DIRECTING CAPITAL STRUCTURING FOR SAUDI ARABIA’S GIGA PROJECTS: STRATEGIC DECISIONS FOR INVESTORS

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This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.

Saudi Arabia’s impressive mega projects, NEOM, Red Sea Global, the Line, and many more, are multi-dimensional, with NEOM worth USD 1.5 trillion and probable to add USD 48 billion to the Kingdom’s Gross Domestic Product by 2030. These megaprojects operate on an astronomical scale but also challenge regulatory complexities, conveying cross-border risks. This blog focuses on why structuring matters, its regulatory environment, strategic models, key drawbacks, and finally, stages investors can undertake while capitalizing on understanding for meaningful leverage.

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WHY CAPITAL STRUCTURING IS NOT OPTIONAL FOR KSA GIGA PROJECTS

Capital structuring is a non-negotiable risk management tool for KSA’s giga projects due to the following:

CHALLENGE	DESCRIPTION	EXAMPLES/ DETAILS
Scale + Sovereign Oversight	Risk Structuring for Large-Scale Projects Subject to Prefectural Scrutiny	NEOM covers an area of 26,500 km², with PIF investment of USD 500 billion, MISA and PIF oversight, technically aligned with Vision 2030.
High Upfront Cost, Delayed Returns, Exposure to Multiple Entities	Massive CAPEX, delayed returns, increased litigation risks because of more than two parties involved	The Line: USD 500 billion to construct a smart city over 170 km; returns kick in after 2030; contractors and SPVs involved.
Local Partner Requirements, Ownership Limits, Capital Repatriation	Foreign ownership allowed however JVs with Saudi partners offer greater incentives.	Allowed to be 100 percent foreign owned but JVs are preferred, 5–20% withholding taxes, DTA’s with 57 countries (March 2024)

URGENCY: Without strategic structuring, investors risk misaligned capital flows, tax inefficiencies, and regulatory penalties, minimizing returns on these high-stakes projects.

REGULATORY FRAMEWORK: WHAT TO EXPECT

Navigating KSA’s regulatory landscape is critical for giga project investments:

MISA Licensing Tiers: MISA issues licenses for trading, industrial, or service activities. For giga projects, Commercial License (trading) or Service License (consulting) prevail, requiring SAR 26.6 million minimum capital for trading activities. Understanding the Business Licenses types in Saudi Arabia is vital to structuring your project correctly from the outset.
SAGIA vs Free Zone Structuring: The Saudi Arabian General Investment Authority (SAGIA, now MISA) controls mainland investments, whereas NEOM Free Zone and King Abdullah Economic City (KAEC) offer incentives, such as a flat 5% rate of corporate tax as opposed to the mainland rate of 20% and no withholding tax on profit repatriation for 20 years.
Zakat vs Employees Corporation Tax: Foreign agents are subject to 20% corporate tax, whereas Saudi agents pay Zakat at the rate of 2.5% on net assets, taking JVs with Saudi partners in advantage. The NEOM Free Zone lowers this tax to 5% for relevant activities.

KEY INSIGHT: Free zones offer tax and repatriation advantages, but mainland JVs unlock local partner benefits, requiring careful structuring.

STRUCTURING OPTIONS: MODELS FOR DEPLOYING CAPITAL EFFICIENTLY

Sophisticated investors practise these models to optimize capital deployment:

STRUCTURE	MODEL	PROS	CONS
HoldCo + OpCo Setup	Off-Shore Holding Company owns KSA Operating Company (LLC or branch)	Tax efficiency, asset protection, flexible repatriation.	Complex setup, higher compliance costs
Free Zone SPV + Mainland Branch	SPV in NEOM Free Zone does project financing and will have a branch on mainland to operate.	Simplified Licensing.	Maintaining two distinct entities splits management attention, and will require governance, accounting, and reporting systems separate to the entities.
Project Finance Vehicles (PFVs)	Project Finance Vehicles (PFVs) PFVs allow for isolation of risks for multi-phased projects (e.g. The Line's 135 modules) funded by equity (PIF, private investors) and debt (bank loans, sukuk).	Ring fences liabilities, makes it attractive for lenders	Higher structuring costs or complexities, complex debt covenants
Equity vs. Debt Mix	Strike a balance between equity financing (Foreign investors & PIF) and debt financing (local banks, Islamic bonds); NEOM had USD 24 billion of private sector commitments, including debt.	Periodically reduces equity dilution while tapping into local Islamic finance.	Debt servicing risks in projects that are delayed.

COMMON STRUCTURING MISTAKES THAT KILL INVESTOR RETURNS

Avoid these costly mistakes:

ISSUE	CONSEQUENCE	EXAMPLE
Wrong Sequencing	Delays, risks, and penalties.	USD 13,600 fines for failure to comply.
Ignoring Zakat Optimization	Missed 2.5% Zakat benefits, versus 20% corporate tax	Not utilizing Saudi partners in the cap table
Overlooking DTTs	Results in higher withholding taxes on dividends or fees	Not leveraging DTA’s with 57 countries
Neglecting Exit Planning	Limits exit options and reduces returns.	Not considering long-term ownership of assets.
Underusing Islamic Finance	Misses local investor appetite, critical for projects.	Not utilizing sukuk or other sharia compliant structures for Red Sea Global

ACTION PLAN: BEFORE INVEST CAPITAL IN KSA, DO THIS

Conduct a Structuring and Feasibility Audit: Evaluate project feasibility (e.g., NEOM cost is USD 1.5T while GDP impact is USD 48B) and regulatory fit.

Plot Capital Flows: Identify and settle the capital’s journey – investor to SPV to OpCo to returns, while preserving tax-efficient repatriation through DTA’s or Free Zones.

Identify Jurisdiction: Select between DIFC (offshore HoldCo), NEOM Free Zone (tax incentives), or KSA mainland (access to market).

Support Stakeholders: Support all investors, partners, contractors in setting up tax, legal and operational arrangements.

Involve Structuring Advisor Early: Involve structuring advisors prior to forming any entities for strategic licenses alongside taxes and risk mitigation.

HOW CREATION BUSINESS CONSULTANTS CAN HELP

Our company specializes in KSA giga project structuring including:

Bespoke structuring – HoldCo or OpCo, SPV or PFV for NEOM, Red Sea, or Diriyah,
Regulatory navigation – ascertaining MISA licenses and free zone privileges.
Taxation structuring – DTA’s and Islamic finance.

CONCLUSION: POSITIONING FOR SUCCESS IN SAUDI GIGA PROJECTS

Capital structuring is critical to successful Saudi giga projects investment. With complex tax, ownership, and regulatory layers, your setup must go beyond basics. From NEOM Free Zone SPVs to Zakat-optimized structures, every decision impacts returns.

Creation Business Consultants helps investors navigate these complexities with strategic, compliant structures tailored to the Kingdom. Before you deploy capital, partner with experts who understand that in Saudi Arabia, structure isn’t optional, it’s everything. Contact us at [email protected] or call +971 4 878 6240 to get started.