ensure that foreign companies operating in Saudi Arabia are financially stable, committed to long-term operations, and compliant with local laws and regulations.

Parent company history: The parent company must have been operational for at least three years before setting up a branch in Saudi Arabia. You’ll need to provide proof of the company’s existence and operational history which will be in the form of financial statements, business licences, and incorporation documents.
Legal address: Despite being an extension of the parent company, the branch office must have a legal address within Saudi Arabia. This is needed for legal documentation, receiving official communications, and accessing financial benefits such as double taxation avoidance agreements.
Bank account: A Saudi bank account must be established under the name of the parent company. This ensures that you can easily manage financial transactions, pay taxes, and handle any operational expenses.

Share capital requirements 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.

The amount is to show sufficient financial commitment of the parent company to its Saudi operations as well as to facilitate financial transactions within the country.

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 Sovereign PPG 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.

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?

For tax registration and compliance. the branch must register with the Saudi tax authorities and comply with local tax regulations. While you must pay taxes on the income generated in country, the branch can benefit from the country's double taxation agreements, potentially reducing the tax burden.

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.

How to set up a branch office in Saudi

The following is a brief overview of the main requirements:

Approval from the Ministry of Investment: The first step is to obtain approval from the Saudi Ministry of Investment (formerly SAGIA), which includes submitting a detailed application outlining the business activities of the parent company that the branch will engage in.

Commercial registration: Once approval is granted, the branch office must obtain a commercial registration from the Saudi Ministry of Commerce. For this, you’ll need to submit documents such as the parent company’s certificate of incorporation, articles of association, and a board resolution authorising the establishment of the branch.

Notarisation and legalisation: Key documents must be notarised and legalised by the Saudi embassy in the country of origin and then by the Saudi Ministry of Foreign Affairs.

Trade name registration: The name must be registered with the Saudi Ministry of Commerce and not conflict with any trade names already in use within the Kingdom.

Local bank account: This is a mandatory requirement and usually requires the presence of the branch’s legal representative and submission of the commercial registration certificate.

Visa and work permits: This is required for the branch manager and any foreign employees that you hire. It can be done through the Ministry of Human Resources and Social Development.

Office Space: Securing physical office space is a legal requirement for the registration process and a lease agreement must be presented as part of the documentation.

Registration with government authorities: Depending on the nature of the business and the sector it operates in; the branch may need to register with other relevant government authorities for specific licences or permits.

Tax Registration: Once the branch office is established, it must register for tax with the Saudi Arabian General Authority of Zakat and Tax to comply with local tax laws and regulations.

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 (SAGIA) 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.