Establishing a contracting company in Saudi Arabia
The construction industry in Saudi Arabia is one of the fastest growing sectors, especially in light of the mega projects supported by Vision 2030, such as NEOM, the Red Sea, and Qiddiya. Therefore, establishing a contracting company in Saudi Arabia represents a great investment opportunity for local
and foreign investors. The Saudi Foreign Investment Law allows international investors to establish contracting companies and participate in the
implementation of government and private projects, in accordance with the rules and regulations governing the work of foreign companies in this vital sector. In this article, we will discuss the foreign investment regulations, the company registration process, SAGIA requirements, establishing a company
for foreign investors, construction industry opportunities, and the Saudi procurement system for foreign contractors. Saudi Arabia foreign investment regulations foreign investment in the Kingdom is governed by the Foreign Investment Law issued by Royal Decree No. (M/1) of 1421 AH, which allows foreigners to establish companies in various sectors, including contracting and infrastructure.
Conditions for foreign investment in contracting
- A foreign investor can own 100% of the company without the need for a Saudi partner, subject to certain controls.
- A license from the Saudi Ministry of Investment (MISA) is required to carry out the activity.
- The rules and regulations of the Ministry of Municipal and Rural Affairs and Housing and the Saudi Contractors Authority must be adhered to.
- Proof of at least 10 years of experience in the contracting sector is required for foreign investors.
- Sectors allowed for foreign investment in contracting.
- Public and private building and construction projects.
- Electrical and mechanical contracting.
- Infrastructure, such as roads, bridges, water and sewage.
- Residential, commercial and industrial building contracting.
Saudi business registration process
The process of registering a foreign contracting company in Saudi Arabia goes through several stages:
Step 1: Obtaining an investment license from the Saudi Ministry of Investment (MISA)
Submit an online application through the ‘Invest in Saudi Arabia’ portal.
- Submit a detailed business plan about the project and the scope of the company’s business.
- Proof of international experience in the field of contracting.
Step 2: Issuance of Commercial Registration from the Ministry of Commerce
- Register the company’s name and activity with the Ministry of Commerce.
- Submit the company’s articles of association, notarized by the competent authorities.
Step 3: Register with the Zakat, Tax and Customs Authority
- Obtain a tax number, as companies are subject to 20% income tax.
- Register for VAT (15%).
Step 4: Obtaining special license from the regulatory authorities.
- Register with the Saudi Contractors Authority to obtain an official classification.
- Obtaining technical permits from the Ministry of Municipal Affairs and Housing.
Saudi Arabian General Investment Authority (SAGIA) requirements
The Saudi Ministry of Investment (MISA) imposes a set of requirements on foreign companies wishing to invest in the construction sector:
Minimum required capital:
The amount of capital varies depending on the classification of the company but is usually not less than SAR 30 million.
Proof of experience in the contracting sector:
Documents must be submitted proving the execution of major projects abroad for at least 10 years.
Local partner (optional):
There can be a Saudi partner, but this is not mandatory in all cases.
Commitment to employ Saudis:
The Emiratization percentage specified in the Nitaqat programme must be adhered to.
Provide financial guarantees:
Bank guarantees are required to execute government projects.
Saudi company formation for foreign investors
A foreign investor can establish a contracting company in Saudi Arabia in one of the following legal forms:
- Limited Liability Company (LLC)
The most common type of company for contracting. It can be 100% owned by a foreign investor or in partnership with a Saudi.
- Branch of a foreign company
Allows international companies to operate in the Kingdom without the need to establish a separate local entity. Requires proof of experience and strong
financial solvency.
- Joint Stock Company (JSC)
Suitable for major projects that require significant funding. Must have a certain number of shareholders and high capitalization.
- Representative office or commercial agency
It cannot carry out projects, but it is used for marketing purposes and communication with clients.
Saudi Arabia construction industry opportunities
Saudi Arabia’s construction sector is one of the most prosperous, with an estimated value of more than $255bn, and some of the most prominent projects creating huge opportunities for contractors: The most important future
projects in the construction sector
- NEOM – a smart city with investments exceeding $500bn.
- Qiddiya – a huge entertainment and sports city with a huge area.
- The Red Sea Project – a huge tourism development on the west coast.
- Housing projects – building more than 1.5 million new housing units by 2030.
- Infrastructure projects – development of roads, bridges and public transport.
- These projects provide great opportunities for foreign contracting
companies to enter the Saudi market.
Saudi procurement system for foreign contractors
Government contracting contracts in Saudi Arabia are governed by the Government Tenders and Procurement System, which aims to ensure transparency and fair competition between local and foreign companies.
Requirements to qualify for government tenders:
- Register on the Etimad e-procurement platform for government procurement.
- Submit classification certificates from the Saudi Contractors Authority.
- Provide a bank guarantee of 5% – 10% of the contract value when applying for the tender.
- Commitment to documenting contracts electronically according to the Saudi Ministry of Finance standards.
- Preference for Saudi vs. foreign contractors
The government favours local companies in government tenders, unless the project requires special expertise,in some cases, the government requires a certain percentage of Saudi partners for major projects.
Conclusion
Establishing a contracting company in Saudi Arabia is an excellent investment opportunity for foreign investors, given the tremendous growth in the construction sector. Thanks to recent investment laws, foreigners can fully own construction companies provided they fulfil the requirements of the Ministry of Investment. Complying with regulations, obtaining permits, and registering with government procurement systems remain essential to enter the Saudi market and capitalize on mega projects.
