Top 10 Tips for Entrepreneurs in Saudi Arabia

For decades, Saudi Arabia has conducted commerce with the rest of the world. This has typically been done through oil exports, which still account for 90% of the state's revenue. Petrochemicals, electricity, telecommunications, healthcare, and even tourism are now major businesses, attracting international investment and bringing fresh life and business opportunities to this enormous land. Beyond oil, the Saudi continues to extend its borders to the global corporate sector. Every year, the CEOs of the world's most powerful corporations gather in Riyadh for the Future Investment Initiative called Davos in the Desert.

Entrepreneurship is thriving in the country as well, thanks to the government's emphasis on the formation of small and medium-sized businesses (SMEs). Saudi Arabia's highly ambitious Vision 2030 growth plan is hastening the country's economic absorption into the global economic system. The vision believed that the private sector and startups would be the most important players in the economic change. Meanwhile, non-traditional economic sectors are seeing an increase in international investment. Corruption has been reduced thanks to government actions. It started high-profile campaigns to attract royal family members, politicians, and wealthy businessmen in early 2017 and recovered $106 billion in assets.

If you are looking forward to setting up your own business in the kingdom, it is very crucial to take notes of the following tips which can be helpful on your journey to becoming a successful entrepreneur in Saudi Arabia:

1. Direct marketing is not a trend

Direct marketing is a practice that is not extensively employed in Saudi Arabia. In the Kingdom, personal relationships between suppliers and customers are vitally crucial. Due to Islamic teachings governing gender segregation and privacy in the home, several methods of direct marketing that are used in other nations are not used in Saudi Arabia. Limited direct marketing is carried out using satellite television advertising that provides customers with a local contact number to arrange order and delivery.

In the Kingdom, advertising is a fast growing industry that is critical for increasing retail market and sales volume.Most businesses today promote in a variety of media, including television, periodicals, trade publications, billboards, and trade shows. Many businesses have recently advertised through major festivals, activities, and sweepstakes drawings, which are typically held in retail shopping areas centers. During certain times of the day, adverts are carried on the two Saudi channels.

The importance of print advertising cannot be overstated. Many new publications have arrived in the Saudi industry in recent years. Al-Majallah, Al-Yamamah, and Sayidati are some of the most popular periodicals in the Kingdom. Both English and Arabic newspapers are used for newspaper advertising. The three English-language local dailies, Arab News (Jeddah), Saudi Gazette (Jeddah), and the Riyadh Daily (Riyadh), have circulations of more than 200,000 copies. Other relevant newspapers have circulations often just regional distribution. The Al Iqtisadiah economic daily is another publication that focuses on business topics.

2. E-invoicing in KSA

E-invoicing is a method of converting paper invoices, as well as credit and debit notes, into an electronic process that allows the buyer and seller to exchange and process these documents in a structured electronic format. Here are some of the must-have fields to qualify as an e-invoice:

• An electronic stamp established using cryptographic methods to certify the legitimacy of the data's content and integrity for Electronic Invoices. It is also required to verify the identity of the invoice issuer in order to ensure compliance with the requirements of the Tax Laws and its Enforcement Regulation.
• A UUID is a 128-bit series of numbers that is generated using a unique algorithm. A conforming E-Invoice Solution uses the UUID, which is stored within the XML invoice. Because it is not required to be visible on the invoice, the entity subject to the E-Invoicing Rules does not need to know this figure during the normal invoice issuing procedure.
• QR Codes are a kind of matrix barcode that has a black and white square layout. To enable basic verification of Electronic Invoices, it is mechanically accessible by a QR code reader or the cameras on smart devices.

When raising an e-invoice, all components and required fields of a tax invoice would be included, such as the seller's identity and tax registration number, time stamps, the tax amount, as well as the invoice's overall value inclusive of VAT.

3. Physical presence and support is crucial

Saudi Arabia's market is open and competitive. As a result, above-average sales service and customer service are critical in attracting and keeping new customers. The physical presence of a foreign company in the Kingdom is seen as a sign of a long-term engagement to doing business in this country. Timely transportation of products and the existence of qualified support personnel are becoming increasingly crucial, and they now have a considerably greater impact on business than they did five or ten years ago. Equipment providers are typically required to adhere to assurance and spare parts over a three-year period by government agencies.

4. Fixed exchange rate of SAR and USD

Since 1986, the dollar exchange rate has been maintained at 3.75 riyals, giving the dollar a significant value when compared to the Asian and European currencies. Interest rates that are reasonable have tremendously aided market penetration. As a result, Saudi importers anticipate US manufacturers to provide a more consistent price policy than their international counterparts. Products are normally imported CIF, and markups are based on the vendor's perception of what the market would bear. There is no standard formula for calculating mark-up rates. In preliminary conversations, some give-and-take is envisaged from the US supplier. Due to the sheer Saudi interest in negotiation and personal exchange, the asking price is frequently dropped to tempt the client.

5. Sought after businesses in the Kingdom

Structural shift from infrastructure construction to goods and services production, and subsequent greater dependency on the private industry are the key economic forces driving the economy of Saudi Arabia's free market enterprise strategy. Foreign firms are encouraged to engage in the following areas, which are critical to the kingdom's present and future financial development:

• Industries that rely on locally plentiful petrochemical or petroleum-based raw materials
• Food industries that make use of bountiful agricultural products in the area
• Specialized enterprises in the areas of maintenance & spare supplies and components production
• Companies that sell and service labor-saving equipment
• Training services are available as a stand-alone service or as element of a product bundle
• Management services companies
• Almost every aspect of health, including staff and services

6. KSA Workers' Rights

The major institution in charge of the Kingdom's labor policies is the Ministry of Labor and Social Development. The guidelines cover things like residency permits, recruitment costs, working hours, and other issues that every company and employee should be aware of. Here are some of the points which should be considered for hiring employees:

• Your staff must be awarded an "Iqama" (residence permit) within three months
• As an employer, you are responsible for any recruitment-related costs
• Your employees' probationary period should not be longer than three months
• In Saudi Arabia, the maximum amount of working hours per week is 48. If you ask your employee to work beyond this time restriction, you must pay them 1.5 times the standard rate for overtime
• You are not permitted to assign extra tasks beyond what you and your employee agreed upon at the beginning. If more work is actually needed, it should not last longer than 30 days per year
• Without explicit authorization, you are not allow to change the payment schedule (hourly, daily, weekly, or monthly)
• Without written notice, you are not permitted to relocate a staff to another location
• Workers are eligible to end-of-service benefits at the end of their job term
• You do not have the authority to hold the passports of your employees

7. Business Vehicles in Saudi

Following the launch of Saudi Vision 2030, the Saudi government has pledged to support investors and enterprises wholeheartedly. Saudi Arabia's geographical location also makes it a good place to do business with people from diverse parts of the world. Forming a business in KSA to operate appears like a great idea. Before getting started, it's important to understand the many sorts of business cars that can be used in the kingdom.

General partnership/ joint liability companies

• This business venture in which two or more individuals have shared responsibility for the firm's debts in all of their finances.
• It's possible that a partner's portion of the relationship isn't negotiable. A partner could choose to surrender their share with the permission of all other partners or under the terms of the contract.
• Anyone who joins the business is jointly liable for the partnership's debts with the other partners. After one month, if a partner pulls back from the company, they are no longer reliant on the partnership's debts.
• Income and loss sharing are determined by the agreement reached before the partnership's start.

Limited partnership companies

• A limited partnership is made up of 2 partners, one of which must have a minimum 1 joint partner who is responsible for the partnership's debts. The other should have a minimum of 1 dormant partner who is responsible up to the amount of his capital share.
• Even if he or she has power of attorney, a dormant partner can't participate in external management acts. They can, however, participate in the internal management of the partnership in accordance with the partnership agreement's provisions.

Joint Venture/ companies

• It is a sort of business in which two or more parties invest their money to achieve a common aim.  It is possible that it will not issue negotiable instruments.
• It is not a legal entity in its own right.
• Unless the venture's contract indicates otherwise, each contributor is responsible for their contribution to the endeavor.
• The venture's contract should include the Partners' rights and obligations and Method of splitting earnings and losses

Limited Liability Companies

• A baseline of 1 partner and a max of 50 partners are allowed in this type of entity.
• To list on the Saudi Stock Exchange, companies must first convert to a JSC.
• A single manager or a committee of managers is in charge of the company.
• Partners' liability is restricted to their share of the capital.

‍Joint-Stock Companies

• There are two types of JSCs, one is the  Unlisted/ Closed Saudi Stock Exchange joint-stock companies and  Joint-stock firms that are registered on the Saudi Stock Exchange are referred to as "Public."
• A minimum of two stockholders is required. Some government agencies or firms with a capital of more than 5 million SAR can form a JSC with a sole shareholder.
• The responsibility of shareholders is restricted to the value of their shares.
• At least 3 and a max of 11 directors are allowed.

8. VAT in Saudi Arabia

It is a tax on all goods and services that is levied in an indirect manner. These are the goods and services that businesses purchase and sell. VAT can be levied at several points along the supply chain. For most goods and services, the usual VAT rate is 15%. Some of them are as high as 15%. There are, however, a few exemptions to the imposition of VAT.

Every stage of the supply cycle is subject to VAT. It isn't just applicable at the start, when dealing with the producer, or at the end, when dealing with the end user. VAT applies to all processes, including those in the midst. A company in the Kingdom of Saudi Arabia, for example, purchases raw materials in order to make products and pays with VAT to the seller. Then this buyer reproduces a new product and sells them to the end consumer and he will add a 15% to his prices. Then for the end consumer to compensate for the VAT, he can file the VAT return which mentions all the VAT he has paid for the products.

Businesses having annual revenues of more than SAR 375,000 are obliged to register for VAT. The annual revenue is calculated by adding all of the business's income over the preceding 12 months. This also applies if the business's estimated income over the next twelve months surpasses SAR 375,000.

9. Audits in the Kingdom

Depending on the industry they engage in and their size, organizations are subject to varying audit criteria. Joint stock firms and limited liability partnerships, for example, must designate an independent auditor to verify their accounts every year. Banks and insurance businesses are required to appoint at least 2 independent auditors capable of performing the required audits of their books.

Companies in Saudi Arabia who require audit services can file an appeal at any time if they want to review their performance outside of the legal criteria. The external auditor will verify documents that potentially reflect the business's status and provide recommendations based on the grounds for the audit. Organizational and qualitative audits are frequently sought from Saudi audit firms, and such a validation does not always encompass a company's financial status.

There are precise measures that must be followed while conducting a statutory audit. T he company's executives must provide the auditor with all pertinent documents so that he or she can verify them and write a report accordingly. The report will then be presented to the shareholders for approval.

Saudi enterprises must comply with the following audit requirements:

• Once a year, the shareholders must meet
• Within three months of the completion of the financial year, a financial report on the firm's activities must be prepared
• Financial statements for the previous year must be completed by March 31st of the current year

10. Saudi Arabia’s Funding Sources

When looking for financing to fuel your company ventures, there are a variety of elements to consider, all of which will inevitably lead to the best answer. Money seeks benefits that are proportional to the risk it is taking. Borrowing money may be easier if you have properties to pledge. You may need to look for an equity investment if you don't have any assets. However, keep in mind that raising tiny amounts of capital is sometimes more challenging than raising huge quantities.

Before making a commitment, fund providers will extensively investigate you. Prepare ahead of time; the best method to forecast your demands is to create a forecast budget. Try to begin the business finance process as soon as possible, because defining your true needs and arranging a loan, or equity capital from a new investor could take anywhere from a few weeks to months.

Below are examples of entrepreneurs’ sources of funds:

• Private/Personal Sources

Business entrepreneurs frequently contact individuals for financial assistance, including Family/Relatives, Friends, Business Networks and Private Investors.

• Financial Institutions

 Banks offer long-term loans, leasing, mortgages, and support programs and also short-term and day-to-day lending.

• Lenders

You may choose to seek banking organizations that concentrate in term lending if you have property to pledge as collateral. Insurance firms, trust organizations, and mortgage companies are all examples of financial institutions. Installment firms, and a limited group of specialty companies are commercial term lenders.

• Leasing

If you are the owner, leasing fees can often be deductible as a business cost rather than depreciation. There are three fundamental types of leasing: direct for computers, vehicles, trucks, and commercial equipment, indirect for a 3 transaction, and leveraged for a partial investment portfolio on the user's side with the balance financed through leasing.

• Vendors

If you can secure special arrangements with major suppliers, they can be a frequent source of financing. For example, you might be able to create a new demand for a supplier's supplies or semi-finished goods and save the supplier money.

• Clients

Customers may be willing to contribute to the financing of your firm, especially if you can provide real-time, dependable follow-up and service, as well as a supply of parts or components.

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