Key Compliance Areas in Saudi Arabia for Foreign Businesses

This article is the first edition of a 2-part series covering compliance in Saudi Arabia for foreign businesess.

For foreign companies, maintaining compliance with Saudi Arabia's business regulations ensures a smooth and successful foray into the Kingdom, fosters scalability, and unlocks extensive business opportunities, including bidding on government projects.

Compliance in Saudi Arabia extends beyond adherence to legal obligations; it signifies a company's commitment to responsible business practices that align with the nation’s socio-economic objectives outlined in Vision 2030.

This guide helps newly incorporated companies or those expanding a business in the Kingdom effectively navigate the Saudi Arabian regulatory landscape to avoid any possible consequences of non-compliance.

Why Compliance is Critical for a Foreign Business in Saudi Arabia

• Avoidance of Fines and Penalties: Non-compliance can result in hefty fines, potentially leading to significant operational setbacks and blockages on key government portals.
• Employee Protection: Nurturing a culture of compliance ensures fair treatment for all employees and fosters a healthy and productive work environment, presenting opportunities for innovation and growth.
• Building Trust and Reputation: Adhering to compliance is the foundation for establishing credibility and building good standing in Saudi Arabia's market, enabling a business to enhance brand exposure, develop stronger linkages with key stakeholders, and expand its clientele.

Key Compliance Areas in Saudi Arabia for Global Companies

Licenses

Commercial registration is fundamental. Companies need a national address, MISA license, commercial license (CR), and Chamber of Commerce (CoC) registration. Work visas, Iqama, and medical insurance for employees, especially for the general manager, are also essential.

Governmental Portals

Registration with portals like Muqeem, Absher, Qiwa, and Mudad is crucial. These portals manage residence permits, government services, HR tasks, payroll, and social insurance. Non-compliance in one portal can affect multiple business areas.

Saudization

Hiring local talent is not only a legal requirement but also supports the Vision 2030 goals. New businesses have a grace period of 5-9 months to hire a Saudi national. Compliance accelerates market expansion by utilizing local workforce insights.

Taxation

Foreign companies must adhere to financial reporting, annual tax returns, and income, VAT, and withholding tax regulations. Establishing a branch versus a subsidiary has different tax implications, with potential double taxation in Saudi for branches.

Non-compliance in Saudi Arabia: Case Study

Noncompliance with portal regulations initially can lead to blockages. For companies looking to tender for work on major government projects, such as giga projects, noncompliance can make them ineligible to submit proposals. In some cases, it can escalate into fines, the accumulation of which can hinder renewal processes, which are required annually.

Case in point: A construction company almost lost a project with the Saudi Private Investment Fund due to non-compliance.

In 2022, a construction company expanding from the UAE to Saudi Arabia encountered challenges issuing work visas due to a Ministry of Labor services blockage. Simultaneously, they struggled to secure a vital GOSI certificate, essential for demonstrating compliance on government projects.

Navigating the compliance landscape in Saudi Arabia? Fast-track the process with dedicated local experts at AstroLabs.