Doing Business In Saudi Arabia - Latham & Watkins
www.lw.comDoing Business inSaudi ArabiaMay 2010
ContentsA. Introduction.1iiiOverview of System of GovernmentOverview of Sources of Law and Judicial SystemB. ESTABLISHMENT OF A PRESENCE IN THE KINGDOM OF SAUDI ARABIA.2iiiiiiivForeign Capital InvestmentIncorporating a Local EntityExit from InvestmentCommercial Agency RelationshipC. General Legal oing Business with the Public SectorCapital Markets LawImport and Export RegulationsAnti Cover-Up LawCompetition LawForeign Exchange Controls and Money LaunderingTaxationImmigrationEmployment LawReal PropertyIntellectual PropertyEnvironmental LawLiquidation, Bankruptcy and Bankruptcy Avoidance LawsDispute Resolution and Enforcement of Foreign Judgments and Arbitral AwardsAppendices.111Differences between a Joint Stock Company and a Limited Liability CompanyEndnotes.14Latham & Watkins Doing Business in the Saudi Arabia
This guide provides an overview of the legal system in the Kingdom ofSaudi Arabia and the principal legal factors to be considered when doingbusiness in the Kingdom of Saudi Arabia.Please note that this overview is for general guidance only and is notintended to be an exhaustive review of the laws of the Kingdom of SaudiArabia. This guide does not contain definitive legal advice and specificlegal advice should always be obtained. Latham & Watkins LLP and theLaw Office of Mohammed A. Al-Sheikh in association with Latham &Watkins LLP do not accept any responsibility for any loss, howsoevercaused, sustained by any person using this guide.It should also be noted that the Kingdom of Saudi Arabia only permitscertified public accountants to render advice on tax and tax-relatedissues. Therefore, any references to tax laws or tax matters referred to inthis guide are merely meant to give a general overview of the tax regime inthe Kingdom and are not a substitute for seeking proper advice from dulylicensed accountants.A. INTRODUCTION(i) Overview of System of GovernmentAfter 30 years of intermittent warfare over much of the Arabian peninsula, the late KingAbdul Aziz Ibn Abdul Rahman Al-Faisal Al-Saud completed his consolidation of theKingdom of Hejaz and the Kingdom of Nejd into the Kingdom of Saudi Arabia in 1932.1The Kingdom of Saudi Arabia is an independent Islamic monarchy. His Majesty KingAbdullah Ibn Abdul Aziz Al-Saud, Custodian of the Two Holy Mosques, has been thehead of state since August 1, 2005. The King governs through a Council of Ministers, 2 onwhich he serves as President. The King is assisted by His Royal Highness Crown PrinceSultan Ibn Abdul Aziz Al-Saud, the First Deputy Premier; His Royal Highness CrownPrince Nayef Ibn Abdul Aziz Al-Saud, the Second Deputy Premier; and by his otherMinisters.The Basic Law of the Kingdom of Saudi Arabia 3 reaffirmed the Kingdom’s status as anIslamic monarchy and formalized its system of government. In 1993, the ConsultativeCouncil was constituted as an advisory body to the Council of Ministers, withresponsibility for advising on the policies of the Kingdom, reviewing and commentingon laws, bylaws, contracts, international agreements and special rights; and providingsuggestions in connection with annual reports prepared by the Ministries.The Kingdom of Saudi Arabia is divided into 13 provinces, each of which is administeredby a provincial governor appointed by the King. Provinces are subdivided intogovernorates, districts and centers. Each provincial governor is assisted by a vicegovernor. These, together with not less than 10 other members approved by the Ministerof Interior and appointed by the King on the nomination of the provincial governor,constitute the provincial councils. The provincial councils are empowered to determinethe development needs of their respective provinces, make recommendations forprojects and improvements and request appropriations in the annual state budget. Anymember of a provisional council is entitled to submit written proposals to the provincialgovernor and every proposal will be placed on the council’s agenda for consideration.Latham & Watkins Doing Business in Saudi Arabia1
(ii) Overview of Sources of Law and Judicial SystemThe paramount body of law in the Kingdom of Saudi Arabia is the Shari’ah. The Shari’ahis comprised of a collection of fundamental principles derived from a number of differentsources, including the Holy Quran, the Sunnah (sayings of the Prophet Mohammed)and the works of Shari’ah scholars. In addition to the Shari’ah, Saudi Arabian law isalso derived from enacted legislation. Legislation is enacted in various forms, the mostcommon of which are Royal Orders, Royal Decrees, Council of Ministers Resolutions,Ministerial Resolutions and Ministerial Circulars. All such laws are ultimately subject to,and cannot conflict with, the Shari’ah.The judicial system of the Kingdom of Saudi Arabia is comprised of a number of courtsand adjudicatory bodies. These include the Shari’ah courts, the Board of Grievances andvarious specialized committees. The Shari’ah courts, generally, have jurisdiction over allcivil claims, except for claims the jurisdiction for which has been reserved to one of theother adjudicatory bodies established in the Kingdom of Saudi Arabia (i.e. the Board ofGrievances or another specialized committee). In particular, the Shari’ah courts generallyhave jurisdiction over all family law, real property matters and the majority of criminalmatters. In addition to the Shari’ah courts and the Board of Grievances, specializedcommittees have been established under the authority of various Ministries andgovernment agencies. The jurisdictions of these specialized committees are determinedby their constitutive regulations. They include the Committee for the Settlement ofBanking Disputes, the Negotiable Instruments Offices and the Committees for theSettlement of Labor Disputes. Such committees are independent of the Shari’ah courtsand the Board of Grievances.One of the major reforms initiated by the King, was the enactment of a new Law ofJudiciary 4 to restructure the judiciary and dispute resolution bodies in the Kingdom ofSaudi Arabia. Pursuant to the new Law of Judiciary, among other things, specializedcourts such as Criminal Courts, Commercial Courts and Labor Courts are to beestablished and the Board of Grievances will become an administrative court. Whileenacted in late 2007, the new Law of Judiciary is being implemented in phases and is yetto be fully implemented.B. ESTABLISHMENT OF A PRESENCE IN the KINGDOMOF SAUDI ARABIA(i) Foreign Capital InvestmentThe Investment Law 5 requires any company in the Kingdom of Saudi Arabia with foreignshareholders to obtain a foreign capital investment license. Foreign capital investmentlicenses are issued by the Saudi Arabian General Investment Authority (SAGIA). Itshould be noted that for the purpose of the Investment Law, corporate entities that arenationals of a Gulf Cooperation Council (GCC) member state are only considered GCCnationals if they are wholly owned by citizens or governments of GCC member statesand enjoy the nationality of a member state of the GCC.Except where stated otherwise in the Investment Law, there is no limit on the amount offoreign investment which can be invested in a company incorporated in the Kingdom ofSaudi Arabia. The establishment of one hundred percent (100 percent) foreign ownedcompanies is permitted in most cases. The Supreme Economic Council 6 is responsiblefor issuing and periodically updating a list of activities, which list is generally referredto as the “Negative List”, that are prohibited from being carried out by foreign investorsin the Kingdom of Saudi Arabia. For the latest Negative List and minimum capitalrequirements please go to (http://www.sagia.gov.sa.).2Latham & Watkins Doing Business in Saudi Arabia
When licensed under the Investment Law, a company enjoys all privileges and incentivesoffered to wholly Saudi owned companies, such as ownership of freehold property thatis necessary to carry out the licensed activity, privileges granted by the anti-doubletaxation treaties to which the Kingdom of Saudi Arabia is a party, law prohibiting againstexpropriation or confiscation of investments, rights to repatriate profits, etc.(ii) Incorporating a Local EntityThe Regulations for Companies 7 regulates the establishment and governance of SaudiArabian corporate entities. The main forms of legal entities are the limited liabilitycompany, the joint stock company and the branch of a foreign company. Other notableforms of legal entities include the sole proprietorship and the general partnership. Itshould be noted that a new version of the Regulations for Companies is in the processof being developed and is expected to be enacted in the very near future. Schedule 1contains a table outlining the main differences between a limited liability company and ajoint stock company in the Kingdom of Saudi Arabia.(a) Limited Liability CompaniesThe most common form of company in the Kingdom of Saudi Arabia is the limitedliability company. It should be noted that a limited liability company is the most commoncorporate vehicle for equity participation by foreign investors. A limited liability companymust have a minimum of two (2) shareholders and may not have more than fifty (50)shareholders. Natural persons and corporate entities may be shareholders. Shareholdersare, generally, liable for the debts of the company only to the extent of their respectiveinterests in the company’s shares.(b) Joint Stock CompaniesA joint stock company must have a minimum of five (5) shareholders. There is nomaximum. Natural persons and corporate entities may be shareholders. Shares in a jointstock company are typically evidenced by share certificates, although dematerializedshares are becoming more common. Shareholders are liable only to the extent of thevalue of their shares. The minimum share capital for a closed joint stock company (notoffering shares for public subscription)8 is SR 2 million. Subject to the approval of theMinistry of Commerce and Industry, the share capital subscribed for in cash may be paidup in stages, provided that the amount payable per cash share upon subscription is notless than one quarter of its par value.(c) Branches of Foreign CompaniesBranches of foreign companies in the Kingdom of Saudi Arabia are subject to theprovisions of the Regulations for Companies and to the laws and regulations applicableto their activities. A foreign company that opens a branch in the Kingdom of Saud Arabiais required, as is the case with limited liability and joint stock companies, to deposit anamount equivalent to the capital required by SAGIA with a local bank and such amount isblocked until issuance of the certificate of registration for such branch by the Ministry ofCommerce and Industry.(iii) Exit from InvestmentSubject to any statutory (e.g., the right of existing shareholders to purchase shares)or contractual preemption rights, the exit of a foreign shareholder is done by way ofcancellation or transfer, as the case may be, of the SAGIA investment license. Thisregulatory restriction is designed to ensure that foreign shareholders are not unjustlyremoved from Saudi Arabian companies. Cancellation of a SAGIA investment license isgenerally more straightforward than the approval of the foreign capital investment itself,unless new foreign shareholders are coming in, in which case the procedure would beanalogous to that of applying for a new license.Latham & Watkins Doing Business in Saudi Arabia3
The liability of a selling shareholder in a limited liability company as between himself andother shareholders ceases from the date specified as the effective date of the sale andpurchase agreement; however, as far as any statutory liability under the Regulationsfor Companies is concerned, the departing shareholder remains potentially liableuntil the amended articles of association reflecting the sale are re-registered by theMinistry of Commerce and Industry. This is not the case with joint stock companies asshares therein are transferred, after the lapse of the statutory lock-up period,9 by wayof cancellation of the transferors share certificates and issuance of new ones to thetransferee and reflecting such transfer in the company’s register of shareholders.Foreign shareholders may be liable for capital gains tax on their sold shares.(iv) Commercial Agency RelationshipDue to restrictions on foreign investment (see, e.g. the “Negative List” described above)and pursuant to the Commercial Agencies Regulations,10 foreign manufacturers andprincipals have generally appointed Saudi agents or distributors to trade and distributetheir products in the local Saudi market. A Saudi commercial agent or distributor mustregister with the Ministry of Commerce and Industry each time it enters into an agencyor distributorship relationship. As part of such registration process, the Saudi agentor distributor must submit its agreement with its non-Saudi principal to the Ministry ofCommerce and Industry for registration within three Hijra months from the effectivedate of such agreement. The Ministry of Commerce and Industry has publishedstandard forms of agency and distributorship contracts; however, use of such formsis not mandatory. Failure of a Saudi agent or distributor to register with the Ministryof Commerce and Industry could result in fines and other penalties to such agent ordistributor, but would not render the underlying agency or distributorship agreementinvalid or otherwise subject the non-Saudi principal to any penalties except that, incertain circumstances, the principal may be barred from participating in public sectortenders.In December 2005, the Kingdom of Saudi Arabia acceded to the World TradeOrganization (WTO) and, consequently, the Supreme Economic Council opened certaineconomic sectors to foreign investment such as retail and wholesale trade. Nevertheless,foreign investment in wholesale and retail trade (including distribution activities) remainssubject to, among other things, a minimum foreign investment of SR 20,000,000 anda maximum foreign equity participation of 75 percent. However, commission basedcommercial agency arrangements remains on the Negative List.C. GENERAL LEGAL CONSIDERATIONS(i) Doing Business with the Public SectorGovernment tenders and procurement in the Kingdom of Saudi Arabia are governed bythe Government Tender and Procurement Law .11 In general, all governmental entities inthe Kingdom of Saudi Arabia are required to deal, in their tenders and procurements,with companies that are duly licensed in the Kingdom. In addition, they grant productsand services of national origin and foreign products that are treated as national productspriority over foreign products and services and products of foreign origin.The Kingdom of Saudi Arabia has also acceded to the Unified Rules of Granting Priorityin Government Procurements to National Products and Products of National Origin in theGCC.124Latham & Watkins Doing Business in Saudi Arabia
(ii) Capital Markets LawThe Capital Markets Law13 established the Capital Markets Authority (CMA), which isthe sole regulator and supervisor of capital markets in the Kingdom of Saudi Arabia. TheCMA is a government organization with financial, legal and administrative independenceand reports directly to the President of the Council of Ministers. The Saudi StockExchange (Tadawul) was also re-established pursuant to the Capital Markets Law as ajoint stock company whose shares are wholly owned by the Saudi Arabian Governmentthrough its investment arm, the Public Investment Fund. The CMA’s function is toregulate and develop the Saudi Arabian capital markets. It issues rules and regulationsfor implementation of provisions of the Capital Markets Law aimed at creating anappropriate investment environment, protecting investors and ensuring fairnessand efficiency in the market. The CMA is governed by a board of full time membersappointed by Royal Order. The Capital Markets Law is a generic legislative frameworkfor capital markets in the Kingdom of Saudi Arabia and refers to specific implementingregulations that provide a detailed regulatory framework for various securities matters,including licensing of “authorized persons” and offering and marketing of securitiesin the Kingdom of Saudi Arabia. The CMA has already promulgated ten majorimplementing regulations, namely (1) Listing Rules, (2) Offers of Securities Regulations,(3) Authorized Persons Regulations, (4) Securities Business Regulations, (5) MarketConduct Regulations, (6) Corporate Governance Regulations, (7) Investment FundsRegulations, (8) Real Estate Investment Funds Regulations, (9) Merger and AcquisitionRegulations and (10) Anti-Money Laundering and Counter-Terrorist Financing Rules.(iii) Import and Export RegulationsThe Kingdom of Saudi Arabia is a member of the World Trade Organization and a partyto a number of free trade agreements, most notably within the GCC. The Kingdom ofSaudi Arabia enacted the Unified GCC Customs Law14 in 2003 which unified customsprocedures in all of the GCC member states. Although the Unified GCC Customs Lawhas allowed for a large number of import duty exemptions, customs duties are stillimposed on importation of many goods. Most items are subject to a 5 percent tariff.However, imported goods that are identical or similar to those produced locally arecharged a duty of up to 12 percent in order to protect local industries.There are no duties or tariffs on exports.(iv) Anti Cover-Up LawThe Anti-Cover Up Law 15 prohibits non-Saudi persons from conducting or investingin any business in Saudi Arabia without a foreign capital investment license issuedby SAGIA and prohibits any Saudi person from assisting in such activity. A person isconsidered to be engaged in a “cover-up” activity if he enables a non-Saudi to invest inor carry out any activity without the appropriate license, whether by the use of his name,license, commercial registration or any other means. A person found guilty of violatingthe Anti-Cover Up Law could face imprisonment of up to 2 years and fines of up to SR1,000,000. In addition, the non-Saudi person involved in the “cover-up” arrangementcould be deported from the Kingdom of Saudi Arabia and banned from doing any furtherbusiness therein.(v) Competition LawUnder the Competition Law,16 the Council for Competition Protection was created. Thecouncil approves any merger, acquisition or consolidation of management of two ormore entities that will create a “dominant position”. A “dominant position” is definedas a position where an entity is able to influence prices in a certain market throughcontrol of a specific percentage of supply of a certain product or service in an industry inLatham & Watkins Doing Business in Saudi Arabia5
which it operates. Specific percentages will be determined through various implementingregulations, which have not yet been adopted. As such, it may be anticipated thatenforcement of the Competition Law will likely be delayed until publication of suchimplementing regulations.(vi) Foreign Exchange Controls and Money LaunderingAt the present time, there are no exchange control regulations governing the repatriationof funds, profits or capital after corporate dissolution.Banks and financial institutions in the Kingdom of Saudi Arabia are, pursuant to theAnti Money Laundering Law,17 required to develop and adopt internal systems, policiesand measures to combat money laundering and to keep records of transactions for
Saudi Arabia and the principal legal factors to be considered when doing business in the Kingdom of Saudi Arabia. Please note that this overview is for general guidance only and is not intended to be an exhaustive review of the laws of the Kingdom of Saudi Arabia. This guide does not contain definitive legal advice and specific
Business Visas: All visitors to Saudi Arabia must hae av Saudi sponsor in order to obatin a business visa to enter Saudi Arabia. On the positive side, in May 2008, the United States and Saudi . which include Saudi Arabia, Kuwait, Qatar, Oman, Bahrain, andt he UAE, are also allowed to engage in trading and retail activities, including real .
Doing Business in Saudi Arabia Market Overview The Saudi Arabian economy is the largest in the Gulf region, and Saudi Arabia is the only G-20 member country in the region. Saudi Arabia has an oil-based economy with petroleum accounting for approximately 62 percent of government revenues, 44 percent of GDP, and 72 percent of export earnings in 2016.
Business Visas: All visitors to Saudi Arabia must have a Saudi sponsor in order to obtain a business visa to enter Saudi Arabia. On the positive side, in May 2008, the United States and Saudi Arabia signed an agreement to grant reciprocal 5-year, multiple-entry visas for business travelers. This agreement represents a significant
Figure 10: Saudi Arabia HVAC-R Market Size, By Value, 2011-2021F (USD Billion) 25 Figure 11: Saudi Arabia HVAC-R Market Share, By Region, By Volume, 2015 & 2021F 25 Figure 12: Saudi Arabia GDP Share, By Province, 2014 27 Figure 13: Saudi Arabia Urbanization Rate, 2011-2015 (As Percentage of Total Population) 27
Saudi Arabia in 100 Questions east of Grenache line and longitudes 34 and 42 to the north of the Equator. The topography of Saudi Arabia ranges from plains, mountains, deserts and plateaus. The most famous of the latter is Najed where the Saudi capital Riyadh is located. The climate of Saudi Arabia is a desert climate
The Saudi Companies Regulations3 set forth the basic rules regarding the organization of a business in Saudi Arabia. The Companies Regulations *Mr. Homsy practices law in Pittsburh, Pennsylvania. 'The present civil regulatory structure in Saudi Arabia has its origins in the first Saudi Com- mercial Code promulgated by King Abdul Aziz in 1931. .
global oil market. Increasing imports by Saudi Arabia of intermediate and capital goods from G20 countries. Providing more investment opportunities in Saudi Arabia for the G20 countries and providing profitable opportunities for the G20 investors to take advantage of the free zones planned to be established in Saudi Arabia.
Text and illustrations 22 Walker Books Ltd. Trademarks Alex Rider Boy with Torch Logo 22 Stormbreaker Productions Ltd. MISSION 3: DESIGN YOUR OWN GADGET Circle a word from each column to make a name for your secret agent gadget, then write the name in the space below. A _ Draw your gadget here. Use the blueprints of Alex’s past gadgets on the next page for inspiration. Text and .
