Expanding your business from UAE to KSA

Understanding the Business Environment in Saudi Arabia

The greatest oil-producing nation in the world is Saudi Arabia, which is situated on the Arabian Peninsula. Saudi Arabia's legal framework is Islamic (Shari'a), with hints and components drawn from Egyptian, French, and customary law. Saudi Arabia's economy is changing as a result of the Kingdom's ambitious 2030 vision, which aims to improve the business climate for small and medium-sized businesses, increase non-oil revenue, improve the government's ranking in various areas, and increase the non-profit sector's GDP contribution.

Legal and Regulatory Framework

Because the legal systems in Saudi Arabia and the United Arab Emirates are comparable, businesses based in the UAE are eager to grow into Saudi Arabia. The 2015 Companies Law was superseded by the new KSA Companies Law 2022, which was ratified by the Saudi Council of Ministers. This new law is in line with the kingdom's 2030 goal since it intends to increase flexibility, draw in international investment, and fortify the Kingdom's private sector. Investors in Saudi Arabia are permitted to select any of the following company types under Article 4 of the new Companies Law of 2022: Limited liability companies simplified joint stock companies general partnerships limited partnerships joint stock companies

Resolution of disputes:

In accordance with Article 153, the business may arbitrate or employ any alternative dispute resolution procedures to settle disagreements that may arise between shareholders or between the business and its president, manager, or any board members, with the exception of criminal offenses.

Employment Law:

Saudi Arabian regulations pertaining to employment are evolving quickly, and the country's efforts to reform the labor market through Saudization laws compel employers to adapt their hiring practices to conform to the latest regional legislation. The employment contract also needs to comply with Saudi Arabia's employment laws. It is required that the contract be issued in two (2) copies, with one copy being held by each party.

Advantages of Expanding to Saudi Arabia

There are many compelling reasons for businesses based in the United Arab Emirates to extend their operations to Saudi Arabia.

• These include the country's expanding economy, which is not solely dependent on oil but is also diversified into other industries including manufacturing, tourism, and technology.
• Saudi Arabia's location in the Middle East also offers access to important markets in the region, including the Gulf Cooperation Council (GCC) countries, North Africa, and parts of Asia. This includes 2030 Vision of the Kingdom, a long-term plan aimed at reducing the country's dependence on oil, promoting private sector growth, and enhancing the business environment.
•  Saudi Arabia prioritizes infrastructure development, which facilitates the efficient and effective operation of businesses in the country. This includes transportation, logistics, and telecommunications.
• The UAE-based companies have the potential to enhance their business and expand their operations by taking advantage of the numerous available options in industries such as construction, healthcare, renewable energy, and entertainment in Saudi Arabia.
• Finally, Saudi Arabia is bordered by the United Arab Emirates, which makes it advantageous for UAE companies to conduct business in both countries concurrently.

Practical Considerations and Challenges

Although the business environment and legal framework of the UAE and Saudi Arabia may appear to be similar, there are unique challenges that company proprietors should be aware of, including:  Legal Requirements:

• The sole method by which UAE companies can establish a presence in KSA is by establishing a branch or subsidiary company. The UAE company must have been in existence for a minimum of one year in order to qualify. The UAE corporation must prepare the following documents in order to establish a branch or subsidiary in KSA:
•  Trade License
•  Memorandum of Association
• Financial Audit Report for the most recent fiscal year
• Durable Power of Attorney

The documents may differ marginally depending on the location of the UAE company's registration (i.e., mainland or free zone). The UAE Ministry of Foreign Affairs (MOFA) and the Saudi Embassy in the UAE must attest all of the aforementioned documents prior to their submission to the Kingdom of Saudi Arabia for further processing. Additionally, UAE companies should be cognizant of the fact that the registration process in KSA is more complex and time-consuming than in the UAE, where registration is conducted in a limited number of government departments.  

• Language and Communication:

Saudi Arabia's official language is Arabic, and although English is frequently used in business environments, language barriers may persist, particularly in more conventional sectors. Communication can be facilitated by the presence of bilingual staff or translators.

• Cultural Awareness

Saudi Arabia is a Muslim nation that has inherited the Islamic heritage and culture. Islamic laws are being enforced within the Kingdom. This implies that the culture will be considerably different from that of Western countries, as the market may be extremely sensitive and stringent in terms of material content and branding. The company can enhance its market position and conduct successful business operations by comprehending local customs, traditions, and business decorum.

• Saudization

In 2011, Saudi Arabia's Ministry of Labour implemented a policy known as "Saudization." The primary objective of this initiative is to decrease the reliance on foreign labor within the country and to mandate that companies employ Saudi nationals. The policy mandates that companies adhere to specific quotas of Saudi employees, with the percentage of employees required to be fulfilled varying by industry.

• Regional Headquarters Program

With few exceptions, all government bodies are prohibited from contracting with businesses that do not have their Regional Headquarters (RHQ) in Saudi Arabia as of January 1st, 2024, according to the announcement made by the Ministry of Investments (MISA). The purpose of this project is to draw international corporations to the Kingdom of Saudi Arabia for their regional headquarters.

Conclusion

Establishing a branch, representative office, or subsidiary in Saudi Arabia offers UAE corporations several compelling reasons to do so. For businesses looking to grow, doing business in Saudi Arabia can provide special chances and difficulties, much as doing business in the United Arab Emirates. Timing and the setup process are very different, though. Working with lawyers who are conversant with the legal requirements for establishing a business in both the UAE and Saudi Arabia is essential. These challenges will be surmounted with our help in CIG and the direction of our legal knowledge to guarantee a smooth transfer of your UAE company to the Kingdom of Saudi Arabia.