The document provides an overview of doing business in Saudi Arabia from a legal perspective. It discusses Saudi Arabia's economy and population growth. The kingdom's legal system is based on Islamic law, with the government also issuing specific laws and regulations. The three most common business structures for foreign investment are the limited liability company, joint stock company, and branch office. Employing Saudi nationals and being classified in the 'Green' or 'Excellent' categories under the Nitaqat program are important considerations. Binding arbitration is commonly used for dispute resolution in business agreements in Saudi Arabia.

1. Doing Business in Saudi Arabia
A legal perspective
Presentation ———— October 2014

2. Introduction

3. Topics
An overview of doing business in Saudi Arabia:
● Background
● Legal regime
● Practicalities

4. Background

5. Saudi Arabia
● The Kingdom of Saudi Arabia is the largest economy in the
Arab world
● It accounts for 25% of the Arab world’s Gross Domestic
Product
● Saudi Arabia has an oil based economy with strong
government controls over major economic activities. The
Kingdom possesses around 25% of the world’s oil reserves,
● The petroleum sector accounts for roughly:
• 80% of budget revenues
• 45% of GDP
• 90% of export earnings
● Saudi Arabia is ranked at 26th in the World Bank’s Ease of
Doing Business rankings.

6. Saudi Arabia (cont.)
● Saudi Arabia has had a period of relatively high growth and economic
progress over the past few years
● However, its fast growing population means that it needs to grow very
fast just to maintain the status quo
● With 50% of Saudis under 25 years old the Saudi population is one of
the fastest growing in the world
• The current population of over 28 million is expected to increase to
40 million by 2025
• The large youth population struggle to provide the technical skills
which the private sector needs
• Massive investment will is necessary to meet the needs of this
young, growing population
● The government is also encouraging foreign companies to invest in
vocational and technical training in support of Saudisation.
● The government’s budget for the 2014 fiscal year allocated 46% of total
spending to:
• education and training
• health and social development
• infrastructure

7. Legal regime

8. Legal background
● The law of Saudi Arabia is based on Islamic law (Shari'ah) from
two main sources being the Holy Qur'an (the divine revelation to
the Prophet Mohammed) and the Sunnah (a record of the
sayings and actions of the Prophet Mohammed)
● Key elements of Shari’ah Law
• Freedom of Contract
- Parties are generally free to agree their own terms of
contracts
- Save where the activities contemplated are expressly
prohibited
• Fairness and Good Faith
- Parties must observe and maintain principles of
fairness and equity in their dealings
• Unjust Enrichment
- Contracts where one party gains unjustly at the
expense of another will be invalid

9. Legal background (cont.)
● Key elements of Shari’ah Law (cont.)
• Speculation
- A contract that involves speculation on a future outcome will
generally not be permitted and considered invalid
• Uncertainty
- There should be no deception or excessive uncertainty in any
contract
• Agreements to Agree
- Agreements that envisage the future conclusion of an
agreement or a material obligation may be considered
uncertain and so unenforceable
• Interest
- Under Islamic Law, contracts including clauses which provide
for payment or receipt of interest will generally not be
enforceable
- In Saudi Arabia there is an exception to this general principle
where in banking transactions the Saudi Arabian Monetary
Authority Banking Disputes Settlement Committee may
enforce interest provisions

10. Legal background (cont.)
● In addition to the principles derived from Shari’ah the
Government issues specific laws and regulations where
necessary to supplement Shari'ah Law.
● In the event of any conflict between Shari'ah Law and any
Saudi Arabian Government laws or regulations then Shari'ah
Law will usually prevail
● Where Saudi Arabian Government laws or regulations are
silent then reference should be made to the relevant rules
under Islamic law
● As a result, scholarly opinion rather than the authority of
precedent in court decisions or legislation is the basis of the
Saudi legal system
● However, the law is not static, legal scholars continue to
reinterpret and develop the Shari’ah to meet the demands of
modern life

11. Practicalities

12. Practicalities – foreign investment
● The Saudi Arabian General Investment Authority
(SAGIA) has responsibility for licensing all new foreign
investment in Saudi Arabia.
● Foreign persons and entities are permitted to invest in
all industries and services, except for those which are
specifically excluded from foreign investment
• Referred to as the “negative list”, it is updated by
SAGIA
• It includes manufacture of military equipment; oil
exploration and production and real estate
brokerage
● Foreign investors are permitted 100% ownership of
companies, or a foreign investor and a Saudi national
may jointly own them

13. Practicalities – foreign investment (cont.)
● The Foreign Investment Law provides foreign investors the
same privileges and incentives as national companies:
• It allows 100% foreign ownership of companies and real
property
• The ability to carry forward losses indefinitely
• Repatriation of dividends
• Sponsorship of a workforce
• Tax-free importation of industrial equipment and
machinery
• Allowing more than one licence in different activities
● The Foreign Investment Law also provides a number of
specific guarantees to foreign investors, including protection
against confiscation, expropriation, and double taxation

14. Practicalities – forms of company
The three most common ways to setup in Saudi Arabia are:
● Limited Liability Company (LLC)
• Requires a minimum of two shareholders
• The minimum capital requirement is SAR500,000 except for specific types
of activities which may require more significant capital
• Other requirements or limitations may apply depending on the type of
intended activity.
● Joint Stock Company (JSC)
• A JSC is usually used for businesses that are, or intend to go, public or for
specific types of activities
• The establishment requires a minimum of five shareholders
• The minimum capital requirement is SAR2 million, unless other
requirements or limitations apply (depending on the intended type of
activity)
● Branch office
• Establishing a Branch Office requires the appointment of a branch manager
by the parent company
• The manager may be a non-Saudi national
• The minimum capital requirement is SAR500,000, except where other
requirements or limitations apply depending on the intended type of activity
• A branch is deemed to be carrying out its activities on behalf of the parent
company which assumes all liabilities resulting there from.

15. Practicalities - agents
● Most business in Saudi Arabia requires an agent, even if you are in an
area which does not require it, having an agent can be beneficial
● Agencies do not have to be exclusive, although MOC will not normally
register more than one agreement for the same principal
● The Regulations do specify requirements for compensation of a
terminated agent. The MOC Model agency contract provides for
“reasonable compensation” of the agent upon termination
● If you are going to undertake trading activities in Saudi Arabia without a
physical presence in the Kingdom you will need to appoint an agent
● If you are going to be directly involved in the buying and selling of
goods in Saudi Arabia then you will have to have an office in Saudi
Arabia
● Selecting an agent is a very important step and can dictate whether you
will succeed or fail
• Do you want an active partner who pushes your business forward,
or a sleeping partner who just deals with bureaucracy?
• Decide what you want initially and make sure roles and
responsibilities are clearly agreed

16. Practicalities – employment
● The Labour Law generally regulates employment, outlines
clear terms for terminating employment, provides for annual
vacation entitlement, establishes a retirement age, provides
for increased employment of the disabled, creates end of
service benefits, enables employees to obtain leave without
pay, and establishes employment offices
● The terms of any contract must comply with the requirements
of the Labour Law
● During the holy month of Ramadan, working hours decrease
● Friday is the weekly day off
● Depending on the types of activities licensed, businesses
need to hire a certain percentage of Saudi nationals
constituting their workforce

17. Practicalities – employment (cont.)
● In 2011, the Ministry of Labour introduced the Nitaqat
Programme
• Nitaqat refers to the Saudi Government’s efforts to promote
the employment of Saudi nationals
• The Nitaqat Programme classifies companies in four
categories being Excellent, Green, Yellow and Red
• The classification is based on the percentage of
Saudisation held by each of the companies. Companies
classified as Excellent or Green would be granted the most
privileges in visa requests and operations for non-Saudis.
● Hard to operate effectively if you are not Green or Excellent
● Companies with less than 10 employees are exempt from the
program, but still need to employ at least one Saudi citizen
● The Ministry of Labour bans recruitment of non-Saudis for 56
categories of jobs, such as administrative managers and their
assistants, procurement managers, secretaries, and public
relations jobs, as well as in many retail establishments
● The banking and insurance sectors are also highly localised

18. Practicalities – disputes
● It is common for parties doing business in the Kingdom of Saudi Arabia
to select binding arbitration in Saudi Arabia or in a preferred neutral
foreign jurisdiction as the method for dispute resolution
● The Saudi Arbitration Law confirms the right of parties to agree to settle
their disputes through arbitration
● Saudi Arabia acceded to the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards of 1958
● Accordingly, any final arbitral award rendered in any member state of
the New York Convention will be enforceable in Saudi Arabia
● Generally, the Board of Grievances has jurisdiction with respect to the
enforcement of foreign judgments and arbitral awards in the Kingdom of
Saudi Arabia
• In order to enforce a foreign judgment from outside the GCC, the
party seeking enforcement must demonstrate:
- that such foreign judgment contains nothing that contravenes
the Shari’ah or public policy of the Kingdom of Saudi Arabia
- that the courts of the issuing country would recognize and
enforce a Saudi Arabian judgment

19. Contact
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