Any commercial entity set up in Saudi Arabia is subject to the Foreign Capital Investment Regulations. There is an official Industrial Policy Statement emphasising the importance of Saudi participation which can be interpreted by the different ministries from which approval is needed before the issue of any licence. Essentially, Saudi law does not prohibit several foreign investors from applying to form a local company without Saudi participation, but all applications are subject to the policy favouring Saudi participation, and an application to form a company with less than 25 per cent Saudi participation is unlikely to be looked on favourably, for example, by the Ministry of Industry and Electricity. Other administrative authorities also have a minimum Saudi participation policy. Saudi Arabia is heavily regulated with respect to the formation of companies and it is a complex process not least because of the distinction made between commercial and professional activities.
Comprehensive advice is therefore essential before setting up within the Kingdom.
All consultancies must work through Saudi-owned companies and the control the Saudi's have over their commercial sector is reflected by the fact that any objective clauses in any company's articles of association, or terms of partnership, are expected to be drafted as narrowly as possible, specifying the activities to be carried on with precision. This is similar to the way that the taxation system in Qatar depends on the degree of Qatari involvement. The extent to which these privileges are available depends on Saudi participation in the local entity as well as the nature of its activities. An interesting variation on this is the tax holiday which is available to industrial and agricultural ventures formed under Saudi law with a minimum Saudi equity participation of 25 per cent. These Saudis are entitled to receive no less than 25 per cent of the profits but the tax holiday applies solely to the profits of the foreign investor.