Maintaining a legal presence in Saudi Arabia is not a one size fits all approach for any business, with the annual operational cost depending on multiple factors. If you haven’t already, we recommend you read our last article where we discussed the various OpEx costs of landing in Saudi Arabia from a business owner’s perspective. In this piece, we will be putting the points discussed previously into action to provide you with more clarity on how it is translated into real life.
For better understanding, we have outlined multiple sample parameters that may serve as a benchmark for real-life scenarios. For each example, we will calculate the total operational expense accrued for the year. In this way, you can identify which costs are applicable for specific business situations.
Note: All scenarios are assumed to be of companies in their second year of operation.
Scenario 1: Early-Stage Tech Startup
In this example, we have an early stage tech startup that:
- Operates under an entrepreneurial license from a hotdesk in Saudi
- Is represented by a single General Manager who is a Non-GCC national.
- The General Manager is a 30 year old man who does not have any dependents.
- The General Manager is salaried at 20,000 SR/month.
- Does not have any positive net income.
- Generates less than 375,000 SR ($100,000) in annual revenue.
Let’s calculate the annual opex costs for this early stage tech startup.
Expense Categor | Description | Total Cost (~) |
Commercial Registration | MISA:The entrepreneurial license exempts the company from MISA’s traditional fee of 60,000 SR. Instead, only 2,000 SR is charged. CR Renewal: As a limited liability company, this is 1,200 SR. National Address: Operating in the second year means a 1,000 SR charge. Chamber of Commerce: As this company is in its second year of operation, this is free. | 4,200 |
Labor | Work Permit: The GM’s work permit costs 800 SR a month, due to him not being from any GCC country. This amounts to 9,600 for the whole year. Iqama: The GM is not from GCC, so an annual Iqama cost of 650 SR will be incurred. Occupational Hazard: For Non-Saudis, 2% of monthly salary is charged for occupational hazards. This amounts to 5,000 SR annual fee. Medical Insurance: If basic tier medical insurance is granted for a young male, it would cost about 1,500 SR for the year. Exit/Entry: Non-GCC workers are entitled to exit entry visas, the founder wants to secure a full year mult-exit/entry visa to avoid any hassles, amounting to 2,300 SR annually. For any other employees, this will not be paid by the founder, and they will secure these themselves. Muqeem: The basic annual subscription with tax is approximately ~650 SR. Qiwa: The basic annual subscription with tax is approximately 1,600 SR. | 21,300 |
Taxes | As the annual income is less than $100,000 there is VAT As the company does not generate any positive income, income tax, zakat, are not charged for this particular scenario. | N/A |
Third Party | External Auditor: The average auditor will charge about 12,000 SR for this company size and scale. Rent: A hotdesk is 800 SR a month, which becomes 9,600 a year. Dependents: As there are no dependents of the GM, no fee is incurred. | 21,600 |
Total | 47,000 |
Scenario 2: Small Traditional Business
In this scene, we are considering a small traditional business with:
- Three non-Saudi employees and one Saudi employee.
- Non-Saudi employees earn an average salary of 8,000 SAR.
- One of the non-Saudis is a young married female.
- Saudi employees earning 10,000 SAR.
- Revenue generation amounting to 340,000 SAR ($90,000).
- Net income of 20,000 SAR.
- A rented office of 60 square meters in northern Riyadh.
- Cleaning service, sign board
Let's calculate the annual OpEx costs for this small traditional business.
Expense Category | Description | Total Cost |
Commercial Registration | MISA: Under the traditional license, a fee of 62,000 SR will be charged. CR Renewal: As a limited liability company, this is 1,200 SR. National Address: Operating in the second year means a 1,000 SR charge. Chamber of Commerce: As this company is in its second year of operation, this is free. | 64,200 |
Labor | Work Permit: Three work permits must be taken into consideration for all Non-Saudi employees. It costs 800 SR a month for each, amounting to 28,800 for the whole year for all. Iqama: The non-Saudi employees are not from GCC, so an annual Iqama cost of 1,950 SR will be incurred for all. Social Security/GOSI (Occupational Hazard Contribution): Amounts to 1,920 SR a year for each Non-Saudi employee and 2,400 a year for the Saudi employee Pension: Saudis are entitled to 9% of their salary being paid as pension by their employer. This is 10,800 for the whole year for one employee. Medical Insurance: If basic tier medical insurance is granted, it would cost about 3,000 SR for the year for the two male Non-Saudis. The female employee’s insurance is more expensive, with an annual fee of 3,000 SR. Exit/Entry: Non-GCC workers are entitled to exit entry visas, amounting to 6,900 SR annually for all employees. However, as this is paid by the employees themselves, we will not include it in our calculation. Municipality: Muqeem: The basic annual subscription with tax is approximately ~650 SR. Qiwa: The basic annual subscription with tax is approximately ~1,600 SR. | 54,000 |
Taxes | Unlike the previous scenario, this company is revenue generating with a net income of 20,000 SR. Therefore, income tax and zakat are applicable. However, the turnover is less than 375,000 SR ($100,000), so VAT is exempted.
Note: There are multiple ways to calculate zakat, our example is based on one common method. | 4,500 |
Third Party | External Auditor: The average auditor will charge about 25,000 SR for this company size and scale. Rent: Rent for a small office located in northern Riyadh is about ~1000 SR/m. This amounts to 60,000 SR . Dependents:The dependent fee is paid by the employee as mandated by law. | 85,000 |
Total | Note: This calculation does not include salaries of any employee | 181,110 |
Analyzing the Two Scenarios
Cost Category | Early-Stage Startup | Small Traditional Business |
Administrative | 4,200 | 64,200 |
Labor | 21,300 | 54,000 |
Taxes | 0 | 4,500 |
Third Party | 21,600 | 85,000 |
Total | 47,000 | 181,110 |
As you can see, there is a major cost difference between operating an early stage startup and small traditional business. The startup is less expensive to operate across every category, with the most notable difference being observed in commercial registration and third party costs. From our analysis we have identified the following ways you can cut OpEX costs:
Get an Entrepreneurial License
Simply using the entrepreneurial track can save you the 60,000 SR MISA licensing fee, which can greatly reduce overall operational costs. Saudi has kept these programs in place in an effort to encourage business activity in the region, and it is a major incentive for tech startups.
Hire Saudis
Local hiring is always encouraged in Saudi, and this is reflected in the finances as well. By opting to hire Saudi nationals, you can save work permit costs, iqama costs, medical insurance, pension, and more.
Register Hotdesk
A hotdesk is much cheaper than renting a physical office, saving you costs while still providing a legitimate address. For startups, we recommend using hotdesks or virtual offices to save money in the initial years until absolutely needed.
Saudi Expansion Series
This article is part of the Saudi Expansion series, aiming to educate international entrepreneurs and business owners on Saudi Arabia's foreign investment regime for a smooth landing. With a focus on original, technical, and informative content, our goal is to get business owners closer to securing that first riyal in their pocket.