The non-profit sector: its types, characteristics, and establishment procedures in Saudi Arabia

The economic landscape in Saudi Arabia confirms that the non-profit sector is a strategic partner in achieving the ambitions of Vision 2030 and building a vibrant, integrated society.

It is a sector that expresses the conscience of the nation and its human potential, transcending the logic of material profit to achieve comprehensive societal benefit. The role of this sector is no longer limited to traditional charitable work, but has become a fundamental element of social innovation, citizen empowerment, and strengthening social cohesion.

Therefore, developing the non-profit sector and understanding the foundations of its governance has become an urgent necessity, and this is what we are trying to achieve through the lines of this article, by shedding light on the nature of this sector, its types, characteristics, and procedures for establishing it in Saudi Arabia.

Abdulaziz bin Yasser Al-Anzi Law Firm

The concept of the non-profit sector

You may have noticed some organizations serving the community without seeking profit! This is the core function of non-profit organizations. They are primarily voluntary organizations, established through the self-initiated efforts of community members, and operate independently of the government. Their main goal is to provide public services and drive social development.

The government grants these organizations tax exemption because they work for the public good, and their income depends mainly on donations, and they do not pay taxes on these donations or on the money they collect from their activities.

The non-profit sector in Saudi Arabia takes many forms, including:

1. Non-governmental organizations and institutions.
2. Social development committees.
3. Chambers of Commerce, Scientific and Professional Associations.
4. Non-profit hospitals and universities.
5. Cooperative societies and family funds.

Key characteristics of the non-profit sector in Saudi Arabia

1. The primary goal is to achieve public benefit and serve the community in various fields such as education, health and culture, and not to maximize profits or achieve financial gain for the founders or shareholders.
2. Any revenue or profits generated by the organization from activities or donations must be directed exclusively towards supporting its stated community goals, and distribution to owners or shareholders is prohibited.
3. These organizations are allowed to engage in commercial and investment activities such as training or consulting centers, provided that they are a means of financing their primary objectives and not an end in themselves.
4. The non-profit sector enjoys exemption from taxes, zakat and customs duties according to specific regulations, which constitutes an important incentive to support its financial sustainability and encourage donations to it.
5. This sector has the right to accept, manage and invest cash and in-kind donations in accordance with the donor’s conditions and in compliance with its bylaws and related regulations.
6. This sector is subject to the provisions of the Companies Law and its implementing regulations, which define its legal form, and is subject to the supervision of the Ministry of Commerce and the National Center for the Development of the Non-Profit Sector.
7. Making any substantial changes to the company's articles of association—especially those relating to the banking of funds or the disposal of assets—requires prior approval from the Ministry of Commerce to ensure that it does not deviate from its objectives.
8. This sector is not allowed to offer its shares for public subscription in the financial market, in order to maintain its non-profit nature and prevent it from turning into a commercial entity.
9. Government agencies, public bodies and public sector employees may establish or participate in the establishment of these companies, while adhering to the controls to prevent conflicts of interest.

The non-profit sector in Vision 2030

Vision 2030 aims to enhance the role of the non-profit sector to increase its contribution to the national economy from less than 1% to 5%, making it a key partner in development alongside the government and private sectors.

The non-profit sector supports innovation and community engagement, provides effective services in areas such as education, health, and social welfare, and reduces the burden on the government and the private sector. This is achieved through:

1. Empowering non-profit organizations by providing funding, training, and developing systems to help them operate efficiently.
2. Boosting trust through improved governance and transparency to attract donations and volunteers.
3. Institutional support through the establishment of the National Center for the Development of the Non-Profit Sector and the amendment of regulations to facilitate its work.
4. Ministries such as Human Resources, Education and Health collaborate with these institutions to expand the scope of their services.

The Kingdom has made remarkable progress, with an increase in the number of non-profit organizations and their employees, and their contribution to the economy has begun to grow.

Developing the non-profit sector

Developing the non-profit sector is a key element in achieving the goals of the Kingdom’s Vision 2030, which aims to increase the contribution of this sector to the gross domestic product and enhance its social and economic impact.

This development is carried out through an organized institutional framework, with the National Center for the Development of the Non-Profit Sector being the main entity responsible for leading these efforts.

The center was established by a Cabinet decision to carry out the tasks of regulating the sector and overseeing its financial and administrative affairs, facilitating licensing procedures for non-profit organizations, in addition to enhancing coordination between government agencies and partners from the private and community sectors.

The center operates according to a clear vision aimed at empowering an effective non-profit sector capable of contributing to sustainable development, through adopting comprehensive governance and providing the necessary support to non-profit organizations, enabling them to expand their work and increase their impact in various development fields.

The importance of governance in the non-profit sector

Governance in the non-profit sector is a key element in ensuring the effectiveness and transparency of its organizations' work, and it is based on fundamental principles, the most important of which are:

1. Transparency and accountability

This principle is achieved through the periodic disclosure of financial and administrative reports, thereby enhancing the confidence of donors and the community in how resources are managed and goals are achieved.

2. Justice and responsibility

Which ensures that all parties involved are treated fairly, and that responsibilities within the organization are clearly defined to ensure compliance with applicable laws and standards.

These principles represent a comprehensive framework that contributes to enhancing the credibility of the non-profit sector and supports its developmental role in the Kingdom of Saudi Arabia.

Key skills required to successfully manage the non-profit sector

Like for-profit sectors, the non-profit sector needs essential skills to ensure its success and the achievement of its strategic goals, including:

1. Develop clear and actionable plans to achieve the organization's mission and goals.
2. Transparent financial management, through tracking donations and demonstrating that funds are used responsibly, is essential to maintain the trust of donors and the public.
3. Keeping up with the latest trends in the sector and continuously developing the team's skills.
4. Developing strong relationships with donors and supporters to ensure the sustainability of resources.
5. Promote the organization's message and build a strong reputation through appropriate channels to attract support.
6. Recruiting, training and motivating volunteers effectively, because they are the backbone of the organization.
7. Motivating the team and making informed decisions to guide the organization towards achieving its goals.
8. Building a strong organizational structure and ensuring compliance with legal requirements and risk management.
9. Building strong partnerships within the local community to enhance support and increase impact.
10. Working closely with the Board of Directors while maintaining a clear separation of responsibilities to ensure transparency and good governance.
11. Supervising programs and evaluating their effectiveness to ensure they achieve the desired impact.
12. Building a supportive and diverse organizational culture to supervise employees and volunteers.
13. Request feedback and continuously evaluate the organization's performance to ensure efficiency and effectiveness.
14. Find mentors and build a strong professional network to benefit from support and knowledge.

Steps to establish a non-profit organization in Saudi Arabia

A non-profit organization can be established in Saudi Arabia according to the following steps:

1. Defining the organization’s mission, vision, goals, and success metrics, in a manner that aligns with the community priorities identified by Vision 2030.
2. Choosing the appropriate legal form for the organization, to determine its organizational, financial and operational aspects, in accordance with the Saudi Companies Law.
3. Preparing a feasibility study and a detailed business plan that proves the viability and societal necessity of the organization.
4. Submit the registration application electronically through the portal dedicated to non-profit organizations affiliated with the Ministry of Human Resources and Social Development, attaching all the required documents, then wait for official approval from the Ministry and receive the license.
5. Open a separate bank account in the name of the organization, with a commitment to accurately and transparently record all financial transactions.
6. Establishing an integrated accounting and tax system that complies with the requirements of the Zakat, Tax and Customs Authority.

You can contactAbdulaziz bin Yasser Al-Anzi Law FirmTo learn more about the types of non-profit sector in the Kingdom, its characteristics and the steps to establish it.