Expanding to Saudi by UAE Construction Company

Query:

A construction company in UAE wants to expand to Saudi Arabia and is exploring to set

up business and start providing its business. Advise in detail the feasibility, structure and

required approvals needed and indicative timeline to make it happen.?

Answer:

Setting Up a Construction Business in Saudi Arabia

1. Introduction

This advisory provides guidance on establishing a construction company in Saudi Arabia

for a UAE-based construction company looking to expand its operations. The analysis

covers the feasibility, required legal structures, necessary approvals, and indicative

timelines for setting up the business in Saudi Arabia.

2. Relevant Standard/Law References
3. Foreign Investment Regulations

The Foreign Investment Law and its implementing regulations govern foreign investments

in Saudi Arabia. Key provisions include:

º Foreign investors may obtain licenses for different activities, subject to certain

conditions Foreign-Investment-Law, Article 4, page 2.

º Foreign investments can be in the form of companies owned jointly by Saudi and

foreign investors or wholly owned by foreign investors Foreign-Investment-Law,

Article 5, page 2.

º Licensed foreign investments enjoy privileges, incentives, and guarantees extended

to national projects Foreign-Investment-Law, Article 6, page 2.

1. Company Formation

The Saudi Company Law provides the framework for establishing companies in the

Kingdom:

º A company incorporated in Saudi Arabia shall have Saudi nationality, with its

headquarters in the Kingdom Saudi Company Law, Article 3, page 2.º Foreign companies can operate within the Kingdom through a branch or

representative office, subject to the Foreign Investment Law Saudi Company Law,

Article 236, page 55.

1. Labor Regulations

The Saudi Labor Law governs employment relationships:

º Non-Saudis may not engage in work without obtaining a work permit from the

Ministry LABOR LAW, Article 33, page 15.

3. Detailed Explanations

Feasibility of Expansion

Expanding a UAE-based construction company to Saudi Arabia is feasible and potentially

lucrative due to several factors:

1. Legal Framework: Saudi Arabia allows 100% foreign ownership in many sectors,

including construction, making it possible for the UAE company to establish a

wholly-owned subsidiary Foreign-Investment-Law, Article 5, page 2.

2. Market Opportunity: Saudi Arabia’s construction sector is experiencing significant

growth due to large-scale infrastructure projects and initiatives under Vision 2030,

offering substantial opportunities for established construction firms.

3. Geographic Proximity: The proximity between the UAE and Saudi Arabia facilitates

easier management and resource allocation for the expanding company.

4. Economic Incentives: Foreign investments in Saudi Arabia are eligible for various

incentives and guarantees, which can enhance the financial viability of the expansion

Foreign-Investment-Law, Article 6, page 2.

Legal Structure

For a UAE construction company expanding to Saudi Arabia, the recommended legal

structure is:1. Limited Liability Company (LLC) or Joint Stock Company (JSC): These are the most

common and suitable structures for foreign investors in the construction sector Saudi

Company Law, Article 2, page 2.

2. Wholly Foreign-Owned Entity: The company can be 100% owned by the UAE parent

company, as Saudi Arabia allows full foreign ownership in the construction sector

Foreign-Investment-Law, Article 5, page 2.

3. Branch Office: Alternatively, the UAE company could establish a branch office in

Saudi Arabia, which would be an extension of the parent company rather than a

separate legal entity Saudi Company Law, Article 236, page 55.

Required Approvals

To establish a construction business in Saudi Arabia, the following approvals are typically

required:

1. Foreign Investment License: Obtained from the Ministry of Investment (previously

SAGIA) Executive-Regulations-of-Law-of-Foreign-Investment, Article 2, page 2.

2. Commercial Registration: Issued by the Ministry of Commerce and Investment Saudi

Company Law, Article 2, page 2.

3. Chamber of Commerce Membership: Required for all businesses operating in Saudi

Arabia.

4. Municipality License: For the company’s physical location.
5. Zakat and Tax Registration: With the General Authority of Zakat and Tax (GAZT).
6. General Organization for Social Insurance (GOSI) Registration: For employee

insurance.

7. Labor Office Registration: For hiring employees and obtaining work visas LABOR

LAW, Article 33, page 15.8. Contractor Classification Certificate: From the Ministry of Municipal and Rural Affairs,

required for participating in government tenders.

Indicative Timeline

The process of setting up a construction business in Saudi Arabia typically takes 3-6

months, broken down as follows:

1. Preparation of Documents: 2-4 weeks
2. Obtaining Foreign Investment License: 4-6 weeks
3. Company Registration and Commercial Registration: 2-3 weeks
4. Other Licenses and Registrations: 4-6 weeks
5. Opening Bank Account and Capital Deposit: 1-2 weeks
6. Contractor Classification (if required): 4-8 weeks (can be done concurrently with other

steps)

It’s important to note that timelines can vary based on the completeness of documentation,

the specific nature of the construction activities, and the efficiency of government

processes.

Alternative strategy

1. Joint Venture with a Local Saudi Company:

º Form a partnership with an established Saudi construction firm

º Leverage local expertise and existing relationships

º Potentially faster market entry and easier navigation of local regulations

º Pros: Reduced risk, local market knowledge, existing client baseº Cons: Shared control and profits, potential cultural and operational differences

2. Acquisition of an Existing Saudi Construction Company:

º Purchase a controlling stake in a local construction firm

º Immediate market presence and operational capabilities

º Pros: Rapid entry, existing contracts and workforce

º Cons: Higher initial investment, potential hidden liabilities

3. Phased Entry Strategy:

º Start with a representative office to conduct market research and build

relationships

º Gradually expand to a full-fledged company as market understanding grows

º Pros: Lower initial risk and investment, time to understand market dynamics

º Cons: Slower growth, limited operational capabilities initially

4. Project-Based Entry:

º Enter the market by bidding on specific large-scale projects

º Establish a temporary project office or joint venture for each project

º Pros: Focused approach, lower long-term commitment

º Cons: Limited market presence, project-dependent sustainability

5. Technology Partnership:

º Collaborate with Saudi construction firms as a technology or specialty service

providerº Focus on bringing unique construction technologies or methodologies to the

market

º Pros: Differentiation in the market, potentially higher margins

º Cons: Limited scope of operations, dependence on partners

Implementation Framework:

1. Conduct thorough market research and feasibility study
2. Engage legal and financial advisors familiar with Saudi regulations
3. Develop a detailed business plan and financial projections
4. Initiate discussions with potential partners or acquisition targets if applicable
5. Begin the licensing and registration process
6. Establish key local relationships (suppliers, subcontractors, government entities)
7. Develop a localization strategy for workforce and operations
8. Implement a phased rollout of services and capabilities

Each alternative should be evaluated based on the company’s specific strengths,

resources, and long-term objectives in the Saudi market. The chosen strategy should align

with the company’s risk tolerance and growth aspirations.

4. Used Cases/Interpretations & Disclosures by the listed entities

Arabian Contracting Services Company – 2023:

The company, a Saudi Joint Stock Company, is engaged in general construction of

residential buildings, construction of roads, streets, sidewalks and road supplies,

construction of bridges and tunnels, construction of railways, pouring bases and

foundations, laying electrical wires and laying communication wires. This demonstrates the

feasibility and structure of a construction company operating in Saudi Arabia. The company

has multiple branches across different locations in Saudi Arabia, illustrating the potential for

geographical expansion within the country Arabian Contracting Services 2023, page 11.Abu Dhabi Ship Building PJSC – 2023:

While not a construction company, this case provides insights into how a UAE-based

company can expand its operations internationally. The company has established several

subsidiaries, including some with 100% ownership, demonstrating the possibility of full

ownership for foreign entities. This structure could be adapted for a construction company

expanding from the UAE to Saudi Arabia Abudhabi Ship Building Company 2023, page

Arabian Cement Company – 2024:

This Saudi Joint Stock Company has expanded its operations by establishing a subsidiary

in Bahrain, which in turn has investments in Jordan. This illustrates how a company based

in Saudi Arabia can structure its international operations, providing a model for how a UAE

company might structure its expansion into Saudi Arabia ACC 2024, page 16.

5. Summary

Expanding a UAE-based construction company to Saudi Arabia is feasible and potentially

lucrative, given the Kingdom’s favorable foreign investment laws and booming construction

sector. The recommended approach is to establish a wholly-owned subsidiary as a Limited

Liability Company or Joint Stock Company, which allows for full control and profit

repatriation.

Key steps in the expansion process include:

1. Obtaining a Foreign Investment License from the Ministry of Investment
2. Registering the company with the Ministry of Commerce and Investment
3. Securing necessary permits and registrations (e.g., municipality license, tax

registration)

4. Obtaining a Contractor Classification Certificate for government projects

The estimated timeline for setting up the business is 3-6 months, depending on the

efficiency of the process and the completeness of documentation.

Alternative strategies such as joint ventures, acquisitions, or phased entry approaches

should be considered based on the company’s specific circumstances and risk appetite.

Successful expansion will require careful navigation of Saudi regulations, understanding of

local market dynamics, and potentially partnering with local entities to facilitate smoother

entry and operations.For a comprehensive understanding of the regulatory landscape, the company should also

consult the following relevant standards:

º Saudi Building Code

º Saudi Contractor Classification Law

º Environmental Regulations for Construction Projects in Saudi Arabia

º Saudi Occupational Safety and Health Regulations

6. Attribution

The information provided in this response is based on the Foreign Investment Law, Saudi

Company Law, and Labor Law as issued by the relevant authorities in the Kingdom of

Saudi Arabia. The specific regulations referenced are the Foreign Investment Law,

Companies Law, and Labor Law. For complete and authoritative guidance, please refer to

the full texts of these laws available through the official Saudi government websites and

legal resources.