Doing Business in the UAE vs. Saudi Arabia
The two wealthy Gulf nations, United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA), are home to an ever-increasing business community. Both have made significant improvements in recent years where business opportunities and ownership are concerned. But what’s the difference between the two nations in terms of doing business for international entrepreneurs?
Before we get into these questions, let us get a glimpse of a little backstory.
A Little Backstory
Over the last few decades, the UAE has evolved into a regional hub for modern businesses. This has happened relatively fast in the country’s short history since its founding in 1971. Backed by a high tax-free earning potential, good quality of life, and what many would consider progressive social environment ideal for international business, the country has been the first choice for many companies. Saudi Arabia, simultaneously, also attracted several global businesses.
One of the major reasons for this shifting focus to oil-exporting countries was the increase in the oil prices from 2003. After the Iraq war of 2003, the prices of oil peaked from mid-$30’s per barrel to $170 per barrel in 2008. However, oil prices declined during the global financial crisis. They started to elevate soon after and reached $100 per barrel until 2014.
Consequently, the Gross Domestic Product (GDP) of the UAE increased by $300 billion between 2003-2019, and reached $421 billion in 2019. Saudi Arabia, on the other hand, increased its GDP by $577 billion between 2003-2019, and reached $793 billion in 2019. The trade between the two nations also increased tenfold during this period.
UAE vs Saudi Arabia
Now to answer the questions, let us compare the business opportunities in UAE and Saudi Arabia by certain key parameters.
Economic stability and growth:
Where economic stability and diversity are concerned, both the countries offer attractive business climates. For many years, the economy in the UAE has been backed considerably by other sectors in addition to oil, including tourism, transport, and trade. It has reported a steady 5% increase in GDP in recent years.
Is Saudi Arabia good for business?
Historically, Saudi Arabia’s economy was significantly dependent on oil. In the past, reliance on its oil theoretically put the country at a disadvantage for new international business ventures. Any price fluctuations could potentially impact the economy of the entire country on a large scale.
Now, due to the Vision 2030, that is no longer the case. Released in 2016, Vision 2030 is the backbone of a strategy to diversify the Kingdom’s economy away from dependence on oil revenues. This is happening through massive amounts of development in many sectors including:
- real estate
- health care
- education and training
- renewable energy sources
- food supply and delivery
- and many more.
Massive amounts of funds are being channeled from the PIF (Public Investment Fund) into multiple giga-projects including NEOM, Red Sea Project, Amaala, Qiddyiya, Aseer Development Project and Diriyah Gate Development Authority. These projects are generating many opportunities for foreign suppliers, partners, investors, as well as creating thousands of jobs for Saudis and expats.
Now is an exciting time to invest in Saudi Arabia, and many companies have figured it out. That’s why I see in my LinkedIn newsfeed every day that more and more multinationals are opening an office in Saudi Arabia. Let’s not forget about the “Programme HQ,” the call of the Saudi government for multinationals to relocate their headquarters to Riyadh, and enjoy multiple benefits such as a 50-year tax holiday.
If you’re thinking about setting up a business in Saudi, check out this article: Business Setup in Saudi Arabia
To cope with all the growth, Saudis have taken a progressive approach to using technology to facilitate the business launch process, as many more procedures for new business registration and post-incorporation move online, significantly reducing the time for starting a business. Speaking of growth, Saudi had a 5.6% GDP growth during 2021 and aims to have 7% in 2022. Let’s not overlook that two-thirds of Saudi’s population is under the age of 35, giving it a huge talent pool to hire from.
The UAE’s economy is also expected to grow in the coming years, as the post-pandemic situation continues to normalize. The country suffered a contraction in its economic performance in 2020, along with the global economy, but is now predicted to recover strongly. The 40+ free trade zones and the recent policy & regulation changes are expected to enhance UAE’S stature as a leading economic power globally.
Don’t forget that the UAE is a total of seven Emirates; it’s not only the most famous ones Dubai and Abu Dhabi. It’s also Sharjah, Ajman, Fujairah, Umm al Quwain, and Ras Al Khaimah, and each of them are also developing. I noticed a big difference in facilities and opportunities between my 2017 visit to Ajman and a 2021 visit, for example.
If you’re thinking about setting up a business in the UAE, check out this article: Business Setup in the UAE
Business policy: Which is better, KSA or UAE?
Both UAE and Saudi Arabia have quite a progressive business policy for foreign nationals. For instance, Saudi Arabia allows 100% ownership to most types of foreign businesses. This was ensured by a benchmark decision by the Saudi Arabian General Investment Authority or SAGIA in 2016, which permitted wholesale and retail businesses to issue licenses. This arrangement was subject to certain rules, and keeps evolving over time. For example, in 2017, engineering firms were also included in this agreement, and other sectors in 2018.
The UAE started permitting foreign nationals to own UAE businesses in May 2018, covering a wide range of sectors including manufacturing, energy, education, tourism, media, and many more. International entrepreneurs are now allowed to operate onshore alongside the free zones, thereby encouraging thriving opportunities across the local market.
To elaborate, the UAE offers two types of business options for foreign nationals, who are required to register their business as a legal entity and need to have a company license. These are:
- Free Trade Zone: These are perhaps the most important feature of the country’s business environment. The free zone entities are those that do not demand a national shareholder, thus allowing the foreign individuals to own their business 100%. Dubai alone offers more than 20 free zones.
- Onshore Jurisdiction: The UAE has recently permitted onshore jurisdictions for international businesses as well, allowing the foreign nationals to own the company 100% depending on the type of business activity. Otherwise, onshore jurisdiction demands a 51% local shareholder.
The business environment of the UAE is further empowered by its other bureaucratic policies. For example, the country offers a 10-year residence visa to foreign nationals across several categories as well as 5-year business visas for business owners. The latter allows the foreign entrepreneurs to invest less share capital.
Tax in Saudi Arabia compared to UAE.
While both countries offer ample opportunities for businesses, there are some key differences between doing business in the UAE and Saudi Arabia
- Saudi Arabia made VAT applicable from January 2018 and was generally imposed at a rate of 5%, apart from some exceptions. Then, the Saudi government increased the VAT rate to 15% in 2020. The Excise Tax Law has been active in the country since June 2017, and requires businesses like manufacturers and importers to register with GAZT for compliance.
- The UAE also introduced VAT in January 2018 at a rate of 5%. The government has made it mandatory for foreign businesses registered in the UAE to register for VAT and demands penalties for late registration and late payments.
Find out about the taxes in Saudi Arabia and UAE, and how they affect your business.
The number of expats in both countries is similar, around eight to ten million, but considering the population the UAE has a larger proportion, with expats making up around 88% of the total population. This has given the UAE a reputation as a foreigner-friendly nation, for entrepreneurs and tourists alike.
This foreigner-friendliness is accompanied by the country’s unique, innovative and progressive commercial outlook. Being a luxury tourist destination, the UAE also enjoys the focus of a global reputation with a multicultural outlook that is hard to miss. Indeed, the tourism industry of the UAE has significantly paved the way for the nation’s internationalization.
In Saudi Arabia, expats represent a little over 30% of the total population, which is a quite sizable proportion to say the least. The country has long been the home of many opportunities especially in the oil industry. Also, the country has recently introduced new tourism policies, like the visa-on-arrival system, welcoming travelers from around the world.
Let’s not forget that the Saudi people are among the most hospitable in the world. I was lucky enough to live in Saudi Arabia for four years, from 2016-2020, and I noticed this from the minute I arrived on Saudi soil (or, I should say, Saudi sand!).
When I arrived in 2016, suitcases in tow, nervous about what to expect, the Saudis I worked with practically rolled out the red carpet for me. They asked me every day how it was going, how I was settling in, and if I needed anything. They called me “sister” and I knew that, if ever I needed help, they would jump to my rescue at any time of the day or night. They brought me lavish gifts and treated me with the most humble, unwavering kindness.
Discover How Saudi Arabia Changed My Life – for the Better
What’s it like to be a woman working in Saudi Arabia? You will not notice anything different from working in your home country. Expats are appreciated for the talents and diversity they bring, and it’s no different for women. Never once did I feel discriminated against.
Throughout my stay in the Middle East I visited the UAE more times than I can count. I also found the Emirati people kind, generous, respectful, friendly, and welcoming.
As with entering any new market, it’s always a good idea to get cross-cultural training, to understand the business climate and work culture, then make a smooth transition and a fruitful market entry.
So what are the differences in the two countries, in terms of doing business, then?
The Next Frontier –
Both Saudi Arabia and the UAE have emerged as a regional hub of international importance. Both countries offer high earning potential and a climate for business that attracts talent from all over the world. Along with low taxes and economic stability, the two nations both present a thriving environment for new international businesses and entrepreneurial initiatives.
The UAE for many years had a developed, well-equipped and well-established business infrastructure for new international business ventures of all sizes. The country has also been empowered by its stable political system that complements its liberal trade regime, and makes the best use of the nation’s strategic geographical location. It has had steady GDP growth of about 5% per year. However, nowadays the UAE is not the only jewel of the Middle East.
There are opportunities for all businesses regardless of size in the UAE. Saudi Arabia’s comparatively higher share capital primarily attracted big companies in the past, but companies of all sizes and even start-ups are popping up left and right. Many institutions host incubators and competitions to encourage innovation in line with the Kingdom’s goals, such as KAUST’s start-up accelerator, TAQADAM.
The UAE has a freelancer visa option, and I expect KSA will also soon offer this option too.
Perhaps then the next factor to consider in opening a company in a new market would be how much it costs to live there. The UAE has an extremely high cost of living, while in Saudi your money lasts much longer. Everyday expenses like food, rent, utilities, entertainment, and supplies cost much less in Saudi than in the UAE.
In terms of leisure time, the UAE has world-class entertainment and leisure activities, but with the development of the mega-projects, Saudi will soon catch up as a destination with just as many diverse lifestyle and leisure offerings.
Doing Business in the Middle East: Saudi Arabia vs UAE
With so many incentives for investing in Saudi Arabia, including faster business formation procedures and a rapidly growing economy, you may find that now is the time to choose investment in Saudi. There is an abundance of opportunities, less competition and more earning potential than in the UAE.
The truth is that Saudi is a hidden gem that so many people and companies are not yet aware of, but that is changing. The country’s economy is developing fast which presents an undeniable opportunity to get in while you can. If you don’t consider it among your destinations or target markets for your company, you are missing out on the chance of a lifetime. Remember that economies develop and opportunities come in cycles, and you know the old saying that “the early bird gets the worm.” Is that going to be YOU?
To learn more about my personal experiences in Saudi Arabia, check out my article here.
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