Establishing a Sole Proprietorship in Saudi Arabia

Establishing a sole proprietorship in Saudi Arabia requires following certain legal conditions set by the Saudi Ministry of Commerce. Once these conditions are met, official approval and permission to establish the business and begin operations in the Kingdom will be granted. The business must comply with all governing laws, and both Saudi citizens and residents can establish their own sole proprietorships after completing some simple procedures. These businesses can operate in various fields, whether commercial, professional, agricultural, or industrial.

What is a Sole Proprietorship?

A sole proprietorship is a business entity where the owner is typically the manager and provides the capital to conduct the business, whether it’s commercial, professional, or in other fields. The owner of the sole proprietorship is fully responsible for all the business’s debts and covers all liabilities from their own funds in the event of failure or bankruptcy. This differs from shareholding companies or limited liability partnerships, where a partner’s responsibility is limited to their share of the capital or stocks, meaning they do not incur losses from their personal funds.

Conditions for Establishing a Sole Proprietorship in Saudi Arabia

There are specific conditions that must be met to gain approval to establish a sole proprietorship in Saudi Arabia. These include:

• Reserving a trade name for the business in advance, done through the Saudi Ministry of Commerce and Investment.
• Having a minimum capital of SAR 25,000.
• Obtaining approval from the Civil Defense to establish the business.
• Obtaining municipal approval to establish the business, including having the business name and logo.
• Registering the business activity with the Chamber of Commerce and Industry.
• Acquiring a license to engage in the specific activity for which the business was established.
• The owner must be at least 18 years old.
• A tax registration for the business must be obtained.

To receive approval for the issuance of a commercial registration and begin operating, the following documents must also be prepared:

• A copy of the owner’s ID (if a Saudi citizen) or, if a foreign citizen from a GCC country, a copy of the passport and their ID card.
• A lease agreement for the premises that will serve as the business’s headquarters.
• If applying on behalf of someone else, a formal delegation of authority from the relevant Saudi authorities is required.
• A certificate of deposit in the company’s bank account from a certified Saudi bank, reflecting the business’s capital, is needed to obtain municipal and civil defense approval.

Establishing a Sole Proprietorship for Foreign Residents in Saudi Arabia

Saudi Arabia encourages and supports foreign entrepreneurs residing in the Kingdom, aiming to promote business development. The Kingdom allows foreign residents to establish sole proprietorships under certain conditions:

• The resident must be at least 18 years old.
• The resident’s permit must be valid and active, not expired.
• The resident must demonstrate the source of the business’s funding.
• The resident must pay all required fees and comply with all legal procedures to obtain the necessary approvals to establish the business.

A sole proprietorship is a popular option for residents in Saudi Arabia, offering full control over the project and the opportunity to establish a successful business. It also allows foreign residents to choose the type of business activity and manage their workforce independently.

Advantages of a Sole Proprietorship for Foreign Residents

• Complete control over business decisions without external interference.
• Easier to manage compared to other types of businesses.
• High level of confidentiality regarding financial and commercial matters.
• Lower capital requirements compared to other business types.
• Flexibility in choosing the workforce and business activities.

Costs of Establishing a Sole Proprietorship in Saudi Arabia

To establish a sole proprietorship, the associated fees must be paid:

• The fee for issuing a commercial registration is SAR 200 for a primary commercial registration or SAR 100 for a secondary registration, paid annually.
• Additional fees are required for the Chamber of Commerce based on the business activity and commercial grade: SAR 5,000 for the first grade, SAR 2,000 for the second, SAR 800 for the third, and SAR 300 for the fourth.
• Documents needing official authentication from the Ministry of Foreign Affairs and the Saudi embassy cost SAR 10.
• Translation of documents costs around SAR 250.
• Issuing a commercial registration for one year costs SAR 120.
• Attending the Chamber of Commerce requires a fee of approximately SAR 800.

Conclusion

Opening a sole proprietorship with a small staff in Saudi Arabia has facilitated investment and commerce in the Kingdom. However, two key conditions must be met to ensure success:

1. The person establishing the business must be a Saudi citizen with a valid national ID, and they must be at least 18 years old. Additionally, they must have a commercial registration.
2. The person must have a ready-to-use establishment with at least two employees.