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Doing Business in Saudi Arabia 01 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.
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