The Kingdom of Saudi Arabia (KSA) stands out as a compelling destination for European companies looking to expand into new markets. Saudi Arabia’s economy is undergoing a transformation, as it implements reforms to reduce oil dependence, diversify income sources and enhance competitiveness.
The Saudi government has established ambitious socio-economic reforms, collectively known as Vision 2030, which provides a roadmap for the development of new economic sectors and a transition to a digital, knowledge-based economy. The reforms aim to diversify the Saudi economy away from oil and create more private sector jobs for a young and growing population.
Non-oil growth has accelerated since 2021, averaging 4.8% in 2022 and 4.6% in 2023, and is expected to grow at around 5% in 2024 and beyond, possibly to 2030, spurred by strong domestic demand. Diversification has been driven by improvements in the regulatory and business environment, with a range of tax and non-tax incentives accompanied by new laws to promote entrepreneurship, protect investors’ rights and reduce the costs of doing business.
To realise its ambitious goals, the government is seeking foreign investment across several sectors, including infrastructure, transport and logistics, tourism, entertainment, health and science, technology and renewable energy. It is also establishing various ‘economic cities’ and special economic zones, which will serve as hubs for petrochemicals, logistics, manufacturing and digital industries.
In this article, we look at the benefits that await European businesses considering a move to the Kingdom.
Tax Incentives:
Corporate Income Tax
Saudi Arabia has a favourable corporate income tax regime. The Kingdom offers a flat corporate income tax rate of 20% of the net adjusted profits (except those companies engaged in hydrocarbons-related activities, whose rates range from 30 to 85%), with no additional taxes on profits repatriated abroad.
This competitive corporate tax rate, coupled with the absence of personal income tax, provides significant cost savings for businesses operating in the Kingdom.
Tax Exemptions and Incentives
Saudi Arabia offers various tax exemptions and incentives to attract foreign investment and stimulate economic growth. These include exemptions from import duties on machinery, equipment, and raw materials for specific industries, as well as tax holidays for companies operating in certain sectors or regions designated for development.
In particular, the Saudi government offers a 30-year tax exemption package for foreign companies that establish their regional headquarters (RHQ) in Saudi Arabia.
Withholding Tax
Withholding tax (WHT) rates on payments made by a branch to its head office or by a company to a related entity are subject to a 15% WHT rate.
For dividends, any distribution made by a resident business to a non-resident shareholder, and any profits transferred from a permanent entity to related parties, will be subject to a 5% WHT rate.
Tax Treaties
Saudi Arabia has signed double tax agreements (DTAs) with 53 countries, of which more than 30 are in force. These DTAs offer tax relief such as WHT reductions on service fees, dividends, royalties and interest and facilitate cross-border investment and trade.
Notable DTA partners include Austria, China, France, India, Italy, Malaysia, Pakistan, South Africa, South Korea, Turkey and the UK. The government aims to expand its treaty network further to attract foreign investment and strengthen economic ties.
Other Benefits:
Investment Opportunities
Saudi Arabia’s ambitious Vision 2030 plan aims to diversify the economy and reduce dependence on oil revenue. As part of this vision, the Kingdom has launched mega-projects and initiatives across various sectors, including tourism, entertainment, renewable energy, and technology.
European companies can capitalise on these investment opportunities and contribute to the Kingdom’s economic transformation.
Strategic Location
Situated at the crossroads of Europe, Asia and Africa, Saudi Arabia offers unparalleled access to key markets in the Middle East and beyond. Its strategic location, combined with world-class infrastructure and logistics facilities, makes it an ideal hub for regional and international trade.
Some 13% of global trade passes through the Red Sea, enabling your business to connect into global supply chains and utilise world-class infrastructure.
Business-Friendly Environment
Saudi Arabia has undertaken significant reforms to improve its business climate and attract foreign investment. These reforms include streamlining bureaucratic processes, enhancing transparency and implementing investor-friendly policies.
It has also established of range of new specialised economic zones (SEZs), including the King Abdullah Economic City (KAEC), Ras Al-Khair SEZ, Jazan SEZ and the Cloud Computing SEZ in King Abdulaziz City for Science and Technology (KACST) and the Special Integrated Logistics Zone, which offer additional incentives and support for foreign businesses.
Skilled Workforce
Saudi Arabia has a young and increasingly skilled workforce eager to contribute to the country’s economic development. According to the General Authority for Statistics, the median age of the Saudi workforce is 26, and it is expected to grow by 2.5 million people by 2030.
This young and growing workforce is a major asset, because it provides the country with a pool of skilled and productive workers. European companies can leverage this talent pool to drive innovation, productivity and growth in their operations.
In conclusion, Saudi Arabia offers a compelling value proposition for European companies considering international expansion. From favourable tax incentives to investment opportunities, strategic location, and a business-friendly environment, the Kingdom presents a wealth of benefits for businesses looking to establish a presence in the region.
How Sovereign can help
Sovereign offers a comprehensive set of services for company formation and business set-up in the Kingdom, as well as providing market-leading guidance and services to expedite establishment in KSA.
Additionally, with its PRO Partner Group which is part of Sovereign, we have offices in Abu Dhabi, Dubai, Oman, and Qatar as well as KSA, providing a one stop shop for your business and personal requirements for the Middle East
Contact us today to find out more about how we can support your expansion plans and navigate the complexities of doing business in the Kingdom.
