This document provides information on establishing and operating successfully in the Saudi Arabian projects market. It discusses key themes such as finding the right local partner and navigating legal and regulatory challenges. It also covers cultural business etiquette in Saudi Arabia emphasizing the importance of trust and relationships. The document then explains various Saudi laws and regulations pertaining to foreign investment, corporate structures, public procurement, commercial agencies and other areas relevant to doing business in the country. It aims to give international companies the necessary context for entering and conducting operations in the Saudi projects sector.

1. 39 Offices in 19 Countries
Entering & Operating
Successfully in the Saudi
Projects Market
September 18, 2013

2. 2
Key Themes
Establishing a presence - finding the
right local partner
Navigating legal & regulatory
challenges in Saudi Arabia
Procurement & development strategies
for entering & operating successfully in
the Saudi projects market

3. 3
Cultural Awareness & Business Etiquette
Trust - establishing trust an essential part
of business culture
Relationships - cultivate solid business
relationships before entering into
business dealings
Comfort - business executives like to feel
comfortable with business partners before
agreements or contracts are signed

4. 4
Doing business is mostly personal
Middle East business people unlikely
to finalize serious negotiations without
face-to-face meetings
Patience often necessary
negotiations & communications occur
at a slower pace in the Middle East
Shariah Law
a basic understanding helpful to
conducting business in GCC countries
- especially Saudi Arabia
Negotiating Style & Tactics

5. 5
Islamic Law
Bribery Law
• 1930s Abuse of Position
• Royal Decree No. M/36 (1992)
• Definition of Bribery
• Definition of Public Employee
• Penalties
• Enforcement
Investigation Authority
Gift Giving
• Internal Controls
E-Governance
Public Procurement
Local Anti-Bribery Laws - Saudi Arabia

6. 6
Introduction to Islamic (Shariah) Law
Saudi Arabian law based on Islamic Shariah
Basic understanding of Shariah Law useful in conducting business
Statutes may be issued to supplement Islamic Law (Royal Decrees -
Rules & Regulations issued by the Monarchy/Government)
No binding judicial precedent or case law
Regulators may have powers to issue sector specific statutory
implementing regulations
International Treaty/Organization/Conventions

7. 7
Saudi courts divided into
Shariah courts & specialized
statutory tribunals
Shariah Courts have general &
residual jurisdiction
Board of Grievances the most
important statutory tribunal for
commercial disputes
Numerous other quasi-judicial
committees
Court System

8. 8
Contract Law
Generally, Islamic Law governs contracts
• No all-embracing theory of contract law
• Contracts may be subject to particular statutory
provisions in addition to general Islamic Law
principles
No established
theory of
Contract Law
• Parties to a contract free to use terms of their
choosing provided not inconsistent with
Islamic Law principles or statutory provisions
Freedom of
Contract is
Fundamental
Rule
• No element of uncertainty (Gharar),
speculation or gambling
• Provisions including payment of interest not
enforceable
• Only direct and actual damages recoverable
• Injunctive relief not available as remedy for
breach of contract
Established
Principles

9. 9
Choice of Law & Enforceability of
Foreign Judgments
• Courts and judicial committees may not
recognize choice of foreign law as governing
law of an agreement or submission by the
parties to the jurisdiction of courts other than
local courts and judicial committees
Choice of
Foreign Law
• a judgment obtained in a foreign country may
be submitted for enforcement before the
Board of Grievances provided not
inconsistent with Islamic Law and/or
regulatory/statutory provisions
Board of
Grievances
• Saudi Arabia adheres to the NY convention
but invoked a "reciprocity reservation" to limit
its recognition of awards made in foreign
jurisdictions
Convention on
Recognition &
Enforcement of
Foreign Arbitral
Awards

10. 10
Foreign Investment
Foreign Investment Act issued (2000)
Regulated by Saudi Arabian General
Investment Authority (SAGIA)
Accession to WTO has led to market
liberalization
Ease of doing business

11. 11
Foreign Investment Legislation
Regulations & Restrictions
• Foreign investors granted certain benefits and
incentives available to national investors
• Foreign investment permissible in most sectors
• Some sectors fully or partially restricted to
Saudi nationals
• Foreign investors subject to income tax (20%)
and withholding tax (5% - 20%)

12. 12
Foreign Investment Legislation
Fully Open activities include
• General Services (e.g., contracting, IT, food and
beverage, etc.)
• Industrial and manufacturing
• Agriculture
• Real estate investment and development - provided
not in Mecca and Medina and total project value at least
SAR 30 million
Partially Open activities include
• Distribution: 25% minimum local participation and
minimum foreign investment of SAR 20 million required
• Professional services: (engineering, legal, audit, etc.)
25% minimum local participation required
• Healthcare: restricted to hospitals and subject to
licensing requirements by the Ministry of Health

13. 13
Structure & Funding of EPC
Arrangements
• Typically fixed fee, lump sum
turnkey agreement
• Public & private projects
• Any type of project (power plants,
roads, etc.) including PPP
Engineering,
procurement &
construction
(EPC)
agreement
• Single entity provides all services
to meet project owner objectives
• Significant project risk taken on
by EPC contractor
EPC system
integrates
design,
engineering,
procurement &
construction in a
single
agreement

14. 14
Structure of EPC Arrangements
Historically, foreign companies not allowed to
combine EPC services under one single entity
• Engineering services must be offered by a Professional
Company
• Foreign companies wishing to perform the three services under
an EPC contract, would obtain a license for construction
(procurement allowed and as a complementary activity) and
outsource the engineering services to a local engineering
company
• The foreign company may establish two companies – (i) to
provide construction/procurement services and (ii) a
professional company, to provide engineering services - under
the professional company, the foreign company would partner
with a Saudi licensed engineer (holding at least 25% of the
company's capital)
Recent demand has led SAGIA in coordination
with MoCI to issue specific licenses for EPC
services

15. 15
Public Procurement
Government Tenders & Procurement Law (GTP Law)
• Governs all public infrastructure projects
Public Works Contract
• GTP Law requires government entities to use a Public Works Contract
for public infrastructure projects
• Contractor must inspect the site and notify any latent adverse physical
conditions within 10 days of discovery
• 30% of the work must be subcontracted Saudi contractors
• Calculation for delay penalty on Contractor is by reference to the
average daily cost of the project
• Variations to be approved in writing, but not increase contract value
>10% or decrease by >20%
• Payment applications and certifications to be issued monthly and paid
within 30 days

16. 16
Public Procurement
• Rectification works - during “maintenance period” (from
provisional to final acceptance) – contractor to execute works
according to written demands from Engineer or Employer –
failure to do so allows Employer to engage 3rd party contractors
and set off costs
• Claims for damages - Contractor must submit claims within 30
days of breach – otherwise will have waived right to
compensation
• Termination - Employer may terminate Contractor and engage
3rd party contractor to complete at the Contractor’s expense if
Contractor:
– Bribes an employee of the Employer
– Delays progress or breaches the contract without remedying within 15 days
– Assigns the contract or improperly subcontracts its execution
– Becomes insolvent
– Dies (or ceases to exist)
• Disputes referred to Board of Grievances – no reference to arbitration

17. 17
Forms of Corporate Vehicles/Permitting
Limited Liability Companies
• Minimum capital of SAR 0.5 million (SAR 1 million for industrial
activities and SAR 10 thousand if fully owned by Saudi nationals)
• Minimum two shareholders liable to the extent of their contribution
• Negotiability of shares subject to preemptive rights
• Not allowed to undertake financial, insurance and other activities
• Most common for foreign investment
Joint Stock Companies
• Minimum capital of SAR 2 million (closed)
• Minimum five shareholders liable to the extent of their contribution
• Freely negotiable shares
• May be publically traded
• No restriction over type of activities (but positive restrictions exist)
Branch office
• Not a separate legal entity, liability extends to mother company
• Minimum capital of SAR 0.5 million

18. 18
Commercial Agency
Governed by Commercial Agency Law
Restricted to Saudi nationals & Saudi entities
fully owned by Saudi nationals
Required to be registered at the MoCI
Generally favorable to Saudi agents /
distributors
Termination or non-renewal could subject
foreign principal to payment of compensation

19. 19
Worldwide Locations
• Cincinnati
• Cleveland
• Columbus
• Houston
• Los Angeles
• Miami
• New York
• Northern Virginia
• Palo Alto
• Phoenix
• San Francisco
• Tampa
• Washington DC
• West Palm Beach
• Bogotá+
• Buenos Aires+
• Caracas+
• La Paz+
• Lima+
• Panamá+
• Santiago+
• Santo Domingo
• Beirut+
• Berlin
• Birmingham
• Bratislava
• Brussels
• Bucharest+
• Budapest
• Frankfurt
• Kyiv
• Leeds
• London
• Madrid
• Manchester
• Moscow
• Paris
• Prague
• Riyadh
• Warsaw
• Beijing
• Hong Kong
• Perth
• Seoul
• Shanghai
• Singapore
• Sydney
• Tokyo
North America Latin America Europe & Middle East Asia Pacific
+ Independent Network Firm

20. 39 Offices in 19 Countries
Thank You
Q&A
Kevin Connor
kevin.connor@squiresanders.com
Wissam Hachem
wissam.hachem@squiresanders.com
Mohammed Alkhliwi
mohammed.alkhliwi@squiresanders.com
Al-Enezee in association with Squire Sanders