In Saudi Arabia, one has to decide on either starting a business through a Free Zone or the Mainland at one time or another. This decision is an important one since each option comes with its all advantages and disadvantages thereby necessitating knowledge of contrasts to be made before deciding. This article discusses the main differences that exist between a Free Zone and Mainland setup in KSA to aid in choosing what would be most suitable for your business.
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What is a Free Zone?
In Saudi Arabia, a free zone refers to a specific region which offers special incentives for businesses. The idea is to attract more foreign capital and promote global trade. With regards to taxation, enterprises headquartered in such regions are exempt from paying anything. Such legal entities are allowed to 100% foreign capital participation, thus, no Saudi partner needed to set up these companies while they enter world market easily (Free). The most famous among them being King Abdullah Economic City and Jeddah Economic City (JEC).
What is the Mainland?
On the other hand, the mainland refers to the extensive geographical area beyond the free zones. So, any a business establishment here is supposed to follow local rules sometimes requiring a Saudi citizen involvement as a local partner depending on the nature of business. This gives an added vantage to firms located on the mainland since this can trade with any part of KSA including signing contracts with government agencies.
Key Differences Between Free Zones and Mainland
Ownership and Control
A foreign investor has the option of having all their company in a Free Zone. Having complete control of your company without involving any local partner will be an important point for you. In contrast, on the mainland businesses owned by foreigners are usually not allowed to exceed 49% while the remaining 51% has to be owned by a Saudi national or a Saudi entity unless your business falls under very few exceptions eligible for 100 percent foreign investments.
Scope of Business
The range of operation is one significant difference. Businesses located in Free Zones ordinarily just handle business inside the Free Zone or globally. They are mostly barred from doing business directly within the local market of Saudi Arabia. Conversely, mainland enterprises allow for flexibility of operation anywhere in KSA, hence being ideal for selling goods or services directly to Saudi consumers.
Business Licenses and Permits
The obtaining of a business license is much quicker and easier when you are in some free zones. This is because their setup process is more straight forward and involves less government related challenges. However, companies based on the mainland have to adhere to numerous licensing procedures because they have to observe several national laws as well as get extra licenses for local operations. Obtaining a Commercial License in Saudi Arabia.
Taxation and Fees
One of the largest advantages of Free Zones is the fact that they offer tax exemptions. For some number of years many a Free Zone proffers tax holidays while there could be no customs duties on entering or exiting goods. Yet, the Mainland enterprises are obliged to keep up with the state’s rates on the corporate tax, which, though they are smaller than those of some other world countries, cannot be ignored.
Access to Local Market
Basically, Free Zone businesses are not allowed to engage in Saudi Arabian domestic trade. They are only allowed to export or import merchandise, not sell directly to Saudi clients. Conversely, land companies can freely conduct transactions through the local economy thereby providing a good opportunity for those who want to deal with a large pool of Saudi consumers. Know about List of Free Zones in Saudi Arabia.
Which Option is Right for Your Business?
A decision on whether to go for a Free Zone or Mainland setup will depend mostly on the business you plan to establish. In case you are concentrating on international trade, a Free Zone allows you to own more and pay fewer taxes compared to operating from Mainland. However, if your venture targets at directly serving the Saudi market , then Mainland would be more appropriate as it provides more opportunities as well as access to domestic clients.
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Saudi Arabian Free Zones and Mainland enterprises are both attractive choices for companies based on your objectives. If you are after full control of the business as well as a less complicated regulatory framework, then Free Zone is your answer—if instead you require access to local markets together with greater freedom, Mainland does just right. Remember to think about your business goals; how much money you are willing to spend on it or its expansion prospects when deciding where you will operate in Saudi Arabia.