Legal Reforms in Saudi Arabia: A Flourishing Era for Startups

The Middle Eastern region has emerged as a booming incubator for innovative startups in recent years. Furthermore, it is evolving into a key hotspot for innovation and venture capital investments, fueled by a blend of strategic factors driving this remarkable acceleration. The leading role played by Saudi Arabia in the domains of investment and entrepreneurship is undeniable. This leadership is exemplified by the remarkable growth of startups and venture capital funding by the end of 2023.

January 25, 2024

Reading Time: 2 mins read

The dynamic and enthusiastic approach of Crown Prince Mohammed bin Salman has led to the transition of Saudi Arabia into becoming a worldwide hub for entrepreneurship and innovation. A crucial factor in this transition has been the implementation of legislative changes, accompanied by the introduction of additional regulations. These include simplifying rules, streamlining corporate processes, and providing incentives to startups. In pursuit of this goal, numerous legislative initiatives have been launched to foster the attraction of both national and global investment.

An outline will provide an overview of the latest regulatory changes in Saudi Arabia, emphasizing their impact on startups and foreign investments. This clear outline will delve into startup registration processes and associated labor regulations.

One of the initial steps in attracting foreign investors and hosting an optimal entrepreneurial ecosystem streamlining travel involves procedures for foreign entrepreneurs. These facilitations include simplifying visa processes, such as extending the issuance of electronic business visas for individuals of all nationalities. Investors can now acquire a one-year e-visa, allowing multiple entries, without requiring a physical visit to the Saudi embassy. This initiative aims to draw foreign entrepreneurs to Saudi Arabia by giving them easier access to the Saudi territory.

The business registration procedure should be less time-consuming and challenging to cultivate an optimal startup ecosystem. To achieve this goal, the Saudi government has introduced digitalized startup registration and licensing procedures to promote the simplicity of establishing a business. These digitalized, and advanced services not only cover registration but also extend to visa and employment permit issuance and tax registration. Such paperless processes are less intimidating for both young and foreign entrepreneurs.

Traditionally, less developed countries tend to have rigid and limited business structures, but this is not true in Saudi Arabia. In 2023, Saudi Arabia introduced a new Companies Act covering all market entities. This Act introduced a more flexible business structure called the Simplified Joint Stock Company (SJSC), specifically designed for startups and venture capital. This structure comes with less restrictive requirements regarding financing, the number of shareholders, and capital raising. Such a legal revision encourages international investment and creates a more startup-friendly framework with reduced compliance obligations. It’s worth mentioning that operating businesses are also required to comply with these changes, and as such, a generous two-year grace period was provided for businesses to adapt.

Considering that labor law changes directly impact enterprises, it’s essential to recognize the potential challenges international business owners may face due to complex national labor regulations. The current structure of the labor market and its related legislation emphasize recruiting local labor in the private sector. The strategy of prioritizing the workforce is a more sustainable approach to regulating the labor market.

Recent reforms highlight the Saudi government’s commitment to addressing the needs of emerging industries, promoting innovation, creating a business-friendly environment, and attracting foreign investment. In Saudi Arabia’s pursuit of its ambitious 2030 Vision objectives, these pro-entrepreneurial measures provide a solid foundation for the growth of startups. Currently, Saudi Arabia stands out in the region, excelling in terms of its legislation and technological support, serving as an inspiration for developing countries.

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BY Egli HAXHIRAJ, Anamaria MESHKURTI, Jonida GJUZI and Viktoriia SAVITSKA.