Joint Stock Company in KSA

A Saudi joint stock company is a joint structure that allows investors to share risk and capital in the established commercial company.

A Joint Stock Company (JSC) is likely the most regulated company type in Saudi Arabia (KSA). Through regulatory requirements for incorporation and the degree of control/involvement of the Ministry of Commerce and Industry (MOCI). The liability of a JSC lies with each shareholder, limited to their contribution to the share capital.

MISA must approve the formation of the JSC if a foreign party is to have an interest, by granting a license authorising the foreign party’s investment in the company.

Certain industry types such as banking, insurance and financial services must be carried out using a JSC.

There are two types of JSC: a closed and unlisted JSCs and public and listed JSCs. All companies listed on the Saudi Stock Exchange are public JSCs and are subject to higher degrees of oversight, including from the Capital Market Authority.

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What is the share capital requirement for a KSA JSC?

MISA (SAGIA) generally requires foreign JSCs 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.

25% of the capital must be paid at incorporation and the balance must be paid within 5 years. JSCs must set aside minimum 10% net profits until the statutory reserve reaches 30% of the JSCs original capital. JSC shareholders enjoy pre-emption rights to issuance of new shares, but not on share transfers.

What are the documents required to set up a KSA JSC?

  1.  Ministry of Commerce and Industry (MOCI) registration.
  2.  MISA registration - JSCs must renew their foreign investment license with MISA, commercial registration certificate with MOCI and renew their chamber of commerce subscription annually.
  3.  Articles of Association (AoA) – approved by MOCI and signed in presence of a notary.
  4.  A local KSA bank account.
  5.  Wasel registration - mandatory provision of local address to the government. JSCs require a local physical office lease and address – a virtual office is not sufficient.
  6.  Commercial Registration or business license (CR) - CR certificate issued by MOCI to outline and enable the JSC to conduct business activities in the KSA, allowing the same rights given to a citizen.
  7.  Registration with Ministry of Labour and Social Development (MLSD) - The visa issuing authority to labour in-country.
  8.  General Organisation of Social Insurance (GOSI) registration - a mandatory social insurance for processing salaries monthly and maintains government record for Saudization quota system.
  9.  Additionally, certain types of activity require specific licensing from relevant government departments – e.g. pharmaceutical companies require a Saudi Food and Drug Association license.
  10.  Further authorisation by a royal decree is required for a JSC if it is to receive assistance from the state or intends to undertake public sector projects, banking or insurance activity.

What are the Tax requirements with a KSA JSC?

  1.  General Authority of ZAKAT and tax (GAZT) registration. The mandatory submission of audited financial statements for financial transparency.
  2.  Withholding taxes (WHT) rates are between 5% and 20%.
  3.  Zakat is charged on the company's Zakat base at 2.5%.
  4.  Standard 15% VAT of all goods and services.
  5.  The KSA JSC must file tax returns within 120 days from end of financial year. Tax year starts on 1st January and ends 31st December – delays can lead to 1% revenue penalties or 5-25% depending on lateness.

No 20% corporate/capital gains tax for a KSA JSC.

Other requirements and specifications to set up a KSA JSC

  1.  Establishing a JSC in KSA can take up to several months from application submission to MISA.
  2.  The JSC is required to hold at least 1 annual shareholders meeting (AGM), within 6 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.
  3.  A minimum of 2 shareholders is required for a JSC – the is no minimum/maximum for directors.
  4.  A closed JSC may have a single shareholder if owned by a government-related body or has a share capital of or in excess of SAR 5 million.
  5.  There shall be a minimum of 3 and a maximum of 11 directors of a JSC. Containing a chairman and vice chairman – the chairman cannot hold an executive position within the company. Members of the board can be elected by shareholders, allowing for minority shareholders to be able to appoint their own board members, improving representation.
  6.  It is a requirement to establish an audit committee independent of the board.
  7.  A JSC is permitted to be a holding company, provided none of the subsidiaries hold shares in the holding company.
  8.  A JSC can sponsor its employees for residency.
  9.  On incorporation there is a 2-year lock-up period for share transfers.
  10.  A constituent general assembly meeting at which shareholders will ascertain the capital has been subscribed in full and that 25% of the capital is paid-up. The assembly shall approve the evaluation report for in-kind shares, finalise the company’s by-laws, appoint the first board of directors and company auditors, and approve the founders’ report. Within 15 days of the meeting, documents evidencing the meeting actions must be submitted to MOCI along with a request to announce the incorporation of the JSC. A publication of MOCI’s resolution announcing the incorporation and its registration of commercial registry will finalise the incorporation of the JSC.
  11.  A JSC must prepare and maintain a shareholder register from the date granted its business registration certificate and issue share certificates to shareholders.
  12.  JSCs may issue sukuks and other debt instruments, which can be converted into negotiable shares. JSCs are permitted to buy-back or mortgage their shares.

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