1. Islamic Law
2. Islamic Contract Law
3. Statute Law
4. Investing in Saudi Arabia
5. Other Forms of Doing Business
6. Companies and Partnerships
7. Doing Business with Saudi Arabia
8. Competition Law
9. Electronic Transactions
10. Taxation
11. Banking
12. Capital Markets
13. Mergers and Acquisitions
14. Insurance
15. Real Estate
16. Intellectual Property
17. Employment Law
18. Environmental Laws
19. Dispute Resolution
20. Sovereign Immunity

 

 
 
 

Since 2000 Saudi Arabia has gone through an opening up of its hitherto protectionist economy, to the extent that since 2005 the World Bank has consistently judged the country to have the best overall business environment in the Middle East. These reforms began with the enactment on 10th April 2000 of the new Foreign Investment Regulation, Royal Decree No. M/1 of 5th Muharram 1421 Hejra corresponding to 10th April 2000 Gregorian, and the establishment on the same date of the Saudi Arabian General Investment Authority (SAGIA), which has taken on the responsibility of attracting, encouraging and licensing investment in the Kingdom both from local sources and from overseas. Prior to these reforms, doing business in Saudi Arabia used to be treated as a privilege reserved to local interests, with only few, narrowly defined exceptions.
In essence, while the old regime worked on the principle that all forms of foreign investment in the Kingdom were prohibited unless expressly permitted, the new regulatory framework grants SAGIA the power to effectively license any form of foreign investment, unless policy decisions are made that specific forms of business activities may not be open to foreign participation. Article 3 of the Foreign Investment Regulation gives the Supreme Economic Council the power to “issue a list of activities excluded from the scope of foreign investments”.

Under this Negative List, as revised on 23rd March 2007, the following economic activities are closed to foreign interests:

Industrial Sector
01. Exploration, prospecting and production of petroleum substances, excluding services related to the mining area, which services are internationally classified under the numbers 883 and 5115.
02. Manufacturing of military equipment, instruments and uniforms.
03. Manufacturing of explosives for use by civilians.

Service Sector
01. Services for providing catering to military sectors.
02. Investigations and security.
03. Real estate investment in Makkah Al-Mukarramah and Al-Madina Al-Munawara.
04. Tourist guidance services related to Hajj and Umra.
05. Servicing and staff provision services, including private foreign recruitment and private local employment firms.
06. Real-estate brokerage services.
07. Services subject to the Publications and Publishing Regulation, with the exception of the following services:
(a) Pre-publishing preparation services internationally classified under the number 88442.
(b) International printing presses internationally classified under the number 88442.
(c) Drawing and calligraphy internationally classified under the number 87501.
(d) Photography, internationally classified under the number 875.
(e) Television and radio studios internationally classified under the number 96114.
(f) Foreign media offices and the correspondents thereof, internationally classified under the number 962.
(g) Publicity and advertising, internationally classified under the number 871.
(h) Public relations, internationally classified under the number 86506.
(i) Publication, internationally classified under the number 88442.
(j) Journalism services, internationally classified under the number 88442.
(k) Production or sale or lease of computer software, internationally classified under the number 88.
(l) Media studies and consultations, internationally classified under the number 853.
(m) Duplication and reproduction, internationally classified under the numbers 87904+87507.
(n) Distribution of movies and videotapes internationally classified under the number 96113.
08. Commercial agents [working] on commission [basis], internationally classified under the number 621.
09. Audiovisual services.
10. Land conveyance services, with the exception of in-city conveyance of passengers by trains.
11. Services provided by midwives and female nurses, physiotherapy and paramedic services internationally classified under the number 93191.
12. Fishing of live water resources.
13. Poison centres, blood banks and health quarantines.

This revision of the Negative List takes into account certain commitments which Saudi Arabia made prior to becoming a member of the World Trade Organisation on 11th December 2005. Most significantly, distribution services have now been opened in principle to foreign participation, but subject to the following restrictions:
01. the permitted foreign equity is initially limited to 51%, and to 75% after 3 years from the date of accession [i.e. 11th December 2008];
02. the minimum foreign investment is Saudi Riyals 20 million (US$5.33 million) by each service supplier;
03. the minimum size of outlets may be prescribed; and
04. a minimum of 15% Saudi employees must be trained each year.

The key document required for investment by foreign interests in Saudi Arabia is an investment licence from SAGIA. For a licence application in connection with the setting up of a Saudi ­Arabian limited liability company, the following documents must be submitted:
01. A completed standard licence application form signed by each applicant, which must include an authenticated declaration that the applicants have reviewed the Foreign Investment Regulation and its Implementing Rules.
02. An authenticated resolution of the applicant’s board of directors to incorporate a limited liability company in Saudi Arabia.
03. An authenticated copy of the applicant’s certificate of incorporation and articles of association.
04. An authenticated copy of the applicant’s balance sheet for a period of two years preceding the year of application.
05. A complete copy of the company’s proposed manager’s passport, including the empty pages, as well as four passport-size photographs.
06. Complete copies of the passport, including the empty pages, as well as four passport-size photographs of each natural person who is listed in the applicant’s articles of association.

Although obtaining an investment licence is the most crucial requirement for the establishment of a Saudi company with foreign shareholders, it is only the first step in the formal setting up of the business. The following are the key steps in the post-licensing procedures required to set up a Saudi Arabian limited liability company with foreign shareholders:
01. Once the investment licence has been obtained from SAGIA, the shareholders must seek the approval of the company’s draft articles of association from the Ministry of Commerce and Industry, in connection with which the following must be submitted:
(a) SAGIA investment licence.
(b) Several copies of the company’s draft articles of association.
(c) A copy of the certificate of incorporation and articles of association of each shareholder.
(d) The Ministry of Commerce and Industry certificate approving the choice of name for the company.
02. Once the Ministry of Commerce and Industry has approved the draft articles of association, the shareholders or their authorized representatives have to execute the articles of association before a notary public, for which the following must be submitted:
(a) The letter from the Ministry of Commerce and Industry Directorate of Companies addressed to the notary public authorising the notarisation of the articles of association.
(b) The original articles of association as approved by the Ministry of Commerce and Industry Directorate of Companies and signed by the shareholders or their representatives.
(c) A copy of the certificate of incorporation and articles of association of each shareholder.
(d) An authenticated power of attorney authorising the representative of each shareholder to sign the articles of association.
(e) A copy of the SAGIA investment licence.
(f) A copy of each of the identification cards of the two witnesses present.
03. The next step is the publication of the summary of the articles of association in the Official Gazette.
04. Thereafter, the shareholders or their authorized representatives have to open an account with a Saudi Arabian bank, in which the company’s capital must be deposited
05. The final step of the registration process is to obtain the commercial registration (CR) certificate, for which the following documents must be submitted to the Ministry of Commerce and Industry:
(a) An authenticated board resolution from the shareholders appointing their respective board members.
(b) Two notarized copies of the articles of association.
(c) Two copies of the receipt of fees for publication of the summary of the articles of ­association in the Official Gazette, or the commercial newspaper, as appropriate.
(d) The bank certificate confirming payment of the capital.
(e) A copy of the SAGIA investment licence.
(f) A copy of the office lease.

There is no requirement under Saudi Arabian laws currently in force that a foreign entity which is licensed to conduct business in Saudi Arabia must have a Saudi Arabian partner or shareholder. However, under the Companies Regulation a company must have a minimum of two shareholders. There is no scope for the registration of wholly-owned subsidiaries of a company, whether this is a local or a foreign company.
Although in Saudi Arabia a limited liability company is the most common form of business organisation with foreign participation, it is also possible for a foreign company to establish a branch in Saudi Arabia.

*This Saudi Arabian Law Overview is not intended to be legal advice, and cannot be relied on as a substitute for legal advice. We make no representation that the contents of this Saudi Arabian Law Overview are or will remain accurate or current.
Copyright © Hatem Abbas Ghazzawi & Co.

 

 
 

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