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Investors are conducting extensive due diligence to ensure that they structure their investment by establishing the type of entity which best suits their commercial objectives.
The establishment of a company in KSA is either by way of a limited liability company or, less frequently, a joint-stock company. This choice is generally driven by factors such as proposed shareholder numbers, management structure and the proposed activities of the company. Another potential factor is the possible need to include Saudi equity participation for activities such as for the importing, exporting, marketing, promotion and sale of products.
In addition to a company structure, in some cases a branch may be the optimum investment vehicle. The following is a brief overview of the two main types of available branch offices and the advantages and disadvantages of each. The two types of branches are:
This Article also comments on Temporary Commercial Registration which may be a possible structure in the context of government contracts.
In all cases, the selected establishment will require a foreign investment license from the Saudi Arabian General Investment Authority (SAGIA) and possibly other specific regulatory approvals.
A Permanent Branch is a conventional branch which would be considered as an extension of the parent office. The minimum start-up capital would commonly be approximately SAR 500,000. This would generally satisfy SAGIA’s initial requirements.
The main advantages of a Permanent Branch are:
The main disadvantages of a Permanent Branch are:
Technical Scientific Services Office (TSSO)
A TSSO may be used where there is a registered commercial agency distribution agreement between a foreign manufacturing entity and a registered Saudi distributor dealing with the local market.
The main advantages of a TSSO are as follows:
The main disadvantages of a TSSO are as follows:
It should be noted that the TSSO structure is not commonly used in KSA, mainly due to the disadvantages listed above and in particular because a TSSO
Temporary Commercial Registration (TCR)
Temporary Commercial Registration is not strictly a branch office and is only relevant to servicing a KSA government contract or semi-government company. The foreign investment license is generally issued more quickly than for a conventional branch office (although a copy of the signed government contract will be required).
The main advantages of a TCR are that a TCR:
The main disadvantages of a TCR are that a TCR:
cannot have the purpose of:
Whilst each particular situation requires assessment in the context of the relevant commercial objectives, in broad terms:
Learn how Al Tamimi’s Corporate Structuring team offer legal advice & assistance to investors for establishing a branch office in Saudi Arabia.
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