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Doing Business with Kingdom of Saudi Arabia
Business Laws in Saudi Arabia
Once a company has decided on the type of
business presence in Saudi Arabia, it must also be aware of a
variety of laws that regulate that business, including labour
law, tax law, and intellectual property law. These laws are all
currently in the process of being revised, as part of the
government’s efforts to attract foreign investment and pursue
its economic development goals.
Legal System in Saudi Arabia
As in other Islamic nations, the fundamental
source of law in Saudi Arabia is the Islamic Law (the Sharia).
The Sharia consists of the Holy Koran, the teachings of the
Prophet Muhammad (the Sunnah), and the writings of legal
scholars.
Several other sources of law elaborate on the
Sharia and govern commercial relations. Royal Decrees are
adopted by the Saudi Council of Ministers and provide broad
rules for a particular area such as taxes or labour relations.
Regulations, often issued by government agencies, elaborate on
these rules and provide more specific requirements.
Labour Law
Saudi labour law determines whom a company may
hire and the terms of the employment. A company should proceed
cautiously before terminating or restricting the rights of an
employee, even if provided in terms of the individual contract
agreements. A new labour law is currently under review by the
Saudi Government. An employee can sue the employer before the
Preliminary Committee for the Settlement of Labour Disputes. In
2001, the Ministerial Council approved a regulation allowing
workers to form labour committees in companies that employ 100
or more workers.
Tax Law
Saudi Arabia does not tax personal income. Saudi
citizens are subject to a religious tax, known as Zakat, 2.5 per
cent on the net worth of their working assets (not income).
Non-Saudi employees as well as companies are required to pay
income tax based on the income and earnings of their businesses.
Intellectual Property Law
Trademarks:
The current trademark law has been in effect since 1984.
Letters, names, drawings or other distinguishing symbols,
including service marks, may be protected under the trademark
law. In order to receive trademark protection, the applicant
must be a Saudi citizen or legal entity (such as a limited
liability company) or must reside in a country that offers the
same protection to Saudi Arabians. If the trademark is
registered in another country, the company may file a priority
claim. Approved trademarks are protected for a ten-year
renewable period. While the registration is pending, a foreign
company may still obtain some protection for its trademark by
entering into licensing arrangements with local merchants.
Copyrights:
Saudi Arabia passed an updated copyright law in
June 2003. Consisting of 25 articles, the law protects
intellectual property rights in the fields of literature, arts
and science, computer programs, DVDs, and designer clothes. It
details the rights of copyright owners and the means for
transferring those rights. In addition, it outlines enforcement
and penalties for copyright violations, and an arbitration
process for disputes. The length of the copyright protection
depends on the type of work; written works, movies and computer
programs are protected for 50 years after the author’s death,
while artistic works are protected for 25 years after they are
first released. Exempted from the new law are judicial rules and
daily items published in newspapers, magazines and at broadcast
stations. Folklore is also exempt, as it is considered to be
publicly owned. The new law is consistent with the provisions of
the World Trade Organization’s agreement on trade-related
aspects of intellectual property rights, and is an important
step toward the Kingdom’s accession to the WTO.
Patents:
Saudi Arabia adopted its current patent law in 1989. An inventor
may obtain a patent on new products or processes or on
improvements to current ones. A patent applicant must have a
local agent. Applications are submitted to the King Abdul Aziz
City for Science and Technology (KACST). The inventor generally
must exploit the patent on a full industrial scale within two
years of the grant. Once issued, a patent is effective for
fifteen years and may be renewed.
Food Standards
With effect from December 1, 2001, new standards
for the labeling of genetically modified food have been
implemented. The Saudi Food Safety Committee set a one percent
threshold maximum for defining a genetically modified food. Most
suppliers choose to declare their products free of genetically
modified items. The Ministry of Commerce and Industry is
expected to conduct random tests of products for the use of
genetically modified products. Saudi Ministry of Agriculture
issued new regulations in February 2003 in respect of labeling
for genetically modified food. Salient features of the
regulations are as follows:
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Compulsory labeling on genetically modified items
for the following products: fresh fruits, vegetables and dates;
cereals used as fodder for animals such as barley, durra,
millet, soybean, chaff, straw and the harvest of all its types;
planting seed; and agricultural transplants and decorated plants
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A triangle must be there on the label with the
text "Contains Genetically Modified Product (s) and the
statement must be clearly written in Arabic and English and
printed prominently with an ink color different from that of the
main product tag.
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Genetically modified products or genetically
engineered products exported to Saudi Arabia must be approved
for consumption in their country of origin. Each shipment must
be accompanied by a health certificate issued by the concerned
government agency clearly stating that the genetically modified
ingredient (s) used in the foodstuff is approved in the country
of origin for human or animal consumption.
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Import of genetically modified animals, birds,
and their by-products is prohibited.
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The regulations shall apply to all genetically
modified imported and locally produced agricultural products
beginning one year from the date they were issued (February 5,
2003). Products that do not meet the requirements of the
regulations will not be allowed to enter the Kingdom after this
grace period.
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The Animal and Plant Quarantine Department of the
Ministry of Agriculture will be responsible for implementing the
regulations.
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Some food additives and antioxidants used in
foodstuffs have additional labeling requirements. For more
information on these requirements, the following may be
contacted:
Information
Center
Saudi Arabian Standards Organisation
P.O. Box 3437
Riyadh 11471, Saudi Arabia
Tel.: 966-1-452-0132
Fax: 966-1-452-0196
http://www.saso.org.sa
Quality Control and Inspection Department
Ministry of Commerce and Industry
Saudi Arabia
Tel.: 966-1-401-3265
Fax: 966-1-402-8985
COMMERCIAL DOCUMENTS
The documents required for all commercial
shipments to the Kingdom of Saudi Arabia are:
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Commercial invoice
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Certificate of origin
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Bill of lading (or airway bill)
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Steamship (or airline) company certificate
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Insurance certificate (if goods are insured by
the exporter)
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Packing list
Additional documents may be required, depending
on the type of goods being shipped, on certain requires from the
Saudi importer or in the L/C or according to a contract.
FOOD PRODUCTS DOCUMENTS
Exports of these products should comply (among
other SASO standards) with Mandatory Standards SSA 1/1984
whether for sample demonstration or for commercial shipments,
and must provide the following certificates:
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Food manufacturers’ ingredients certificate
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Health certificate
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Price list
SEEDS AND GRAINS REQUIREMENTS
In addition to the general shipping documents,
the exporter of seeds or grains must provide the following
authenticated certificates:
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Certificate of Inspection
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Phytosanitary
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Seed analysis Certificate
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Certificate of Weight
VEGETABLE AND FRUIT
A vegetable and fruit health certificate must
accompany all shipments of vegetables and fruits to the Kingdom
certifying that such exports are free from pests, insects, and
other agricultural diseases. In addition to the general
shipping documents, the shipment must include:
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Certificate of Free Sale
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Product Registration Certificate
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Certificate of Analysis
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Product Safety Data Sheet
MEAT
In addition to the general shipping documents,
the following certificates must accompany all meat shipments:
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Certificate of ‘halal’ meat
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Official Health Certificate
MEDICINES AND PHARMACEUTICALS
Saudi importers of pharmaceuticals and medicinal
products are required to have a Certificate of Free Sale, which
confirms that the product is legally sold in the exporting
country and that the company operates with good manufacturing
practices. No medicine or pharmaceutical products are admitted
into the Kingdom unless a prior registration is made with the
Ministry of Health. The Ministry scrutinizes the applications
and analyses the samples to ensure that they conform to the
specifications before granting a license. For further
information, contact: Director General, General Directorate of
Medical and Pharmaceutical Licenses, Ministry of Health, Riyadh
Tel: 966-1-4640811 Fax: 966-1-4645536.
COMMERCIAL SAMPLES
v
Legal documents include
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Power of Attorney
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Agency Agreements
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Sole Distributorship
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Trademarks Registration
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Certificate of Free Sale
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Bid or Tender documents
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Registration of partnerships, corporations or
joint ventures
Saudi Market
The Saudi market represents both challenge and
opportunity for foreign businesses. It lies at the heart of a
larger GCC market, with consumers having a high disposable
income. The large percentage of young Saudi population will
likely substantially increase the demand for a wide range of
consumer goods and products. According to UN, more than 45 per
cent of the Saudi population is under the age of 15.
The exchange rate of the dollar has been fixed at
3.75 riyals to the dollar since 1986 and products are usually
imported on a CIF basis and no standard formula exists for
determining on mark up rates on products. The Saudi prefers
bargaining and financing has become a leading consideration in
purchasing, especially for investment goods and repeat orders.
Due to the very competitive nature of the market, where US,
European, and Far East products compete against the other, above
average sales, service and customer support are important
factors in winning and maintaining new clients.
The Kingdom’s commercial regions are divided into
three primary markets of Western Region, with Jeddah as the main
commercial center, the Central Region with the capital city of
Riyadh, and the Eastern Province where a high concentration of
oil and gas industry business occurs. Many companies import
goods for their own use, or for direct sales making the location
and the number of retail outlets and important factor. Although
there is no requirement for exclusive distributorship, the Saudi
ministry of Commerce prefers that all such arrangements be
exclusive with respect to either geographic region or product
line as many Saudi companies are active in numerous product
lines.
Advertising
Advertising is a rapidly expanding business in
the Kingdom, which spent $380 million in 2000. Most companies
now choose to advertise in a wide range of media, including TV,
newspapers, trade magazines, billboards, and trade promotion
events, national festivals, and sweepstakes drawings in malls
and shopping centers.
Print advertising is also important. In recent
years, many new magazines have appeared on the Saudi market, the
popular among them are Al Majallah, Al Yamamah, and Sayidati.
Newspaper advertising is carried out in local
English and Arabic papers. The local dailies published in
English have circulations of between 20,000 and 50, 000 copies:
Arab News (Jeddah); Saudi Gazette (Jeddah); and the Riyadh Daily
(Riyadh). The leading Arabic newspapers have nationwide
distribution and circulation of between 70,000 and 100,000: Al
Sharq Al Awsat, Okaz, Al hayat, Al Jazira and Al Riyadh. Um Al
Qura is the official government newspaper. Other newspapers
have lower circulation and at times only regional distribution:
Al Bilad, Al Madina, Al Nadwa, and Al Youm. Another
publication, the Al Iqtisadiah economic daily, focuses on
business issues.
Saudi Investment Laws
The new Foreign Investment Law allows the
international companies the possibility of 100 percent ownership
of the projects. The new law, which was passed in April 2000,
gives international companies full ownership of the property
required for the project or for housing company personnel, while
enabling them to retain the same incentives given to national
companies. The law permits foreigners to invest in all sectors
of the economy, except for specific activities contained in a negative
list. Foreign investors are no longer required to take local
partners and may own real property for company activities. They
can transfer money from their enterprises outside of the country
and can sponsor their foreign employees.
As per the new law, corporate tax rate for
foreign companies with annual profits over SR 100,000 is reduced
from 45 percent to 20 percent. Companies are also allowed to
carry forward corporate losses for an unspecified number of
years. Projects that are 100 percent foreign owned are also
eligible for loans from the Saudi
Industrial Development Fund (SIDF). Similarly, investors are
also entitled to hold investment licenses in more than one type
of activity.
The legal framework of trade relationships
Saudi Arabia is notably Member of the following
international and regional organizations:
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The United Nations Organization (UN) ;
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The International Monetary Fund (IMF) ;
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The World Bank;
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The Organization of the Islamic Conference (OIC);
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The Gulf Cooperation Council (G.C.C);
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The Arab League. (AL)
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The World Trade Organisation (WTO)
Saudi Arabia has also signed economic and
commercial cooperation agreements with most of Islamic Countries
as well as with its trading partners of Africa, Asia, America,
and Europe.
The World Trade Organization included
Saudi Arabia as 149th (latest) member of the body
which acts as the chief global arbiter in international trade
disputes and as a forum for reaching cross-border trade deals.
The accession will further integrate the Kingdom of Saudi
Arabia’s economy into the world economy. It will also deepen the
universality of the multilateral trading system. It will enhance
the business environment in Saudi Arabia by adding more
transparency and predictability.
TRENDS, PROSPECTS & OPPORTUNITIES IN KSA
Saudi Arabia is an annual import market of around
US$ 45 billion, which represents a great challenge and promising
opportunity. Consumers with high disposable income characterize
Saudi market. In addition to its indigenous wealth and central
location in the Middle East, the Kingdom is also strategically
placed to take advantage of worldwide trading opportunities,
particularly in Asia, Africa and Europe. Realizing that almost
three-quarters of Saudi Arabia’s population is less than 30
years old, the Kingdom of Saudi Arabia has become a prime
market in the Middle East for a variety of consumer products and
imported goods, media and educational materials, and services in
the financial, health, IT, retail, leisure and the property
sectors.
Saudi Arabia is seeking now standalone
investments in utilities, water and railway sectors, which could
run to hundreds of billions of dollars over many years and are
trying to convince foreign investors that it is safe
economically and politically to invest in the Kingdom.
The establishment in 1998 of the Saudi
Electricity Company paved the way for the deregulation and
privatization of power and water desalination plants. A variety
of privatization programmes are planned like Independent Power
Production (IPP), Independent Water and Power Production (IWPP),
Build-Operate-Transfer (BOT), Build-Own-Operate (BOO),
Build-Own, Operate and Transfer (BOOT), Build-Lease, and
Transfer (BLT) and Build-Lease (BL). Power generation, transfer
and distribution is open for foreign investment and in the power
sector alone it is estimated that in the next 15-20 yeas the
investment needed would be $100 billion. Saudi Arabia is
already world’s largest producer of desalinated water, with
existing 30 combined water and power generation plants.
Investment potential in water could be in the region of $1-$2
billion a year.
Saudi Arabia
General Investment Authority (SAGIA)
Government of Saudi Arabia has launched Saudi
Arabian General Investment Authority (SAGIA) in April, when it
announced a new Foreign Investment Law. SAGIA has since been
actively working with the government and other agencies toward a
Saudi development vision for the 21st century. SAGIA are the
gateway to investment in Saudi Arabia. SAGIA’s mission is to
create a pro-business environment, provide comprehensive
services to investors and foster investment opportunities in
energy, transportation and knowledge-based industries.
The Saudi Government had formulated the new
foreign investment law with the objective of liberalizing and
improving the investment climate in the Kingdom of Saudi Arabia
by strengthening the rights and privileges of the foreign
investor. The law provides SAGIA with such a broad mandate that
the Saudi Government’s various ministries and relevant agencies
are represented on SAGIA’s Board of Directors.
According to this mandate, SAGIA has following
roles:
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To act as a service organization (facilitator),
supporting and providing hands-on assistance to existing and
prospective investors. SAGIA aims to provide the full range of
support functions, from the enquiry stage to the fulfillment of
a business project.
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To act as Saudi Arabia’s inward investment
promotion agency. This means promoting the Kingdom as a stable,
modern economy and strategic and profitable investment location.
Its role is to project the Kingdom as a nation that offers a
globally acceptable standard of living and a peaceful social and
cultural atmosphere for people of all nationalities.
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To act as a catalyst for major changes. Its
statute empowers SAGIA to recommend state policies designed to
promote and enhance local and foreign investments and to propose
executive plans and criteria to improve the investment climate
in Saudi Arabia. SAGIA acts as an intermediary between the
global community and the Saudi Government and its ministries and
agencies.
SAGIA conducts surveys of laws, regulations and
procedures that have implications on investment to improve the
investment climate in the Kingdom. It conducts studies to
benchmark the Saudi Arabia’s competitiveness in attracting
investments, and that determine the administrative barriers to
foreign and domestic investments. SAGIA also organizes workshops
involving foreign and Saudi businessmen to assess their needs,
and in active cooperation with the Shura Council and the
Chambers of Commerce and Industry. The Authority has been
actively working with the government and other agencies to
achieve its objectives and has already issued inward investment
licenses worth over SR 51.42 billion (US$ 13.71 billion) for
1864 projects over the past years.
SAGIA reports to the Supreme Economic Council
(SEC), which is the Kingdom’s top policy-making body. A Royal
Decree issued on August 30 1999 formed the eleven-member
Council. Crown Prince Abdullah bin Abdulaziz, Deputy Premier and
Commander of the National Guard chairs the Council. The
formation of the SEC was prompted by the crucial role played by
economic affairs in the countries of the world, their direct
influence on the interests of citizens and the need to involve a
wide circle of contributors in economic policy-making in the
changing economic world. It also underlined the importance that
the Kingdom attached to economic reforms and liberalization in
the context of globalization. The SEC considerably broadened
representation of Saudi business and academic communities in the
nation’s policy-making. It enjoys a broad mandate to issue
developmental policy guidelines.
SAGIA has also been actively engaged in dialogue
and cooperation at various levels with several international
organizations, such as the United Nations. Two SAGIA investment
retreats – at Barcelona and Istanbul in Turkey have also made
significant recommendations on changes that will be needed in
the law and on the ground. Its main Investor Service Center in
Riyadh – the one-stop shop – has been functioning for more than
two years. It has opened additional centers in Jeddah, Dammam,
Jubail, Yanbu and Madinah in cooperation with the Chambers of
Commerce and Industry and other bodies such as the Governor’s
Office in Madinah and the Royal Commission for Jubail and Yanbu.
SAGIA is currently holding discussions with the Chambers of
Commerce to open four more Investor Service Centers in the
Kingdom in Abha, Hail, Al-Gurayat and in Al-Qaseem.
The Authority is also considering establishment
of representative offices in selected overseas locations. The
Japanese government has taken the initiative to establish a
Japan Desk within SAGIA to facilitate continuous interactions
with Japanese businesses and investors. The Japan External Trade
Organization (JETRO) and Japan Cooperation Center sponsor the
Japan Desk at SAGIA for the Middle East (JCCME).
Saudi Arabian General Investment Authourity (SAGIA)
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