Business Setup in Saudi Arabia: 5 Critical Mistakes Entrepreneurs Make

Saudi Arabia has rapidly emerged as one of the most attractive destinations for business expansion. Recent reports indicate the country’s economic resilience to shocks as non-oil industry growth expands (e.g., tourism and entertainment, renewable energy, tech and digital services, etc.), fueled by the continued implementation of Vision 2030.

Anil Kumar Singh, Country Head at TASC Group, a premium workforce solution & compliant market strategy partner in the KSA, says, “Saudi Arabia is no longer just a market to enter; it is a destination to grow. With reforms that simplify company formation and encourage foreign ownership, entrepreneurs now have a clear pathway to tap into one of the world’s fastest-growing economies.”

Some of the key drivers to arise in Saudi Arabian investments include:

• Amid significant reforms in labour, business regulations, and capital markets, Saudi Arabia is seeing a rise in foreign direct investments (FDI), with net FDI reaching $5.9 billion, representing a 44% year-on-year surge in Q1 alone. 

• Among its progressive regulatory changes, opening up opportunities for Saudi women has boosted the country’s GDP by 12%, according to Capital Economics. With further improvements, S&P Global projects a $39 billion addition to the economy as Saudi Arabia welcomes more women to the labour force.

• Kearney’s FDI Confidence Index 2025 ranks Saudi Arabia in 13th place in its annual report of countries and markets most likely to secure the highest FDIs in the next three years. 

• The country has also been named Fastest Growing Startup Ecosystem out of 100 countries worldwide, signalling Saudi Arabia’s appeal as a place for startup investment and innovation. 

• The Global Business Complexity Index (GBCI), meanwhile, ranks Saudi Arabia in 38th place among the easiest countries to do business in the world, highlighting its Vision 2030 initiatives and resilience amidst global uncertainty.

The business climate is full of lucrative opportunities, but entrepreneurs need to approach the process of business set-up in Saudi Arabia with clarity. Experts at TASC Corporate Services list five of the most critical mistakes entrepreneurs make when setting up business in the region. 

1. Selecting the Wrong Company Structure

Choosing an inappropriate legal form of business can result in unforeseen costs, limit operational flexibility, and trigger regulatory restrictions down the line. 

Entrepreneurs have the option to choose from the following types:

• Limited liability company (LLC)

• Single-person LLC

• Foreign company branch 

• Joint stock company

Each structure has distinct capital requirements, ownership limits, and governance obligations. 

2. Overlooking Saudisation Requirements

Saudi Arabia’s Nitaqat program mandates that a defined percentage of the workforce be Saudi nationals. The move aims to increase local employment across 269 professions in different sectors. These sectors include the following, with their corresponding new Saudisation rates:

• Engineering - at least 30% for private companies with five engineers or more.

• Pharmacy -  65% for in-hospital pharmacy services, 55% for pharmacy-related activities and a minimum of 35% for community pharmacies and medical complexes.

• Accounting - 40% initial requirement (to start on October 27, 2025), progressively increasing to 70% over five years, for companies with five or more accountants.

• Dentistry - 45% initial requirement, which will increase to 55% in 2026 for establishments with at least three dentists. 

Depending on a company’s industry and activity, quotas can reach up to 75% of the workforce. Failure to meet these quotas can result in fines, visa restrictions, and reputational damage. 

Proactive workforce planning and early engagement with local hiring channels ensure compliance and help integrate businesses into the local economy. 

3. Incomplete Documentation and Regulatory Compliance

According to the Ministry of Commerce, 80,000 new commercial registrations were issued in Q2 2025 for high-growth industries, namely:

• Blockchain

• Artificial intelligence

• Big data analytics

• Financial services

• Insurance

• Gaming

• Entertainment

Although the government has simplified its business licensing processes with recent reforms in the Commercial Register Law and Trade Names Law, which have eliminated separate subsidiary registration, delays can still occur.

Small errors or omissions in registration paperwork, licence applications, or permit renewals can stall approvals for weeks or even lead to operational suspensions. 

Entrepreneurs frequently neglect:

• Full registration with all authorities (Ministry of Commerce - MCI, Ministry of Investment of Saudi Arabia - MISA, ZATCA and municipal bodies)

• Sector-specific licences and permits

• Timely renewals of commercial registration, municipality licences and iqamas (residency permits)

Robust document management systems or outsourcing to local experts can mitigate these risks and keep deadlines on track.

4. Insufficient Market Research and Cultural Acclimatisation

The Saudi Arabian consumer market is experiencing a behavioural shift, shaped by local relevance, health, and digital fluency. About 34% of surveyed consumers are buying more locally made products, and 38% will pay more for sustainable food products. Failure to stay attuned to such changes could mean a struggle for new businesses entering the market.

Entering the Saudi market without thorough customer analysis, competitive benchmarking, and an understanding of local business etiquette often leads to poor product-market fit and strained stakeholder relationships. Respect for Islamic customs, local negotiation styles, and language preferences builds trust and accelerates deal-making.

Entrepreneurs must seek local experts or cultural guides to navigate Saudi customs and practices.

5. Underestimating Startup Costs and Financial Planning

To establish a 100% foreign-owned LLC in the country, entrepreneurs must first meet capitalisation requirements. 

According to Saudi Arabia's Ministry of Investment (MISA), companies with operations in at least three countries need a minimum capital of $7.9 million and an investment commitment of $53.2 million to $79.9 million over five years. Foreign investors who need a service licence in logistics, IT, education, media, health, and catering need to meet a minimum capital requirement of $6,659.40. 

Licensing fees vary with each industry. A regional headquarters licence, for multinational companies looking to centralise operations in Saudi Arabia, pays an annual fee of $533 and a first-year subscription fee of $2,666 for investor services. 

Company registration, mandatory for all businesses and issued by the MCI, averages about $400 to $800. 

In terms of tax obligations in Saudi Arabia, entrepreneurs need to plan for the following:

• Corporate income tax - 20%

• Zakat - 2.5% (applied instead of the CIT if the company is fully Saudi- or GCC-owned)

• VAT - 15% (mandatory for annual revenues exceeding $100,000)

• Withholding tax - 5% to 20% (levied on cross-border payments) 

Startup and operating expenses, such as office rental, licensing fees, Saudisation-related recruitment, and professional service costs, can be significantly higher than anticipated. Failure to budget for these expenses often forces businesses to scale back crucial investments in marketing, talent, or infrastructure. 

Detailed financial modeling and contingency reserves are vital for long-term sustainability.