Economic Data - Saudi Arabia

Economic Data Bahrain

Saudi Arabia, like other GCC-countries, implemented a Value Added Tax (VAT) of 5% on 01.01.2018. On 1 July 2020 this will be increased to 15%.

The responsible authority is the General Authority for Zakat and Tax (GAZT). You can find an overview of the affected products and services on their website:

VAT

Responsible officials in Saudi Arabia have been discussing a new law, which would force exporters to wrap their products exclusively in oxo-biodegradable plastic, for a while. This type of plastic is claimed to be biodegradable and better for the environment. Expert opinion in Europe, however, shows that this plastic is more harmful for the environment than regular plastic wrapping. For this reason, ist use is baned within the EU.

The implementation of this law was already delayed several times.
Whether this will come to pass is unclear, but unlikely.

The Nitaqat program, better known as “saudization”, is a national localization program in Saudi Arabia. All active companies are required to employ a specific percentage of Saudi nationals, which can vary depending on the type of business, but often lies around 30%. This program also includes wage requirements. The purpose of the prgoram is to offer career possibilities to the very young population of the kingdom and solidify international know-how. This supports one of the main goals of the Vision 2030 and improves intercultural exchanges.

Just like with many of the Vision 2030 goals, the wish to anchor as much international expertise within the Kingdom as possible is widely spread. As such, you can expect the possibility to localize part of your business or production in Saudi Arabia to be a topic of discussion, even when you’re not speaking to a company directly linked to any government entity.

Some of the largest companies also have their own localization programs. Saudi ARAMCO, for instance, has the In Kingdom Total Value Added (IKTVA) program, which requires that potential partners and suppliers for the company to supply a legally binding localization plan in advance. With more localization, companies can often reap benefits in their business with ARAMCO. Non-compliance, however, can lead to penalties or cancellation of contract. SABIC has a similar program called Nusaned.

Saudi Arabia has a customs fee of 5% for most products. Products, for which alternatives are produces in Saudi Arabia, can expect fees of up to 20%. Some products that fall under specific categories, such as pharmaceuticals or non-local foodstuffs, can be imported customs free. All kinds of technical equipment and machines necessary for a local project and are not produced in comparable quality within the kingdom are also customs exempt.

Some product categories bring with them special import requirements. The corresponding ministries are responsible for these:

Pharamaceuticals and chemical and cosmetic products – Saudi Food & Drug Authority (SFDA)

All kinds of wireless communication and IT-equipment / Communications and Information Technology Commission (CITC)

Chemicals and printers/toners - Ministry of Commerce and Industry (MOCI)

Magazines, books, CDs, DVDs, picture material and cards with electric information (IDs/maps) - Ministry of Information (MOI)

The necessary Certificates of Conformity (CoC) are created after submitting the corresponding request in the online-tool Saber by the Saudi Arabian Standards and Metrology Organization (SASO).

A categorized table with search functionality regarding customs fees can be found on the Saudi Customs website:

CUSTOMS

There are several types of company, which can be broadly separeted into three categories. These apply for all areas of business, except for auditors and tax consultants. In these cases, one has to use so-called “Professional Partnerships”, which fall under special regulations.

1. (dependent) Branch Office

A positive difference in the Saudi Arabian law – when compared to other countries of the region – is that no local sponsor is necessary to succesfully register a business with the MISA. As such, there are no legal disadvantages when compared to other local companies.

1. (independent) Limited Liability Companies and Joint Stock Companies
   Subsidiaries are a popular option for founding a company in Saudi Arabia. Joint Stock Companies are rare outside of the banking and insurance sectors. LLCs are the most popular independent company type.
    
2. (representative offices) Temporary Commercial Registration (TCR) / Scientifical and Technical Office (STO)

Representative offices offer the option of a temporary activity in Saudi Arabia. While STOs are primarily responsibile for liaison activities and are not allowed to be commercially active, TCRs are temporary licenses to complete specific government tenders. This means, however, that TCRs cannot be active in the private sector. As opposed to branch offices, TCRs are also not required to invest a minimum capital.

MISA

The Ministry of Investment (MISA) is responsible for the regulation and support of the founding of companies and has published a handbook, which includes a lot of information for the application and changing of investment licenses:

MISA

The Saudi Industrial Development Fund (SIDF) supplies loans of 50-75% of project costs with timelines of 15-20 years and project volumes of one million SAR. Interest goes against Sharia Law. One-time costs of 2.5% and yearly processing fees do exist. In addition to these, you can take on regular bank loans.

As such, the typical financing option for a project would be a SIDF loan of 50%, a commercial credit of 25% and a commitment of 25% of your company. Investors also receive special customs conditions, like a lack of custom fees for necessary equipment, that does not exist in comparable quality locally or tax exemptions for projects intended for less develop regions.

Saber is a web-based tool for the application for ceritifcations for products meant to be exported to Saudi Arabia. Through this portal, the conformity of the product to the local regulations is tested and a Certificate of Conformity (CoC) is created. All relevant paperwork is handed in via this portal and the processing status can be inquired. Their website can be found here:

SABER

SALEEM is the Saudi Product Safety Program. SALEEM is a new program in the Kingdom, responsible for the regulation and certification of specific product categories. It was implemented in 2018 and is reforming the certification processes of different product categories, which will expedite the certification process for these products in future.

The CoC is meant to guarantee that products intended for the Saudi market meet ist specific regulations and do not pose a danger for the safety and health of the user.

Which categories exist under SALEEM?

SALEEM differentiates between regulated and non-regulated products. Non-regulated products are those classified as “low risk”. Regulated products are separated into medium and high risk categories. The criteria for these categories are set in the Technical Regulations of the Saudi Standards, Metrology and Quality Organization (SASO). All of these can be found on the following site:

SASO

Non-regulated products are subject to no Technical Regulations under the SASO, meaning they in principle have free access to the Saudi market. However, you still need to go through a conformity check through Saber to receive your (shipment) CoC. The difference is that the product in this case does not require documentation from a third party auditor.

Regulated products fall under one of the Technical Regulations and, as such, require individual product CoCs before they can receive their shipment CoCs. This process requires documentation from external, approved auditing instutions which also needs to be supplied via Saber.

Technical Regulations are SASO product import criteria. These documents describe the standards and conformity specifications necessary for different product categories before import into Saudi Arabia can be permitted.

The Technical Regulations are very detailed and describe the specific requirements for the packaging, labeling, production etc. This can include:

• Products are not allowed to exist in non-compliance with Islamic Law
• Handbooks for products have to exist in English and Arabic
• The product documentation has to include the country and year of production

As of right now, the SASO has released 27 Technical Regulations, which can be found here:

SASO