Expansion Into Saudi Arabia Without Incorporation
When it comes to international business, one of the main benefits is being able to go where the strongest markets are, and you’d be hard-pressed to find a Middle Eastern market like Saudi Arabia. As the largest oil producer in the world and the only Arab country to be a part of OPEC and the G-20 major economies, the opportunities are vast. However, this is also quite a unique setting when it comes to international expansion. So, with that being said, here are some of the fundamental points when it comes to opening a business in Saudi Arabia without incorporation.
Understanding Business In The Middle East
When it comes to Middle Eastern business in general, while there are plenty of opportunities, these may not necessarily be the right opportunities for every company. A good way to gauge whether it’s a proper fit is through a pros or cons analysis. Here are some of the outstanding factors that may make the Middle Eastern expansion decision for you.
Relative communication accessibility. While local languages may be the official languages, English is widely spoken in the business world here. For example, in Saudi Arabia, it’s often a compulsory subject in secondary schooling. This can make it easier for your team to discuss and negotiate than in other Gulf countries.
Economic development. Many people associate business in the Middle East with oil, and this resource has created a platform for other areas of the business to develop as well.
Proximity. The Middle East’s proximity to European, Asian, and African markets could make it a potential good staging point if expansion there is in your future goals.
Overspecialization. Countries like the UAE and Saudi Arabia are doing a solid job of diversifying business outside of the oil and gas industries, but not every country is as successful in this regard yet.
Cultural adjustment. While this isn’t necessarily a business issue, cultural norms are quite different in the Middle East compared to many Western businesses. You want to be mindful of these so you can network successfully.
Universal challenges. Like any international expansion, you have to heed the laws not only in your country of origin, but also the country that you do business in. This includes everything from export to hiring to labor practices. You need to do your research to make sure that the pros outweigh the opportunity costs of making this adjustment.
How Easy Is It To Do Business in Saudi Arabia?
In general, Saudi Arabian business mitigates a lot of the cons that we mentioned, while being a shining example of the pros. As of right now, its CPI (consumer price index) is at 106.1 points. Primary exports are oil products, as is little surprise, with major imports being foodstuffs, machinery, and automobiles.
However, there are still those universal logistical/compliance challenges that you need to navigate.
For example, when talking about taxes, there are two types in Saudi Arabia, income tax and Zakat. Non-Saudi investors and Saudi branches of foreign companies are susceptible to income tax, which is at a higher rate than Zakat. Note that businesses involved in gas and oil are subject to higher income taxes as well. Selling your shares in a Saudi branch as a foreign investor is also subject to additional tax.
Perhaps one of the most surprising aspects of Saudi business to newcomers is what’s actually required to open the business up. Law requires that you have a local partner with a controlling interest of the company. Because this would technically allow them to close the business whenever they feel like it, you need to make sure that you work with someone you trust. You also need to prove that you have a certain amount of money to invest, though this varies by state.
Say that you can navigate this issue. What about labor laws? In general, Saudi labor laws entail similar provisions that you would see for Western workers, like set workdays, maternity leave and the like. In general, there have been a series of reforms over the last decade or so to make things more appealing for foreign investment. In terms of regulation for expat employment in Saudi Arabia, you will need to register with a variety of local administrations, and it’s customary for the government to hold your passport until you are ready to leave the country.
Prepping For International Expansion Into Advanced Economies
Saudi Arabia is a very desirable location for any company to expand operations into, given the strong economy and continued potential for growth. Because of its already-developed economy and the ongoing international need for oil, chances are that Saudi Arabia is going to be a financial powerhouse for decades to come.
However, advanced economies like these often have unique challenges and regulations to navigate before any of that can happen. This is why it’s important to avoid the bureaucratic headache of opening your own entity and look into PEO in Saudi Arabia. PEO (professional employment services) from a skilled industry partner like Acumen International ensures that you quickly and effectively hire on the team you want for your Saudi Arabian expansion, while always knowing you will be staying in compliance.
Reach out to us today for more information.