Doing Business in Saudi Arabia 01

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Doing business in Saudi Arabia 01. 02. 04. 06. A prosperous The largest Legal system Establishment and dynamic economy in the under the Foreign economy Middle East Investment Act

08. 12. 14. 18. Investment The Bankruptcy Employees Construction structures & Law vehicles

20. 21. 22. 24. Real estate The Competition Public Tenders & Intellectual Law Procurement property

27. 28. Import and Dispute export resolution & enforcement 1

A prosperous and dynamic economy

Although globally The non-oil private sector is expected recognized as one to be the key driver of growth in the next 12 months. Investment in large Vision 2030 of the world’s leading public infrastructure projects and a The KSA is undergoing an rapidly growing population are both oil producing nations, unprecedented pace of change, factors that stimulate steady growth. the Kingdom of Saudi as Vision 2030 seeks to reshape and This, together with the 2030 vision to boost the KSA’s entire economy. Arabia (KSA) is less raise the share of non-oil exports in known for being one non-oil GDP from 16% to 50%, provides Some of the reform plan’s key goals: of the top 20 destinations a unique and exciting business environment full of opportunities. Become one of the for foreign direct When considering entering into top 15 largest economies investment (FDI). business dealings connected with in the world (vs.18 today) the KSA, it is highly recommended The private sector currently to obtain specialist legal advice at contributes an impressive 48% of the the outset in order to select the most country’s GDP, and with the country’s appropriate business structure and Grow non-oil exports Vision 2030 aimed at increasing this to obtain confi rmation as to how the share in GDP from 16% local law applies to the particular contribution to 65%, the sector is to 50% & increase non-oil expected to grow. This opens up many investment or business activity. opportunities for further FDI and the This brochure sets out an overview revenue by 513% (from SAR increase is expected to rise from 3.8% of some of the matters a Foreign 163bn to SAR 1tr) to the international level of 5.7%. Investor should be familiar Being an active member of the World with before commencing and/ Trade Organization (WTO) since 2005, or whilst conducting business Increase the private the KSA has greater access to the operations in the KSA. global market, boosting job creation sector’s contribution and further encouraging FDI. from 40% to 65% of GDP

Increase FDI from 3.8% to 5.7% of GDP

Increase PIF’s assets (from SAR 600bn to over SAR 7tr) The largest economy in the Middle East

Dynamic Initiatives Trade GDP

The new Development The KSA’s GDP program* targets to: grew by 2.2% $300bn in 2018, reaching in total exports in 2018 stimulate an estimated (+35% vs. 2017) $450bn $796bn in investment The KSA is the largest oil exporter in the world The KSA is the increase non-oil exports to largest economy in the Middle East $230bn and the 18th largest $260bn in oil exports in 2018 in the world add 1.6 million jobs by 2030

China is the KSA’s The KSA has a pipeline of largest trade partner 5,200 construction projects worth $46bn+ of imports from KSA $820bn in 2018

*The National Industrial Development and Logistics Program (NIDLP) launched in January 2019 3

Understanding the Kingdom

The Kingdom of Saudi Arabia was formed in 1932 following consolidation of the Kingdom of Hejaz and the Kingdom of Nejd by the late King Abdul Aziz Ibn Abdul Rahman Al-Faisal Al-Saud.

The KSA is an independent Islamic monarchy. The current King Salman Ibn Abdul Aziz Al-Saud has been head of state since 23 January 2015 and governs the the KSA as president FDI of a Council of Ministers.

FDI more than doubled The KSA is divided into 13 provinces, each with its own provincial governor appointed by the King. These provinces in 2018 to are then each subdivided into governants, districts and centres. The province governor is assisted by a vice governor. Provincial Councils are made up of province governors $3.5bn and not less than 10 other members approved by the Minister of Interior and appointed by the King following nomination of the relevant provincial governor. Top FDI sectors Each Provincial Council has authority to govern the development needs of their province; including the ability chemical industry, real to make recommendations for small as well as large estate, tourism, fossil development projects and request appropriations in the fuels, automobiles annual state budget. All provincial council members are eligible to submit written proposals to their respective and machinery governors and each proposal is normally placed on the council’s agenda for review and consideration. Legal system

The KSA’s legal system Shariah Law Shariah in practice is based on Islamic principles Shariah is a collection of principles A sample of some practical (Shariah). Legislation is derived from different sources. consequences of the application made up of Royal Orders, The principal sources being the Holy of Shariah can be considered in respect Qur’an and the Sunnah (the witnessed of the following: Royal Decrees, Council sayings and actions of the Prophet of Ministers’ Resolutions, Mohammed, peace be upon him). – The prohibition of interest payments in the KSA may mean that Islamic In Islamic law, there are four main Ministerial Resolutions fi nancing is insisted upon although schools of jurisprudence, namely, and Ministerial Circulars. options for conventional fi nancing Hanbali, Hanafi, Shafai, and Maliki. may also exist However, these sources of The KSA courts generally apply the law cannot confl ict with Hanbali school as set out in a number of – The prohibition against uncertainty, Shariah, which takes specified scholarly treaties derived from which may exclude the use of certain Authoritative Jurists, Schools of Law, derivative contracts or the inclusion precedence under the State Regulations, Royal Decrees and of a liquidated damages clause Constitution of the KSA. (where these are relevant) custom and for potential economic losses practice. – The possible inability to provide a In the event of a conflict between waiver in respect of future rights. Islamic principles and government Powers of attorneys are revocable, rules and regulations, Islamic principles regardless of any language to the will prevail. Shariah principles are contrary in the instrument often expressed in general terms, – There is no recognition of “self-help” which provides the KSA courts with remedies and it is often not possible considerable discretion as to how to to obtain effective security over apply those principles to circumstances future assets brought before them for determination. – The prohibition against speculation, It should be noted that the KSA is a civil other than general business law jurisdiction meaning that every speculation, which includes gambling. case is judged based on its own merits. This may exclude trading of futures The procedure for court reporting and dealing with certain derivatives is not as developed as in many other transactions jurisdictions and there is no concept of binding judicial precedent equivalent to the common law system. 5

– The prohibition against unjust enrichment may impact contracts where one party gains unjustly at the expense of another, or the enforcement of late fees

– The subject matter of a commercial transaction must be Halal, so not forbidden under Shariah. For example: underlying products should not involve pork or alcohol

The framework for the KSA Government is set out in The Basic Law of Governance, Royal Decree No. A/90 dated 27/8/1412 H (1 March 1992). This is commonly referred to as the Constitution of the KSA. Establishment under the Foreign Investment Act

It is necessary for foreign New Foreign Investment Act 100% foreign ownership investors to establish a legal The Foreign Investment Regulations In general, 100% foreign ownership presence in the KSA when promulgated by Royal Decree No. M/1 is permitted unless the proposed conducting direct business dated 5/1/1421 H (10 April 2000) and activity appears on the list specified by its Rules of Implementation published the Supreme Economic Council which in the KSA market, regardless on 7/6/1423 H (16 August 2002) (the reserves certain economic activities of whether the purpose Foreign Investment Law) is the to the KSA national participation is operational or a legal principal mechanism which enables (the Negative List) and restricts foreign foreign investors to own entities that ownership interests in certain sectors. requirement. are established and separately licensed Certain business activities which either to operate in the KSA. do not appear on the Negative List or may expressly be open to foreign It is necessary to consider the Foreign ownership could still fall into a sector Investment Law alongside the Anti- where foreign ownership is restricted Concealment Law promulgated by in amounts ranging from 25% to 70%. Royal Decree No. M/22 dated 4/5/1425H (22 June 2004) and its Rules of Foreign investment is permitted Implementation issued by Ministerial in most manufacturing, specialised Resolution No. 7/M.W dated 13/5/1426 and non-specialised services H (20 June 2005) which contains a broad (including trading activities, agriculture, prohibition upon any entity that is contracting and engineering, doing business in the KSA permitting procurement, construction and or facilitating any other investor, management consultancy). On 13 June whether such investor is an entity or 2016, the Saudi government announced an individual (excluding those that are that it will now issue licenses permitting nationals of an Arabian Gulf Cooperation 100% foreign ownership of companies in Council (AGCC)) member, from the wholesale and retail trade sectors. practicing activities in the KSA without Furthermore, during the recent first obtaining an appropriate license. Council of Ministers’ meeting on 7 August 2017, His Royal Highness Prince Mohammed bin Salman bin Abdulaziz Al Saud, the Crown Prince of the KSA, approved the decision of allowing Foreign Engineering Consultancy Companies to invest in the KSA with 100% foreign ownership. 7

Such decisions can be seen as being part The KSA officials are collectively The KSA’s of the KSA’s National Transformation working to attract foreign investments Plan and the Vision 2030; the KSA’s and develop the KSA market. SAGIA, GDP grew by 2.2% roadmap to diversify its economy and as part of Vision 2030 and the National in 2018, reaching address the challenges brought by low Transformation Plan, has eased its global energy prices. licensing procedures and made major an estimated changes to facilitate the incorporation As part of the constant developments of FDIs. While in the past SAGIA’s in the KSA investment market, the KSA procedures related to obtaining foreign government authorities have recently $796bn investment licenses (FIL) were extensive announced the opening of various and could take up to six months business sectors for full foreign in some cases. The key changes could investments, some of which include be summarized as follows: the approval to amend the Negative List FDI more than doubled allowing foreign investors to undertake – The granting of FILs could be in 2018 to manpower recruitment (including completed in a matter of hours and recruitment agencies), media services not exceeding a week in general related to audio-visuals, real estate – SAGIA has launched a new service brokerage and road transportation that allows foreign investments $3.5bn activities. In addition, foreign investors to apply for an instant license in less may now fully manage, operate and than ten minutes own private healthcare institutes. While previously, investments in the healthcare – SAGIA officials have announced sector were restricted and not entirely the adoption of the International open for full foreign ownership. Standard Industrial Classification of all economic activities (ISIC) which came into effect at the beginning of 2018. New investors planning to enter Obtaining a business license the KSA market will now be able to consider the available set of Once a legal presence is established, commercial activities under the KSA the entity is permitted to conduct ISIC, and modeling them to fit their its business activities in accordance potential operations in the KSA. with the license and permits it must Whereas in the past, the licensed obtain from the Saudi Arabian General activities were subject to SAGIA’s Investment Authority (SAGIA), the internal non-transparent licensing Ministry of Commerce and Investment procedures (MoCI) and, depending on the proposed business activities to be conducted in the KSA, other government departments. Investment vehicles & structures

Investments in the KSA Direct presence Licensing by SAGIA (Appropriate Vehicle) may be conducted by direct Below are the main options typically entry in the market through available to a foreign-owned entity Limited Liability Company (LLC) commercial presence under wishing to setup in the KSA market. The LLC is widely considered the However, it should be noted that preferred option for any foreign- the Foreign Investment a foreign-owned entity intending owned entities that intend to establish Law (Direct Presence), to enter the KSA market should seek a subsidiary company in the KSA. or alternatively, through specialist advice. The main reason for this is that the liability of each shareholder is limited a commercial agency Various documents need to be submitted to the relevant public to their capital contributions. or franchise agreement authorities in the KSA for the Under the new Companies Law (Indirect Presence). purposes of establishing a legal promulgated by Royal Decree No M3 presence. Generally and practically, dated 28/1/1437H which came into force the timeframe for establishing a on 2 May 2016 (the Companies Law), foreign-owned entity and for it to be it is now possible to establish an LLC fully operational is between 4 to 5 with a single shareholder. months, including the completion of the required secondary registrations The shares of an LLC should be of equal following the issuance of the FIL by value and must be fully paid up in cash SAGIA and Commercial Registration or kind. An LLC must not offer its shares Certificate by MoCI. to the public and it is not permitted to undertake business activities in commercial banking or insurance. In general, there is no minimum capital requirement for foreign investors, although discussions with advisors 100% should take place before a final decision Foreign Ownership is made. However, some activities require minimum share capital such possible in majority as undertaking trading activities which of industries is set at SAR 30 million for entities fully owned by foreign investors. 9

According to Article 181 of the Branch offices Temporary commercial registration Companies Law, if the losses incurred A foreign investment license will A foreign-owned entity undertaking by the LLC reach 50% or more of its permit a foreign-owned entity public sector contracts may obtain share capital, the LLC must convene to establish a branch office in the a “temporary commercial registration” a shareholders’ meeting within 90 days KSA (free from any local participation), license from the Saudi MoCI. of the date on which the Company with certain exceptions that apply A temporary commercial registration becomes aware of the extent of its to some activities. These are obtained is generally available for foreign investors losses and the shareholders must from SAGIA and approval must also be who bid for, and as a pre-requisite get either resolve to continue the LLC obtained from the MoCI. Generally, a awarded, government tender projects. or to wind-up its affairs, failure to branch office will be able to undertake convene such shareholders’ meeting most activities that can be undertaken In most cases, it is not largely or the failure of the shareholders by a LLC. available to sub-contractors working to pass a resolution to continue/dissolve on government contracts especially the LLC will result in the automatic A distinguishing feature of a branch as one of the requirements is to have dissolution by force of law. It is therefore office is that it has no separate and a contract directly with a government advisable to consider the appropriate independent legal personality, and authority. A temporary commercial minimum capital with the respective thus a foreign investor operating in registration office may supervise and KSA legal advisors to avoid triggering the KSA through a branch office could coordinate the entity’s administrative the application of Article 181 of the be subject to suit in its home country activities within the KSA (it is however Companies Law during the set-up stage. in connection with a claim arising out prohibited from engaging in activities of its activities in the KSA. Liability is It should be noted that there are certain exceeding the scope of the contract that not limited to the assets of the foreign limitations on the ability of the LLC has been signed with a government investor that are held in the KSA to distribute profits. For example, authority). A temporary commercial through the branch office, but extends at least 10% of the LLC’s annual net registration office is similar in form to all of the assets of the foreign profits must be transferred into a to a branch office. investor, wherever they are situated. reserve fund until the amount in such reserve fund is equal to and not less than 30% of the LLC’s share capital. Scientific and Technical Office Joint Stock Company (JSC) Professional companies A foreign-owned entity that has products A JSC is required to be used for specific The Saudi Council of Ministers has in the KSA distributed by a registered activities (such as insurance or banking) recently approved the new Professional Saudi commercial agent or distributor or where a public share offering/ IPO Companies Law which shall come into is permitted to establish a scientific and is planned in the KSA. The intended effect in early 2020. technical office in the KSA if its products activities of the JSC will dictate its capital are unique and require technical requirements albeit the share capital In general, the Professional Companies assistance for use. Any such office must should be sufficient at the time of its Law forms the regulatory framework be established to support the foreign- incorporation to achieve its objects and of the professional sector and governs owned entity’s registered agent(s) or should not be less than SAR 500,000. various regulated professions. Unlike the distributor(s) and to assist the end users Furthermore, upon incorporation, previous Saudi Professional Companies of the product. the JSC’s paid up share capital must Law, the new law provides significant be no less than one quarter of its operational flexibility by allowing A scientific and technical office is similar subscribed issued authorised capital. professional companies to undertake in form to a branch office. However Shareholders are only liable up to the more than one professional service the scientific and technical office is not extent of their paid up share value. JSCs classified under different sectors of permitted to engage in activities that must generally be owned by a minimum business activities provided that the are not connected with supporting the of 2 shareholders. However, single requirements under each sector are foreign owned entity’s registered agent(s) shareholding JSCs may be established satisfied and after obtaining the required or distributor(s) and/or to assist the by certain government authorities licenses from the KSA competent end users of the products. In particular or companies with a capital not less government authorities. It is also it will not be licensed to practice any than SAR 5,000,000. noticeable that the new Professional commercial activities in the KSA itself. Companies Law waives the restriction As such the licensed activities of such The management board of a JSC must on the corporate form and professional a scientific and technical office are include at least three members and must limited liability companies and joint limited in scope and generally include: not exceed 11 directors whom have been appointed by the shareholders. stock companies may be established to (a) Providing technical and scientific perform professional activities subject support services to the registered to certain shareholding requirements. Saudi commercial agent/distributor All operating professional entities in and its customers in the KSA the KSA should consider the available in relation to the foreign-owned benefits under the new Professional entity’s products; Companies Law to model and restructure their businesses. (b) Providing training; (c) Preparing studies in relation to the market in the KSA; and (d) Carrying out technical and scientific research. 11

Indirect presence The following points provide a brief Franchise arrangements overview of the agency law in the KSA: Where a foreign entity is providing Franchising is an option for foreign services or selling products from – Only a KSA national may act companies to access the KSA market outside the KSA to customers in the as an Agent under the recently approved new KSA and those activities do not, as a – An agency agreement must be Franchise Law. The KSA Franchise Law matter of KSA law, require the foreign registered by the agent in the Register is expected to enter into force soon entity to have an onshore presence of Commercial Agents within and should govern all of the franchise in the KSA, the foreign entity may 3 months of the date on which the arrangements which were previously be able to conduct its activities on an arrangement becomes effective constructed in accordance with the offshore basis. This may be by directly Agency Law. The Franchise Law aims – The agency agreement must include selling services or products to customers to develop a regulatory framework for certain provisions, for example, in the KSA from outside the KSA, or by the commercial relationship between details of the parties, the subject appointing an agent or distributor in the the franchisor and the franchisee matter of the agreement, territory KSA to sell the foreign entity’s products with eased procedures that will and termination procedures to customers in the KSA. significantly facilitate the operations – The KSA authorities have the right of local and foreign businesses to impose penalties on foreign in the KSA market. Following the principals and their agents who implementation of this new law, Commercial agency breach the Agency Law, for example; foreign investors (whether operating deportation and restrictions on future in the KSA or planning to enter the All registered commercial agencies commercial activities in KSA market) should explore their available are regulated by the KSA Commercial options, restructure and model their Agencies Law and its implementing – Terminating the agency arrangements franchise arrangements to ensure the regulations (the Agency Law). can at times be problematic although overall compliance with the applicable The Agency Law does not include recently the KSA courts seem less regulations. any set definition of “commercial likely to approve attempts by former agencies”. However, commercial agencies agents to try to block the import are broadly considered to be anyone who of products by their former foreign enters into an agreement with a foreign principal and the courts seem less entity or their representative in their likely to approve attempts by former own country to undertake commercial agents to prevent the registration of activities whether as an agent or new commercial agency agreement distributor or in any form of dealership or distribution in exchange for profit, commission or facilities of whatever nature. The lack of clear definition of commercial agencies in the KSA means there are several difficulties, including, but not limited to, the problem in distinguishing between an “agent” and “distributor”. The Bankruptcy Law

The Bankruptcy Law was The Bankruptcy Law contains (17) The significant implications of the approved by King Salman chapters and a total of (231) articles Bankruptcy Law include the following: bin Abdulaziz Al Saud governing (3) main topics, which are the Preventative Settlement, Financial – Distressed or potentially distressed pursuant to the Royal Reorganisation (re-structuring) and the businesses in the KSA market may Decree No. M/05 on 13 Liquidation procedures. now enjoy the introduced rights and benefi ts under the Bankruptcy Law February 2018 and the KSA The main objective of the Bankruptcy to ensure the stability and continuity Council of Ministers has Law is to implement detailed provisions of their business operations in the KSA related to the Liquidation, Settlement approved the Implementing – The Bankruptcy Law introduces and Financial Reorganisation since alternative solutions and aims Regulations of the the previously applied legislations to increase the percentage of local and were not sufficiently governing the Bankruptcy Law on 04 foreign investments in the KSA market September 2018. procedural and judicial aspects of these essential matters. – The Bankruptcy Law is expected to decrease the liquidations of businesses and assist in supporting all investors to strengthen their operations – The KSA government authorities and courts are now obligated to be compliant with the Bankruptcy Law, noting that the precise mechanism and application of its provisions are yet to be well tested 13 Employees

Residence visas and work Contract of employment Fixed-term contracts are contracts for a specified duration. Such contracts permits for expatriate All contracts of employment which include a clause providing employees for expatriate employees are fixed- for renewal of the contract for a similar term contracts and must be in writing or specified term can be renewed for Any non-KSA/GCC citizens are required and have two counterparts. If an the agreed period. to obtain a visa to enter and also employment contract with a non- If a fixed-term contract with a Saudi permits to reside and work in the KSA. Saudi fails to specify the duration, national has expired and the parties The visa must be obtained in advance the contract’s duration is equal continue their employment relationship of travel to the KSA while both to the duration of the employee’s the contract is deemed to have been residency and work permits should residency visa. Upon commencing renewed for an indefinite period. If be obtained within 90 days of arrival. employment, an employer may a fixed-term contract with a Saudi Employers are required to register require an employee to complete national is renewed three consecutive their expatriate employees contracts a probationary period of up to 90 days; times or the employee enters into a with the General Organisation for such period may be extended, subject renewed fixed-term contract which Social Insurance and submit certain to a written agreement between the brings his length of employment service information via the Ministry of Labour parties, to a total of 180 days. During to four years, the employee’s contract e-service. A residency permit cannot the probationary period, either will be converted to an unlimited be issued until this has been done. party may terminate the contract term contract on the fruition of the Companies are required to apply of employment free from penalty earliest event. for a block visa quota in order to be unless the contract includes provisions eligible to employ foreign nationals. reserving the right of termination Only certain categories of employee to only one of the parties. Where can sponsor their dependants. the contract of employment is There is usually no minimum salary terminated by the employee during requirement on foreign nationals, the probationary period, the employee although unskilled employees may be requested to repay any visa cannot sponsor their dependants. costs paid by the employer. Employees are not permitted to work for anyone other than their sponsor and sponsorship cannot be transferred unless under certain specific conditions. 15

Key minimum standards Females are given a minimum of 15 End of service benefit days leave for the death of a spouse under the Labour Law and female Muslim employees are Under KSA law, employees are entitled The following are some of the entitled to 4 months and 10 days leave to an end of service benefit. End of entitlements of employees under and maternity leave for ten weeks. service benefit is calculated on the the KSA Labour Law: Any employees enrolled in educational basis of the last wage including courses are entitled to exam leave. regularly paid allowances, such as – Employees must not work longer than Muslim employees are entitled to housing and transportation allowances. 8 hours per day and 48 hours per week. 10 to 15 days leave to make the Hajj, To the extent that the employee’s During Ramadan, fasting Muslims or pilgrimage to Mecca remuneration includes elements are not permitted to work longer than that are variable (such as commission), – Employees are entitled to sick leave 6 hours per day and 36 hours per week it is permitted to provide in the at full pay for up to 30 days, followed – The hourly working restrictions employment contract for such elements by 60 days at 75% pay, and up do not apply to those employees to be excluded for the purpose to 90 days unpaid leave in managerial positions of calculating the end of service benefit. – An employee who has suffered injury – All employees are entitled to a This benefit is calculcated according at work will be entitled to medical minimum 21 days of vacation each to the following formula. An employee care and continued pay at the year and any salary is to be paid is entitled to half of his monthly salary employer’s expense before the employee takes vacation. per year of service for the first 5 years This vacation entitlement will increase – Employees working in remote areas of service and to his full monthly to 30 days following 5 consecutive are entitled to housing, meals, salary per year of service thereafter years of employment. transportation to work, shops selling (pro-rated for any partial years Any vacation time not used by an food, clothing and necessary items, of service worked). If the employee employee during the working year suitable recreational, cultural and terminates his employment voluntarily, is to be compensated to the employee sports facilities, suitable medical the benefit is reduced by two-thirds upon his leaving the job facilities, schools for dependents, for periods of service of two to five training to eliminate illiteracy, years, and by one-third, for periods – Employees are afforded 3 days mosques or prayer places at worksites of service between five and ten years. paternity leave for childbirth, Employees who resign with ten or 5 days for marriage and 5 days more years of service are entitled to for a bereavement of an immediate the full benefit. Female workers who family member terminate their contract within six months of marriage or three months of giving birth and workers terminating their employment due to force majeure are also entitled to the full benefit. Termination Unlawful termination and redundancy Where an employee considers that 300,000 they have not been terminated In January 2017 a resolution pertaining new entrants to collective dismissal of KSA for a “valid reason”, the employee nationals was issued limiting the ability may bring a claim in the KSA through to the Saudi job of medium, large and giant (under the Commission for the Settlement market each year Ministry of Labour categorisations) of Labour Disputes. If successful, employers in the KSA to collectively the employee may be awarded terminate KSA national employees’ compensation. This compensation employment by reason of redundancy. is in addition to the payments referred The resolution is far reaching and to above. In the case of an unlimited prohibits certain entities from making contract, compensation will be 15 1.6 collective redundancies of KSA days’ pay for each year of service nationals for any reason without first and where the contract is for a fixed consulting with the local labour office. duration, the compensation could be equivalent to the salary that the million employee would have received for the jobs by 2030 remaining duration of the fixed term. In both cases, the minimum amount The new $450bn that will be awarded will be two development plan months’ wages. Parties may expressly agree in the employment contract the targets to create level of compensation which may be 1.6 million jobs by 2030, payable where either party terminates focusing on mining, industry, the contract without reason, provided that it must not be less than two logistics and energy sectors months’ wages. 17

Saudisation The government recently launched Expatriates the ‘Parallel Nationalization’ program, currently occupy over ‘Saudisation’ was created by the KSA which aims at helping employers who government in order to encourage are unable to meet the requirements the employment of KSA nationals of the Nitaqat program by allowing in the private sector. Saudisation them to pay fees in order to upgrade 80% has taken various forms and their classification within the Nitaqat of all private sector jobs included a number of initiatives since program. The program helps employers the mid-1990s. The latest of these, that cannot find Saudi nationals, the Nitaqat (meaning ‘points’) and which are in the Low Green programme, was launched in August Level or Yellow Nitaqat classification, 2011. Under Nitaqat, companies to upgrade to the preferred level. are colour coded into four colours according to their levels of Saudisation. The government has also introduced Those with high Saudisation numbers various other Saudisation initiatives will fall into platinum or green and which seek to encourage employers those with low Saudisation numbers to increase the representation will fall into yellow or red (with red of Saudi nationals within their being the lowest category). Saudisation workforce. Certain reserved roles targets depend on the company’s size may only be undertaken by KSA and sector. Generally, an employer nationals. These roles primarily relate benefits from being in a higher to administrative functions; however category by enjoying greater flexibility the list is reviewed and amended in relation to recruiting and managing regularly. In addition, all vacancies must expatriate employees and will face be posted with the Human Resources increasing sanctions when placed Development Fund and advertised in a lower category. for minimum periods to KSA nationals registered with it as unemployed and The Nitiqat program applies to all seeking employment prior to the role employers with six employees or more. being offered to a non-KSA national Saudisation thresholds are updated and a block visa applied for. from time to time by the Ministry of Labour and Social Development and will vary depending on the sector and the activity of the company as well as the number of employees the company employs. Companies with less than six employees are exempt from the program, but still need to employ at least one Saudi national. Companies can visit the ministry’s website to understand their Saudisation position. Construction

In January 2018, the Saudi Ministry The Saudi construction Government Projects – of Finance launched Etimad. Etimad is a unified digital services platform market is the largest in the traditional procurement that allows government entities and GCC region. The market has The significant proportion of private sector contractors to make traditionally been driven construction projects in the KSA are full use of the Ministry of Finance’s advanced procurement e-services, by capital expenditure in procured within the statutory regime of the Government Tenders & Procurement enhancing the speed of process, the oil & gas and power Law (“GTPL”). The enactment of a New ensuring accuracy of data and & water sectors. In recent GTPL in 2019 is a positive development increasing the ease of doing business. years, however, there has for the Saudi infrastructure market and provides a more favourable been huge spending in the market environment for international Government projects – infrastructure, real estate, contractors and consultants seeking to privatisation health and education be appointed on government projects. The New GTPL has increased focus on The Vision 2030 strategy includes sectors and further centralised processes and will promote a major drive towards the privatisation greater transparency, predictability diversifi cation is being of infrastructure. More than 80 mega and efficiency in tendering and it gives driven by the Vision projects, each worth at least $1 billion, Government Entities greater flexibility are launched and progressing or 2030 strategy. As such, to tailor contract conditions (e.g. beyond planned for completion by 2030 in the the Public Works Contract) to particular contractors and consultants KSA making it the Middle East’s largest project requirements. in the market will come construction market. This is changing across a diverse range of That said, a number of government- the Saudi construction industry, with owned corporations procure works in the many established players diversifying legal and commercial terms, KSA, with varying degrees of reliance on outside of traditional procurement each with their attendant the Government Tenders & Procurement and many new entrants coming into risks and opportunities. Law. Examples include Saudi Aramco, the market, such as investment banks Saudi Electricity Company, National and technology providers. The Riyadh Water Company and Saudi Railway Metro, for example, is undoubtedly one Company. Some of these corporations of Saudi’s largest and most high-profile have developed their own bespoke construction schemes. standard forms, whereas others rely on international precedents, particularly the 1999 FIDIC suite. 19

Additionally, the KSA seeks to expand its entertainment landscape by Legal context creating high quality domestic The KSA has a pipeline and international investments within Contractors and consultants need of 5,200 construction Saudi. The government has announced to be aware that any contract they projects worth that it will implement the Neom sign will be interpreted in the context Project, the world’s first independent of Shariah. Fortunately, Shariah as special zone stretching over three applied in the KSA generally holds countries. Another project is Qiddiya, contracting parties to the terms they $820bn the entertainment, sports and cultural have agreed, save where such terms destination that will be the first of its offend specific Shariah principles. kind in the KSA. Examples of this are usury (interest), uncertainty and speculation. The KSA’s Careful consideration should also construction sector Private sector projects be given to the dispute resolution clause in the contract, in case a grew by Large private sector projects – major problem arises. Many contracts particularly in real estate and healthcare concerning Saudi projects are signed – continue to gain momentum in without regard to these issues and the KSA. The FIDIC suite (e.g. 1999 4% would be extremely difficult to versions) is commonly used. Localised enforce if the need arose. For instance, amendments (such as restrictions on the arbitration as a method of dispute powers of the Owner’s Representative / resolution, is prohibited in disputes Engineer) are very common. involving Saudi Arabian government As for consultants, the FIDIC White bodies unless a specific approval has Book is the most commonly used; been obtained. however, again, on government projects, a prescribed standard form is more likely. There is a wide perception by government and private developers alike that consultants should take risk in relation to the outcomes of their work. As such, the consultants need to be aware of the potential for the “professional standard”, pursuant to which they are used to operating, being eroded. Real estate

Real estate is one of the Non-GCC nationals are entitled most significant sectors to own land and property in the KSA. However, ownership is subject 3 million in the KSA economy, with to the following restrictions: housing units significant interest from – Non-GCC individuals or corporate need to be created by 2040 foreign investors in owning entities licensed to operate a business property. All real estate in the KSA may acquire property to meet the needs of the transactions are currently for the purpose of such business growing population or residential property for themselves in the KSA undertaken at the Notary and their employees, subject to Public and title deeds are obtaining a foreign investment issued to evidence licence from the Saudi Arabian General Investment Authority. ownership. They may also lease property – Foreign entities must establish a local KSA registered company – Foreign individuals must have Land ownership a KSA residency and work permit for non-GCC nationals – SAGIA licensed individuals or corporate entities licensed to operate Subject to certain exceptions, ownership a business in the KSA which includes of real property is generally restricted property investment activities may to Saudi nationals. own and invest in real estate for Gulf Corporation Council (GCC) the purpose of developing the same nationals and corporate entities wholly subject to the total cost of each project owned by GCC nationals may acquire (land and construction) being not less real property rights over land and than SAR 30 million, the investment property for the purpose of conducting in the development occurring within their business or for their residence five years of the acquisition and the subject to certain restrictions. investor securing SAGIA approval to the purchase

In addition, restrictions apply to the acquisition of real property rights in the cities of Mecca and Medina by non-Saudi nationals. 21

The Competition Law

The new Competition Law The provisions of the Competition Law The provisions of the Competition Law was published in early will be applied on any: set out wide prohibitions on unfair competition practices which mainly – Natural or juristic person 2019 and officially entered include the following: undertaking economic activity, into force on 25 September including commercial, agricultural, – Economic concentration acts which 2019. The Implementing industrial, service business as well are defined as: “any act resulting in the Regulations were further as sale and purchase of commodities whole or partial transfer of the title and services in KSA to the assets, rights, liabilities, shares recently issued and or stocks of an entity to another, or the – Practices conducted outside Saudi merger of two or more departments approved by the Board which might breach the overall fair in one joint department” of the General Authority competition inside KSA – Businesses with a Dominant Position for Competition. The main objective of the Competition are not permitted to abuse their strong Law is to protect and encourage position to either affect or restrict the the overall fair competition, competition in the market and the monitor all competition practices Competition Law has listed 7 prohibited that might affect the consumers’ practices in this regard rights, protect medium and small businesses to ensure the continuity – Competition arrangements which of their operations in the market and include all agreements and/or contracts ultimately providing products with between businesses, whether written sufficient quality and fair prices. or verbal, explicit or implicit, that aim or might as a consequence restrict the trading or fair competition in the market. Such competition arrangements were specifically identified under the Competition Law covering 8 prohibited acts

Operating entities in the KSA market should take into consideration the applied restrictions on their future transactions and evaluate their commercial position to avoid breaching the provisions of the Competition Law. Public Tenders & Procurement

On 1 August 2019, a new The provisions of the New GTPL – In respect of other works, Government Government Tenders include: Entities are also permitted to use framework agreements where quantities Providing for more centralised & Procurement Law or the volume of work is not certain tendering – for example: (“New GTPL”) was published – An “entity in charge of unified Removing the need for a full public in the Official Gazette of the strategic procurement” may request tender for particular works and services KSA, which will apply to all tenders for works that it designates or in particular circumstances for Saudi government projects are required by more than one example, all procurement of consulting government entity (“Centralised services may now be undertaken on the from 29 November 2019. Works”) basis of limited tender.

The New GTPL has a direct – Government Entities may also Requiring a standstill period (of between impact on the economic conduct “electronic reverse auctions” 5 and 10 days) after a tender decision attractiveness of the Saudi through a centralised electronic is made to allow unsuccessful bidders to portal or “competitions” for particular raise any objections to the tender process. infrastructure market to works or services international contractors It sets out various requirements Providing for more centralised for contract forms and restrictions and consultants, coinciding contracting – for example: on variations remain the same with the implementation – The Central Entity may engage (e.g. maximum increase of 10%). of the “Vision 2030” contractors and / or consultants on Maximum delay penalties have increased the basis of framework agreements to 20% for works and services contracts infrastructure program. and/or prepare its own contract (i.e. 10% under the Current GTPL). forms It applies to all appointments The new GTPL includes new provisions by government authorities, – Government Entities are not concerning mandatory or discretionary ministries, departments, permitted to procure Centralised termination of contracts by the Works other than through the Government Entity. public institutions and public processes and contract forms In addition, Government Entities may determined by the Central Entity bodies with independent agree to arbitration, provided that corporate personality approval has been granted by the Minister (“Government Entities”). of Finance. Otherwise, parties may seek compensation from Government Entities in the Board of Grievances in respect of any alleged failure to perform a contract. 23 Intellectual property

For many years, there Intellectual Property Trademarks has been a framework of Authority The law of trade marks in the KSA laws and regulations in is governed by the GCC Trade Marks In March 2017, King Salman approved Law. The KSA is also a member of the place in the KSA to protect the establishment of the Saudi Paris Convention for the Protection Intellectual Property Authority (SAIP) and enforce intellectual of Industrial Property, which allows which is a reference body created property (IP) rights. The applicants to claim priority from the to organise and streamline the fi ling date of overseas trade mark KSA has also been a grant and protection of IP rights in applications. longstanding signatory the KSA. The establishment of the to many international SAIP is considered to be an integral Individuals or companies may apply part of the trade and investment to register their trade mark at the treaties for the protection system plan within the National Department of Trade Marks, which of intellectual property rights. Transformation Program 2020. Prior is a division of the Saudi Authority The protection of IP rights to the establishment of the SAIP, for Intellectual Property. IP rights were protected on a disparate Trade marks can consist of words, is playing an increasingly basis through different Ministries numbers, symbols and logos and are and governmental organisations in the important part of the KSA’s registered in relation to particular goods KSA including the MoCI, Ministry dynamic transformation or services. In order to be capable of of Culture and Information and the registration, the chosen trade mark towards a digital, knowledge King Abdulaziz City for Science and must be capable of distinguishing the Technology. The SAIP consists of based economy. applicant’s goods or services from those three directorates, the Saudi Patent of others in the market place. The right Offi ce, the Department of Trade Marks to a trade mark in the KSA is generally and the General Directorate for the acquired by being the fi rst to fi le a trade Protection of Copyright. mark application. 25

It currently takes between 6-12 Copyrights months for a trade mark application in Saudi Arabia to secure registration. The Copyright Law deals with the Once successfully registered, the protection of copyright works, covering trade mark will be valid for 10 Hijri all scientifi c, artistic and literary works. years from the date of fi ling, and can These include for example, written be renewed indefi nitely for periods works, sound recordings, photographs, of 10 Hijri years thereafter. Trade drawings and computer software. mark and brand owners may also be Automatic protection, without the able to enforce their rights against need for further registration, is granted third parties through the appropriate for any works of Saudi authors or authorities in the KSA or through the foreign authors, provided the work competent Courts. in question is published, produced, Trade marks can be licensed or performed or displayed for the fi rst assigned to third parties. IP licensing time in the KSA. Protection is also and franchising have been widespread afforded to copyright works which are and popular commercial strategies protected pursuant to international used in the KSA for decades. agreements or treaties, to which the Historically this has been due to the KSA is a signatory, for example the huge consumer appetite for foreign Berne Convention. retail brands, and particularly US Generally, copyright protection brands, but the market is also starting is valid for the lifetime of the author to show promising signs of newly plus 50 years from the date of the created Saudi brands emerging and author’s death. A slight difference being licensed or franchised outside exists in relation to the copyright of the KSA. protection for sound recordings, audio visual works, fi lms, collective works and computer software; these are protected for 50 years from the date that the work is fi rst published, performed or recorded. Patents and It is also possible to obtain patent Domain names protection in the KSA by fi ling a GCC industrial designs Patent Application, which is a single The KSA domain names have a “.sa” or application covering all six GCC “. ” country code extension and It is possible to protect new and innovative countries (UAE, the KSA, Oman, are registered on a fi rst-to-fi le basis. technical inventions in the KSA by means Bahrain, Kuwait and Qatar). This is The regulatory authority is the Saudi of a direct national patent application currently a popular strategy for many Network Information Centre (SaudiNIC) or through a national phase application applicants seeking to obtain protection which is currently operated by the fi led through the international Patent across the GCC countries. Communication and Information Cooperation Treaty (PCT). Technology Commission. In order Industrial designs are also capable The fi ling and prosecution of patent to secure registration of a Saudi of protection in the KSA. An industrial applications is handled by the Saudi ccTLD, SaudiNIC requires evidence design protects the aesthetic look Authority For Intellectual Property of the relationship between the of a product or industrial item. (SAIP). SAIP is actively examining, proposed name and the business Industrial design applications are also publishing and granting patents in entity seeking registration of the handled by SAIP and usually secure the KSA and the average time frame domain name, this is usually registration within 6-12 months of from fi ling to grant is approximately in the form of a Saudi commercial fi ling. The duration of protection 2-3 years. The duration of protection registration or evidence of trade mark for an industrial design is 10 Hijri is 20 Hijri years from the date of fi ling rights in the KSA. years from the date of fi ling. the patent and it is necessary to pay an annual maintenance fee, or annuity in order to keep the application alive during the examination process. 27

Import and export

KSA is a member of the However, there still remain World Trade Organisation a number of customs duties imposed on the importation and $300bn and a party to a number exportation of goods, generally in total exports in 2018 of free trade agreements, being determined on a case-by-case basis depending on the type of each (+35% vs. 2017) particularly within the GCC. product. These customs duties are All custom procedures also subject to the application of the Value Added Tax (VAT) which have been unifi ed across The KSA is the largest the GCC member states came into effect on 1 January 2018. The VAT applies fi ve percent (5%) oil exporter in the world by virtue of the Unifi ed standard rate which is charged on Customs Law, enacted in the supply of goods and services in 2003, which allows for a the course of conducting business. $230bn number of import duty in oil exports in 2018 exemptions. Dispute resolution & enforcement

Court & Committees – After a case is initiated by the Practical Implications claimant through submitting The KSA court system includes a “Claim Form” (manually or When choosing a dispute forum and the following fora: electronically), the courts shall serve jurisdiction, the parties to a prospective contract should consider carefully – The Board of Grievances, which has the “Claim Form” to the Respondent the specific facts in relation to the jurisdiction to hear claims against – The Court shall schedule the contract where the contract involves government entities first hearing thereafter KSA-based/registered parties, or is to – The Sharia Courts, which have – The claim form and first claim take effect in the KSA together with jurisdiction to hear civil disputes, memorandum can be submitted the enforcement options and be aware such as family and real estate disputes electronically that the process for execution of foreign – The Commercial Court, which has – Commercial Courts aim to expedite judgments and awards against assets jurisdiction to hear commercial the litigation process to be concluded in the KSA can be difficult. disputes within three court hearings in – Various specialist committees such relation to commercial disputes as the Banking Disputes Committee – In order to be legally represented and the Insurance Disputes a Powers of Attorney (PoA) must Committee be in place by the time of the first Features of court procedure in the hearing in order for the party to be KSA are as follows: represented. PoAs can be issued electronically – All hearings and submissions must – Submissions are then exchanged be in Arabic- non-Arabic submissions at subsequent hearings (in order must be translated by certified to expedite the process, Commercial translators Courts currently enable parties – Parties may only be represented to exchange submissions through by Saudi nationals with legal court administration office) qualifications – Objections on the basis of an arbitration clause must be raised at the first submission – There are two levels of appeal available from the first instance judgment 29

Saudi Arbitration Enforcement of Foreign Judgments The KSA is a party to a number and Arbitral Awards of treaties in relation to the recognition The Arbitration Law 2012 was a and enforcement of foreign judgments significant step forward in the Pursuant to the Enforcement Law 2013, and awards, the most important being: development of the law in the KSA the Execution Judge has jurisdiction and has wide-ranging implications to enforce all foreign judgments – The AGCC convention: this requires for businesses (both local and or awards that are issued in the the recognition and enforcement international) trading in the domestic form of an Execution Deed. Article of court judgments and arbitral market. In particular, the Law added 9 of the Enforcement Law lists the awards between members numerous of the positive aspects of the forms of Execution. of the AGCC previous Arbitration Law and is based Deeds which include final judgments, – The Riyadh Convention: this requires on the UNCITRAL Model Law, albeit final arbitral awards, settlement the recognition and enforcement with some localised amendments. agreements issued by competent of court judgments and arbitral In Court hearings, the objections on the entities or authenticated by the awards between many countries basis of an arbitration clause must be relevant courts, commercial in the Middle East and North Africa raised at the first submission. papers, authenticated contracts – The New York Convention: this and instruments, judgments and requires the recognition and In 2016, the Saudi Centre for authenticated instruments issued enforcement of foreign arbitral awards Commercial Arbitration (SCCA) in a foreign country. between the countries who are opened as the KSA’s first institutional currently signatories of the Convention arbitration centre that also Article 11 of the Enforcement law (more than 140 nations) published its own set of Arbitration states that the Enforcement Judge may Rules. This is very positive for the enforce foreign judgment or arbitral development of arbitration in the KSA awards only on the basis of Principles because the rules have been very of Reciprocity and if the party seeking well drafted, on the basis of various enforcement demonstrates that: international precedents, and comprise – The Saudi courts do not have a robust and reliable procedure for jurisdiction with regard to the dispute arbitrations to be run. The Arbitration – The award was rendered following Rules fill many of the gaps inherent in proceedings in compliance with the Arbitration Law. The SCCA has also the requirements of due process taken a leading role in training the local legal and business community on best – The award is in final form as per practice in dispute resolution. the law of the seat of the arbitration – The award does not contradict a judgment or order issued on the same subject by a judicial authority of a competent jurisdiction in the KSA, and The award does not contradict Islamic Law or Saudi public policy 440 Partners

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