Saudi Arabia: Saudi Arabia Update - June 2017

Legal Developments

10 minute SAGIA License

Companies carrying any foreign ownership in Saudi Arabia are required to have a foreign investment license issued by the Saudi Arabian General Investment Authority (SAGIA) (colloquially referred to as a SAGIA License).

Recently, SAGIA announced a new process whereby major foreign investors (Applicants) can obtain a SAGIA License within 10 minutes online. However, this service is only available for certain investors, who fulfil the following conditions:

  1. the Applicant or one of its owners must be publicly listed in the international or local stock markets; and
  2. the Applicant must have achieved at least one of the following financial and technical standards: 
  1. the revenue for one of its shareholders or the parent company, according to financial statements for the latest two years, exceeds the amount of SAR 70 million (about USD 18.7 million); 
  2. the assets for one of its shareholders or the parent company, according to  financial statements for the latest two years, exceed the amount of SAR 100 million (about USD 26.7 million);  
  3. the net profit for one of its shareholders or the parent company, according to financial statements for the latest two years, exceeds the amount of SAR 50 million (about USD 13.3 million);  
  4. the Applicant or one of its shareholders owns at least three regional branches outside its own jurisdiction;  
  5. the percentage of the Applicant's export products in its home jurisdiction reaches 50% or more;  
  6. the size of the Applicant's workforce is equivalent to 10,000 employees or more; or  
  7. the Applicant or one of its shareholders owns a patent of an invention related to the activity in which the Applicant intends to engage in Saudi Arabia.

SAGIA License validity extended

Currently, SAGIA Licenses are issued with a validity of one year, and must be renewed annually by submitting an application for renewal along with supporting documentation including, for example, certificates of good standing from The General Authority for Zakat and Tax (GAZT), General Organization for Social Insurance (GOSI), Ministry of Labor (Saudization), as well as audited financial statements.

This month, SAGIA announced that, beginning from 10 June, companies in Saudi Arabia can now renew their existing SAGIA Licenses with five years' validity. In order to take advantage of the extended validity, companies are required to subscribe to a special online service and submit the same documentation indicating good standing. The standard renewal fee of SAR 10,000 is paid every five years, and service subscription fees are paid at an amount and time based upon the categorization of the applicant, as follows:

Pic 1

For example, a Strategic (A+) company will pay SAR 150,000 towards a five-year subscription to the service, while an Advanced (B) company will essentially pay SAR 225,000 to cover its subscription to the service for the same five-year period. However, all categories will pay the standard renewal fee of SAR 10,000 in return for its renewed SAGIA License with validity of five years.

Categorization is based upon the Applicant's satisfaction of government policy mandates to train, develop, and employ Saudi nationals in high-paying, high-technology, and senior management jobs and, thus, will depend upon the Applicant's commercial activities, as well as Saudization ratios and the like.

Finally, SAGIA's announcement also claims that companies will be permitted to renew other licenses and permits for similar terms to coincide with their SAGIA License validity periods – e.g., commercial registration certificates (CR) and the like.

SAGIA – 11 June 2017

VAT starting January 2018

The GAZT announced last month that companies in Saudi Arabia with an annual revenue of over SAR 375,000 (USD 100,000) must pay monthly value added tax (VAT) as of January 2018. The VAT will be taxed at 5 per cent of the revenue amount. Fines for VAT reporting or payment violations may reach an amount that is double the unpaid amount owed.

Saudi Gazette – 23 May 2017

New Saudi defense company

One of the key elements of Saudi Arabia's Vision 2030 is the localization of the defense manufacturing industry, which is categorized as an important aspect of ensuring Saudi Arabia's sovereignty and independence, as well as contributing to the local manufacturing sector and creating jobs for Saudi nationals.

The Public Investment Fund (PIF) announced the creation of a new national Military Industries Corporation (MIC) which aims to begin fulfilling the aspirations of Vision 2030 as a local defense manufacturing company. MIC is wholly owned by the Kingdom's PIF, and will manufacture products and provide services across four business units, which are:

  1. air systems, including maintenance and repair of fixed-wing aircraft as well as manufacturing and repair of unmanned air vehicles;
  2. land systems, including manufacturing and repair of military vehicles;
  3. weapons, missiles, and ammunitions; and
  4. defense electronics, including radars and sensors as well as communication systems and electronic warfare technology.

Arab News – 18 May 2017

SMEs and entrepreneurship growth in Saudi Arabia

Another key element of Vision 2030 is a commitment to support local small and medium enterprises (SMEs).

In that regard, the Small and Medium Enterprises General Authority announced the establishment of an operating entity for a series of entrepreneurial hubs aimed at growing the SME and entrepreneurial sectors in the Kingdom (HUB1006).

Currently, SMEs contribute 20 per cent to Saudi Arabia's GDP. However, HUB1006 aims to increase this to 35 per cent by 2030. HUB1006 will serve as a physical and virtual exchange between Saudi Arabia and the world. It will create an environment that facilitates access to professional services, affordable office space, venture capital, learning and development, in addition to government services.

Saudi Gazette – 23 May 2017

Selective Tax Law published

As we have mentioned in previous Updates, the Shoura Council has approved the Unified Agreement on Selective Tax adopted by the Gulf Cooperation Council (GCC Law) aimed at tobacco products and certain beverages.

The Council of Ministers has implemented the GCC Law domestically via publication of the Saudi Arabian Selective Tax Law (Law) in the official gazette, Umm Al-Qura. The Law became effective as of 10 June 2017.

Umm Al-Qura – 26 May 2017

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