A Joint Venture is a business arrangement between two or more parties—either foreign investors, local entities, or a combination of both—who share ownership, risks, profits, and responsibilities for operating a new business entity. JVs can take the form of a limited liability company (LLC) or be structured contractually without the need to establish a separate legal entity.

Benefits of Forming a Joint Venture in Saudi Arabia

• Access to Local Expertise: Partnering with local entities provides valuable insights into the Saudi market.
• Market Expansion: A JV allows foreign companies to expand into regulated or restricted industries.
• Reduced Risk: Sharing financial and operational responsibilities mitigates risk for foreign investors.
• Eligibility for Government Projects: Certain public-sector opportunities are only available to companies with local partnerships.

Key Requirements for Forming a Joint Venture in Saudi Arabia

1. Foreign Ownership
   • Foreigners can own up to 100% of the JV, depending on the industry and business activity.
   • Certain sectors require a Saudi partner with a mandatory percentage of ownership or are restricted to local citizens.
2. Legal Structure Options
   • The JV can be formed as an LLC with both foreign and local shareholders.
   • Alternatively, a contractual joint venture allows partners to collaborate without creating a new legal entity.
3. Investment License
   • Foreign participants must obtain an investment license from the Ministry of Investment Saudi Arabia (MISA) to operate legally.
4. Minimum Capital Requirement
   • Depending on the business activity, the minimum capital requirement varies. In most cases, SAR 500,000 or more is needed to comply with Saudi regulations.
5. Memorandum of Understanding (MoU)
   • A detailed MoU or partnership agreement must define the roles, profit-sharing arrangements, responsibilities, and exit strategies of the JV partners.

Conditions for Establishing a Joint Venture in Saudi Arabia

• Industry-Specific Approvals:
  Some industries—such as telecommunications, finance, education, or healthcare—require sector-specific approvals from relevant government bodies (e.g., the Saudi Central Bank or the Ministry of Health).
• Saudization Compliance:
  The JV must meet Saudization quotas, ensuring that a certain percentage of employees are Saudi nationals.
• Zakat and Tax Obligations:
  JVs must comply with Saudi Zakat regulations and, if foreign-owned, are subject to corporate tax.
• Local Presence:
  It is mandatory for the JV to have a physical address registered with the Saudi postal system (Wasel).

Formation Process for a Joint Venture in Saudi Arabia

Step 1: Partner Identification and Agreement

• Identify potential local or foreign partners who align with your business goals.
• Negotiate and draft a Memorandum of Understanding (MoU) detailing the roles, responsibilities, and profit-sharing arrangements.

Step 2: Legal Entity Registration (If Applicable)

• If the JV will operate as an LLC, register the legal entity with the Ministry of Commerce and Industry (MOCI).
• Choose a company name and prepare the required legal documentation, including the Articles of Association (AoA).

Step 3: Obtain MISA Investment License

• Foreign investors must apply for an investment license to MISA.
• Required documents include:
  • Business license and registration documents of foreign shareholders.
  • Articles of Association for the JV.
  • Power of Attorney authorizing a representative to complete the registration process.

Step 4: Open a Local Bank Account

• Open a corporate bank account in Saudi Arabia and deposit the required initial capital.
• Submit proof of capital deposit to MOCI.

Step 5: National Address Registration

• Register the JV’s official address with Wasel to obtain a local presence in Saudi Arabia.

Step 6: Obtain Industry-Specific Approvals (If Required)

• Depending on the nature of the business, apply for additional licenses from relevant authorities (e.g., Saudi Food and Drug Authority for pharmaceuticals).

Step 7: Commercial Registration (CR) Issuance

• Once the investment license is approved, obtain a Commercial Registration (CR) from MOCI, authorizing the JV to conduct business activities.

Step 8: Tax and Social Insurance Registration

• Register the JV with:
  • Zakat, Tax, and Customs Authority (ZATCA) for VAT and Zakat compliance.
  • General Organization for Social Insurance (GOSI) to meet social insurance requirements.

Step 9: Hiring and Work Visa Registration

• Register with the Ministry of Human Resources and Social Development (HRSD) to hire employees and issue work visas for foreign staff.

Related Tax and Zakat Requirements for JVs in Saudi Arabia

• Zakat: JVs owned by Saudi and GCC nationals are subject to Zakat at 2.5% of the company’s net worth.
• Corporate Tax: Foreign partners in the JV are subject to corporate income tax at a rate of 20% on their share of profits.
• VAT: A standard 15% VAT applies to goods and services
  Withholding Tax (WHT): JVs making payments to non-resident entities are subject to WHT ranging from 5% to 20%.

Next Step

Unlock the potential of your business with a strategic joint venture in Saudi Arabia. Let Arab Dreams guide you through seamless partnership formation and regulatory compliance for long-term success.

FAQ