Saudi Arabia - Market Entry & Business Opportunities

Saudi Arabia is a Middle Eastern country located primarily on the Arabian Peninsula, with a capital city of Riyadh. Arabic is the official language, while English is widely used in business and official settings. The estimated population as of 2021 is around 35 million, consisting mainly of Arab ethnic groups, alongside significant South Asian, Filipino, Egyptian, Yemeni, and African communities. The population has experienced a growth rate of 1.48% from 2022 to 2023. The nation covers approximately 2,149,690 square kilometres and uses the Saudi Riyal (SAR) as its currency. Saudi Arabia shares borders with Jordan, Iraq, Kuwait, Qatar, Bahrain, the United Arab Emirates, Oman, and Yemen, with the Red Sea to the west and the Persian Gulf to the northeast.

Economic Overview

In the first quarter of 2023, Saudi Arabia's GDP grew by 3.8% year-on-year, slightly slower than the initial estimate of 3.9% and significantly lower than the previous quarter's growth of 5.5%. The slowdown was mainly due to a deceleration in both oil and non-oil activities, impacting various sectors. However, government activities saw a notable increase of 4.9%. The quarterly seasonally adjusted data showed a contraction of 1.4%, the first since Q1 2021. Despite the moderation, the country has displayed resilience and quick recovery from the pandemic-induced recession, thanks to high global energy prices and increased energy production.

Market Overview

Saudi Arabia is the largest country in the Gulf region with a population of 33 million and the largest economy in the Arab World, with a GDP of $782 billion. It heavily relies on petroleum, accounting for 87% of budget revenues, 32% of GDP, and 81% of export earnings. To reduce dependence on oil, the government launched Vision 2030, aiming to diversify the economy, generate jobs, and strengthen finances. Progress has been positive, with increased foreign direct investment, but not all targets are on track for 2030. While economic growth may slow in 2023 due to reduced oil production, non-oil growth is expected to remain robust, projecting a 2.6% growth in real GDP and a 2.2% increase in the general price level for 2023, according to the IMF.

Bilateral Relations between India-Saudi Arabia

• Diplomatic relations between the two countries were established in 1947. The bilateral relationship gained significant momentum with the historic visit of King Abdullah to India in 2006, leading to the signing of the Delhi Declaration. This visit breathed new life into the bilateral ties between the two nations.
• The visits of Prime Minister Shri. Narendra Modi to the Kingdom in 2016 and 2019, along with the State visit of Crown Prince Mohammad bin Salman to India in February 2019, ushered in a new era in bilateral relations. These visits were instrumental in establishing the Strategic Partnership Council (SPC), which is jointly chaired by the two leaders.
• Furthermore, the two countries signed 11 additional Memoranda of Understanding (MoUs) in various fields, further deepening cooperation between Saudi Arabia and India. These developments have significantly enhanced the relationship between the two nations and opened avenues for collaboration across multiple sectors.
• Prime Minister Shri Narendra Modi undertook an official visit to Riyadh from 28-29 October 2019, on the invitation of His Majesty King Salman. During this visit, a significant achievement was the signing of the Strategic Partnership Council Agreement, designating India as one of the Kingdom's Strategic Partner Countries under 'Vision 2030.'
• During the visit of His Royal Highness the Crown Prince to India in February 2019, both sides expressed their commitment to enhancing trade and investment cooperation. They agreed to align the Kingdom's Vision 2030 and its 13 Vision Realization Programs with India's flagship initiatives such as "Make in India," "Start Up India," "Smart Cities," "Clean India," and "Digital India."
• Samvardhana Motherson International (SAMIL) has entered into a Memorandum of Understanding (MoU) with the Ministry of Investment of the Kingdom of Saudi Arabia. The purpose of this MoU is to collaborate and identify investment opportunities for the development of industrial and service activities within the Kingdom of Saudi Arabia (KSA).

Taxation in Saudi Arabia

Saudi Arabia follows a unique tax system that is largely based on Islamic principles. Here are some key aspects of taxation in Saudi Arabia:

• Corporate Income Tax: 20% rate for resident companies, with variations for specific sectors like oil and gas.
• Value Added Tax (VAT): Standard 15% rate on most goods and services, exemptions and zero-rated supplies apply.
• Withholding Tax: Applies to non-residents on dividends, interest, royalties, and technical service fees at varying rates.
• Zakat: Obligatory Islamic charity, the Zakat rate varies based on sector and business type.
• Personal Income Tax: No income tax on wages, but social security contributions may apply to Saudi nationals and expatriate residents.
• Customs Duties: Levied on imported goods, rates vary based on the nature of products, with some exemptions and preferential rates under trade agreements.
• Double Taxation Treaties: Signed with several countries to avoid double taxation, providing tax benefits to businesses.

Subsidies and Incentives offered by Saudi Arabia

Saudi Arabia provides various subsidies and incentives to support economic growth, attract investments, and promote specific industries. Here are some key subsidies and incentives offered in Saudi Arabia:

• Industrial Development Fund (IDF): Provides subsidized loans and financial support for industrial projects.
• In-Kingdom Total Value Add (IKTVA) Program: Encourages localization and local supply chain development in the oil and gas sector.
• Energy Price Subsidies: Phasing out energy subsidies to rationalize consumption and improve efficiency.
• Special Economic Zones (SEZs): Offer incentives like customs duty and tax exemptions for investors.
• Foreign Investment Incentives: Allows 100% ownership in certain sectors and simplifies visa and permit processes.
• Research and Development Incentives: Grants and support for R&D activities and partnerships with institutions.
• Job Creation Support: Subsidies and incentives to companies hiring and training Saudi nationals.
• Export Development Fund: Financial support and assistance for Saudi exporters in international markets.
• Start-up Support: Funding, mentoring, and tax incentives to support entrepreneurship.
• Training and Human Capital Development: Programs for skill enhancement and vocational training.
• Real Estate Incentives: Subsidized land, reduced fees, and tax exemptions for real estate projects.
• Tourism Development Support: Incentives for investors in the tourism industry.
• Innovation and Technology Support: Grants and funding for research, development, and technology-based industries.
• Agricultural Subsidies: Financial support and assistance for farmers and modernizing agricultural practices.

Financing Business in Saudi Arabia

Financing a business in Saudi Arabia can be done through various sources and methods. Here are some common avenues for financing business in the country:

• Saudi Industrial Development Fund (SIDF): Provides low-cost financing for industrial projects.
• Islamic Development Bank (IDB): Offers financing for various sectors based on Islamic finance principles.
• Saudi Arabian Monetary Authority (SAMA): Central bank regulating the banking sector and providing liquidity support to banks.
• Venture Capital and Private Equity: Increasing presence of VC and PE firms supporting start-ups and growing businesses.
• Crowdfunding Platforms: Growing popularity as alternative financing options for start-ups and small businesses.
• Export Credit Agencies: Saudi Export-Import Bank (Saudi Exim) and others offer export financing and credit insurance for international trade.

Top 10 Companies in Saudi Arabia – 2022

Rank	Company	Industry	Revenue in 2022 (USD)
1	Saudi Aramco	Oil and Gas	$ 588.88 B
2	SABIC	Chemicals	$ 49.45 B
3	Saudi Electricity	Energy	$ 18.41 B
4	Saudi Telecom Company	Telecommunication	$ 18.28 B
5	Petro Rabigh	Oil and Gas	$ 14.00 B
6	Maaden	Mining	$ 10.73 B
7	Saudi National Bank	Financial Services	$ 9.29 B
8	Al Rajhi Bank	Financial Services	$ 7.56 B
9	Savola Group	Food	$ 7.56 B
1o	Almarai	Food	$ 5.14 B

Most Popular E-Commerce Companies in Saudi Arabia – 2022

RANK	COMPANY	Headquarter
1	Ali Express	China
2	Mercado Libre	Argentina
3	Amazon	USA
4	Jazp	UAE
5	eBay	USA
6	Walmart	USA
7	Target	USA
8	Best Buy	USA
9	Rakuten	Japan
10	Newegg	USA

Top 5 Start-Ups in Saudi Arabia – 2022

RANK	COMPANY	INDUSTRY	FOUNDED IN
1	Sary	Marketplace	2018
2	Tamara	Financial Services	2020
3	Red Sea Farma	Agriculture	2018
4	Gathern	Customer Service	2016
5	Nana	Online Grocery Store	2016

Business Clusters in Saudi Arabia

Saudi Arabia has been working on developing specific business clusters in various sectors as part of its efforts to diversify the economy and promote economic growth. Some of the key business clusters in Saudi Arabia include:

• King Abdullah Economic City (KAEC): Mega-development project aiming to be a business and industrial hub.
• King Salman Energy Park (SPARK): Dedicated energy city attracting oil, gas, and renewable energy companies.
• King Abdulaziz City for Science and Technology (KACST): Promotes scientific research and technology development.
• Information Technology and Communications Complex (ITCC): Technology Park supporting IT and communications sector.
• Plastics Valley: Cluster for plastics and petrochemical industry in Jubail Industrial City.
• Medical and Healthcare City: Comprehensive healthcare cluster in Riyadh.
• Al-Faisaliah Economic City (AFEC): Focuses on logistics, light industries, food processing, and construction materials.
• Qiddiya Entertainment City: Massive entertainment project near Riyadh.
• Mining Clusters: Concentrated in regions with significant mineral reserves.
• Yanbu Industrial City: Major industrial hub for petrochemical and refining industries.
• Jubail Industrial City: One of the world's largest industrial cities, particularly for petrochemicals.
• King Fahd Industrial Port: Major maritime port supporting various industries.
• Knowledge Economic City (KEC): Knowledge-based city focusing on education, IT, and innovation.
• Wa'ad Al-Shamal Industrial City: Emerging city for mining and minerals in the Northern Borders Province.
• King Abdullah Financial District (KAFD): Financial centre in Riyadh hosting financial institutions.
• Riyadh Techno Valley (RTV): Innovation and technology hub supporting tech start-ups.
• Medina Knowledge Economic City (MKEC): Knowledge-based city focusing on education and healthcare.

How to Set Up a Business in Saudi Arabia?

Following are the steps that needs to be undertaken while setting up a business in Saudi Arabia:

• Choose the appropriate Business Location
• Obtain the License for Business
• Pay the registration fee and file application for License.
• File Application for Tax Residency Status
• Submit Invoicing Request Form
• Obtain other Documents.

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Best Locations to Set Up Business in Saudi Arabia

Saudi Arabia offers several favourable locations for setting up a business. Here are some of the best locations known for their business-friendly environment and economic opportunities:

• Riyadh: The capital city, known for its large market and developed financial sector.
• Jeddah: A major commercial city with opportunities in trade, logistics, tourism, and real estate.
• Dammam and the Eastern Province: Hub for oil and petrochemical industries, with strong transportation links.
• Jubail and Yanbu: Major industrial cities with specialized zones for petrochemicals, manufacturing, and logistics.
• Dhahran/Dhahran Techno Valley: Home to Saudi Aramco and a technology and innovation hub.
• King Abdullah Economic City (KAEC): A mega-development project with modern infrastructure for various industries.
• Medina and Mecca: Sacred cities attracting religious tourists and offering prospects in hospitality and retail.
• Taif: Thriving in agriculture and potential for tourism and hospitality.
• Abha: Known for its mild climate and culture, with opportunities in eco-tourism and agriculture.
• Tabuk: Strategically located with potential in mining, agriculture, and tourism.
• Hail: Focused on date palm cultivation and agribusiness.
• Al Khobar: A commercial centre with a strong services, trading, and logistics industry.

Visa and Immigration

• Business Visit Visa (Commercial Visit Visa) - The Business Visit Visa is suitable for short-term business trips to Saudi Arabia. It allows individuals to attend meetings, conferences, trade exhibitions, or explore potential business opportunities. This visa is typically issued for a short duration, usually 30 days, and can be extended for another 30 days if needed. It is essential to note that this visa does not permit the visa holder to engage in any work or employment within the country.
• Work Visit Visa (Work Permit) - The Work Visit Visa is designed for individuals who need to work on short-term projects or assignments in Saudi Arabia. It is usually issued for a specific work period and requires sponsorship from a Saudi employer or company. The visa holder can engage in work activities during their stay in the country. This visa is ideal for professionals, consultants, or experts who need to provide their services temporarily in Saudi Arabia.
• Business Visa (Business Visit Visa - Extended Stay) - The Business Visa, also known as the Business Visit Visa with an extended stay, is suitable for longer business trips or projects that may exceed the typical duration of a Business Visit Visa. It is usually valid for 90 days and can be extended based on the specific business requirements. This visa allows individuals to conduct in-depth business activities, negotiations, and establish business partnerships within the extended stay period.
• Residence Visa (Iqama) - The Residence Visa, commonly referred to as Iqama, is required for individuals planning to work and reside in Saudi Arabia for an extended period. It is sponsored by a Saudi employer or company. The Residence Visa allows the visa holder to legally live and work in the country for the duration of their employment contract. To obtain an Iqama, the applicant must undergo medical examinations and obtain other necessary clearances.
• Investor Visa - The Investor Visa is tailored for foreign investors who plan to invest in businesses in Saudi Arabia. It allows investors to establish and operate businesses within the country. To obtain this visa, the applicant must fulfil specific investment criteria set by the Saudi Arabian General Investment Authority (SAGIA). The Investor Visa facilitates the process of setting up a business and operating it legally in the country.
• Family Visit Visa - Business travellers who need to bring their family members for short-term visits to Saudi Arabia can apply for a Family Visit Visa. This visa permits family members to stay in the country for a limited period and is sponsored by the primary visa holder. It allows families to reunite during business trips or holidays.
• Multiple-Entry Visa - The Multiple-Entry Visa is suitable for frequent business travellers who need to visit Saudi Arabia multiple times within a specific timeframe. This visa permits the visa holder to enter and exit the country multiple times during its validity period. It is a convenient option for individuals who have ongoing business engagements or projects in Saudi Arabia.

With its large economy, strategic location and favourable business environment, Saudi Arabia offers significant opportunities for businesses entering the Middle East market. The FMCG sector, especially food and beverages, personal care, and household goods, holds promise for investment. Challenges include competition, regulations, and import reliance. Success requires understanding local preferences, strong distribution networks, and strategic partnerships. Overall, a well-informed strategy can lead to significant returns on investment in Saudi Arabia's growing market.

India Law Offices is part of varied global business, legal and tax networks and has also forged strategic partnerships with some of the largest law and professional advisory firms that enable us to cater to our clients from across the globe. In Saudi Arabia we are working with various premier law firms and experienced advisors who specialize in wide range of business, legal and international affairs.

If you are a Saudi Arabia national or a company seeking legal assistance in India or an Indian planning to expand to the Saudi Arabia market, our firm can provide the necessary guidance and support you require.


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