A TSO cannot engage in commercial activities or earn revenue. Instead its activities are limited to providing technical information and assistance to the distributor and to users regarding products and market and technical research in connection with the products. Generally, however only foreign pharmaceutical companies can establish a TSO. Non-pharmaceutical companies can do so at the discretion of SAGIA and the Ministry of Commerce and Industry if they can be convinced the products of the company are sufficiently complex enough to justify establishing the TSO. This means that TSOs can generally only be used in relation to complex products.
The process of forming a TSO or TCR is similar to that of forming a branch. However, a TSO would also require the foreign company to enter into a distributorship agreement with a Saudi distributor. While the TSO is still fully owned by the parent company (manufacturer), the distributor must write a letter supporting the establishment of the TSO before licensing and registration can be completed. For the TCR, after a government contract is established, the company must then obtain a Temporary License from Saudi Arabian General Investment Authority (SAGIA), before formally filing for a TCR with the Ministry of Commerce and Industry. In general the rest of the formation process is similar to that of a branch for both TSOs and TCRs. TSOs and TCRs do not require a minimum capital.
B. Advantages/Disadvantages
For both types there are no capital requirements, and the formation process is said to be simpler than a company. The TSO may also bring its employees into Saudi Arabia on visas.
The TCR can be obtained for consulting projects, and the actual TCR itself need not be applied for until a contract has been obtained. On the other hand, the TSO is only available for certain types of companies and cannot be involved in any commercial work. A TSO also does not have a separate legal identity, making the foreign parent company operating, liable to local legal obligations.
For the TCR, a major disadvantage is that the license is strictly limited to the scope and duration of the contract only. It is not allowed to promote business, or even monitor market conditions and business opportunities.
While the TSO can employ people, it is generally limited to five to ten persons (the exact number is subject to approval by Saudi authorities).
C. Registration Steps
1. Enter Distributorship Agreement (TSO)
If establishing a TSO, the foreign company is required to enter into a distributorship agreement with a Saudi distributor.
The specifics of establishing a distributor arrangement depend upon the management and legal process, and costs will be based on consulting and legal fees, etc. As such specifics cannot be advised in further detail.
However, the key requirement is that once an agreement has been reached the distributor must write a letter supporting the establishment of the TSO before licensing can occur.
Time: n/a
Cost: n/a
2. Obtain Government Contract (TCR)
If establishing a TCR, the company does not need to begin any registration steps until after a government contract has been obtained. In fact, there is no way to begin applying for a license and TCR before this point.
Since the specifics of obtaining a government contract depend upon the management and legal contract negotiation and drafting process, etc this step is mainly listed here as a reference point.
Time: n/a
Cost: n/a
3. Obtain Approval/License from SAGIA
Once the initial distributor/contract is obtained, the TSO/TCR can then apply for approval from Saudi Arabian General Investment Authority (SAGIA).
There is limited information on this process. However, it appears that the appropriate application can be submitted to SAGIA offices, or online via its e-services portal.
In addition to company information documents, a TSO will need to prove that it is the manufacturer of the product and that its product is complex enough to constitute a TSO (such as pharmaceutical products), and require a letter from its distributor supporting the establishment of the TSO.
A TCR will need to provide evidence of the government contract.
Time: 3 days
Cost: 2000 SAR
4. Open a Bank Account
Although it may not be required for a non-permanent establishment to open a bank account, it is listed as a general requirement for registering in the commercial registry. Regardless it may also ease operating in Saudi Arabia. After the previous steps a bank account can be opened where the shareholders can transfer the share capital, and obtain a certificate stating that the capital has been deposited. It is required to obtain the certificate before the final procedure at the Unified Center.
Time: 2 weeks.
Cost: No charge (aside from the capital deposit)
5. Establish an Office
It is likely that there are no requirements to have an office address ‘registered’ or ‘approved’, although this is required before completing registration in the Commercial Registry. Therefore, there are no formal procedures for establishing an office aside from arranging lease agreements.
Time: n/a
Cost: n/a
6. Register in Commercial Registry
The final step of the registration process once the preliminary requirements are arranged is to obtain a commercial registration certificate (TSO or TCR depending).
Once all the above mentioned paperwork is sorted and the office and bank account is established, the final registration can be submitted to the Commercial Registry at the Ministry of Commerce and Industry for the appropriate license. This can be done at the Unified Center. The following documents must be submitted at the Unified Center:
- The bank certificate confirming payment of the capital
- A copy of the appropriate SAGIA approval/license
- A copy of the office lease
Time: 2 days
Cost: 0-8100 SR.
7. Register for Taxes
It is not known whether TSOs and TCRs are required to register for taxes. Even if Zakat does not apply, a TSO may still need to register if it is employing people. As a TCR is operating for profit it is likely to require to register especially if it employs individuals.
The company must register to obtain a file number and certificate of business commencement by registering with the Department of Zakat and Income Tax (DZIT). The Zakat aspect is a religious wealth tax, and is assessed based on taxable income and certain assets. The calculation of Zakat is complex, but the effective rate is 2.5% of companies’ total capital resources.
The required documents to register and obtain a financial number are as follows:
- A filled out official registration form (obtained from DZIT’s offices or website)
- A copy of commercial registration certificate of main office and subsidiaries if available
- Articles of association
- A copy of the Investment permit
- Copies of any other required permits
- A certificate of capital deposit at a bank for Saudi companies
- A copy of identity card for Saudis or of passport and resident permit for non-Saudis
- Notarized authorization to deal on behalf of the taxpayer with DZIT (if applicable)
The DZIT has a registration service that can be done directly via its website.
Time:1-3 days (can be done simultaneously with social insurance registration, below)
Cost: No charge
8. Register for Social Insurance
To register for social security insurance, the employer must open a file with the General Organization for Social Insurance (GOSI). This action will register the employer and the employee with the organization’s two branches: the Pension Fund and the Industrial and Illness Fund (Occupational Hazards Fund).
Registration can be done at the GOSI office online through its eservices portal.
Time: 1-3 days
Cost: No charge