REGULATIONS FOR COMPANIES

Formation and operation of business firms and companies is regulated by companies Law promulgated by Royal Decree No. M/6 dated 22 Rabi I 1385 H., (1965). Royal Decree No. M/5 dated 12 Safar 1387 H. (1967) and Royal Decree No. M/23 dated 28 Jumada II 1402 H. (1982) amended the regulations for companies. Under Article 1 of the Companies Law, a company has been defined as a contract pursuant to which each of two or more persons undertake to participate, in an enterprise aiming at profit, by offering in specie or as work a share, for sharing in the profits or losses resulting from such enterprise.

Following are some of its important provisions:

Under article 2, companies can take any of the following forms:

- General Partnerships.- Limited partnerships.- Joint Ventures.- Corporations.- Partnerships Limited by Shares.- Limited Liability Partnerships.- Variable Capital Companies.- Cooperative Companies.

Without prejudice to the companies acknowledged by the Islamic "Shari’ah" Law, any company not having any of the legal forms as given in Article 2 of the Companies Law shall be null and void.Partner's contribution may consist of a certain sum of money (a contribution in cash), or of a capital asset (a contribution in kind). It may also comprise services except in the cases where the provisions of the Companies' Regulations imply otherwise, but it may not consist (solely) of the partner's reputation or influence.Every partner shall be considered indebted to the company for the contribution he has undertaken to make. If he fails to surrender it on the date set therefore, he shall be liable to the company for any damages arising from such delay.Save in the case of a joint venture, a company's memorandum of association and any amendment thereto must be recorded in writing in the presence of a registrar. Otherwise, such memorandum or amendment shall not be valid vis-à-vis third parties.With the exception of joint ventures, any company incorporated in accordance with these Regulations shall establish its head office in the Kingdom. It shall be deemed to have Saudi nationality, but this

shall not necessarily entail its enjoyment of such rights as may be restricted to Saudis.

The 1965 Regulations for Companies, and its 1982, 1985, and 1992 amendments, contains the rules for the formation and operation of business entities in Saudi Arabia. Businesses can take the following forms:

General partnershipLimited partnershipJoint ventureJoint stock companyPartnership limited by sharesLimited liability partnershipCompany with variable capitalCo-operative companyRegistered branch of a foreign company

 

COMMERCIAL REGISTRATION

Every industrial or commercial establishment must register with the Ministry of Commerce’s commercial registration offices in the major cities in the Kingdom. Saudi partners in foreign companies and branches of foreign companies need the consent of the Foreign Capital Investment Committee one month before they apply for commercial registration, when they want to open new branches at other locations in the Kingdom, and when there are changes to their original statements. The registration procedures are as follows:

Foreign Companies’ Commercial Agencies Registration: To register an agency, theagent must be a Saudi company or establishment. The partners and the management of the company must all be Saudis. The time limit for the submission of the registration application in the register of commercial agencies is three months from the date on which the agency came into effect.Companies’ Service Agencies: The act stipulates that a foreign contractor who has no Saudi partner shall appoint a Saudi service agent. The Saudi agent must have a commercial registration. If the contract under consideration is a consultancy, the Saudi agent shall be licensed to carry out consulting services of the same nature as the contractor. The Saudi agent is not allowed to represent more than 10 foreign contracting companies. A foreign company with a contract with the government shall have a temporary license that expires with the project.

Foreign Companies Branches: A foreign company carrying out industrial or contracting works or any other works essential to the goals of economic development in the Kingdom may apply to the Foreign Capital Investment Committee for a license to establish a branch in the Kingdom. On receiving the license, the company may complete its registration with the Ministry of Commerce according to the Commercial Register and the Companies Act.Scientific and Technical Offices: A foreign company that distributes its products in the Kingdom through a registered Saudi agent may apply to the Ministry of Commerce to open a Scientific and Technical Office for providing Scientific and Technical Services to agents, distributors and consumers if the use of its products requires specialized knowledge or precautions.

 

COMMERCIAL AGENCY REGULATIONS

Under the 1962 Commercial Agency Regulations, non-Saudis are not permitted to act as commercial agents in Saudi Arabia. In addition, no one can act as a commercial agent unless his name has been entered into the Register maintained by the Ministry of Commerce. In 1981, the Ministry of Commerce adopted Implementation Rules, the major provisions of which are that:

Saudi distributors are responsible for registering each foreign contractor they represent. Copies of the agency agreement must be filed with the registration application in order to avoid fines and to provide the Saudi distributor with protections built into the regulations (in practice, fines are rarely, if ever, assessed for failure to register). Failure to register a distributorship agreement will not render such agreement unenforceable or otherwise adversely affect the foreign supplier.For the term of the agency agreement and for the earlier of one year after a contract’s termination or until appointment of a new agent, the agent must provide consumers with necessary spare parts and maintenance at reasonable prices, available within 30 days of request.Commercial agency contracts must include certain basic terms (parties, subject matter, term, termination procedure, etc.) and any other matters not inconsistent with the regulations in force in Saudi Arabia. A model contract (originally issued in 1981 but revised in 1983) was recommended by the Ministry of Commerce for this purpose.Severe penalties are imposed for violation of certain of the 1962 Regulations or the Implementation Rules, including liquidation of the company, deportation of foreign personnel, and prohibition against

future commercial activities in the Kingdom.

 

The Model Contract

In 1983, the Ministry of Commerce issued a Revised Model Contract for Agents and Distributors (the "Model Contract") as a guideline to help the parties involved meet the minimum standard requirements. Use of the Ministry of Commerce form is not required. However, if the agency contract differs substantially from the provisions in the Ministry of Commerce form, the Ministry may not register the contract.

The major provisions of the 1983 Model Contract include:

Saudi agents/distributors need not accept goods that do not meet Saudi Government specifications.The foreign supplier must supply spare parts and maintenance for one year after the contract terminates or until appointment of a new agent.The Model Contract’s section on disputes serves only as a guide to dispute resolution. Disputes under distributorship agreements should be settled amicably if at all possible. If the parties are unable to settle amicably, the dispute will be submitted to the Saudi Board of Grievances for resolution, unless arbitration within or outside the Kingdom is specified in the distributorship agreement. In November of 1993, Saudi Arabia acceded to the New York Convention on International Arbitration. It is therefore likely that if a New York Convention recognized venue is specified in the agreement, the settlements made will be recognized in the Kingdom.

 

Text Model of   Saudi Arabian Agency Contract

 

Original Saudi Arabian 1962 Commercial RegulationsRoyal Decree No. 11 dated 20/02/1382HAmended by Royal Decree No. M/8 dated 20/03/1393HAmended by Royal Decree No. M/32 dated 10/08/1400H

Article (1) No natural or corporate entity, other than Saudis, shall be permitted to operate as a commercial agent in the Kingdom of Saudi Arabia. The capital of the Saudi companies operating as commercial agents must be fully Saudi, and the members of their boards of directors and the persons authorized to sign on their behalf shall be Saudis.

Article (2) Commercial agents who were still operating on the date of the issuance of this regulation and who are not covered by the provisions of Article 1 above, shall be given a period to liquidate their businesses and to transfer the same to Saudi commercial agencies within two years from the date on which this regulation becomes effective. The Minister of Commerce shall specify such period with regard to each agent separately, taking into consideration speedy implementation, the nature of the agent's business, and the period referred to above.

Article (3) No one shall be allowed to operate as a commercial agent unless his name is registered in the Commercial Agents Register maintained by the Ministry of Commerce. The Minister of Commerce shall issue a decision for the establishment of this register. The register shall contain the name of the merchant or the company, the kind of goods for which he acts as agent, the name of the appointing company or the establishment, and the date of appointment and its duration if the agency was fixed for a certain period.

Registration applications shall be presented together with supporting documents to the Deputy Minister. No registration shall be rejected except for non-Saudis or those Saudis who are barred from or are incapable of engaging in commerce and trading.

Article (4) Anyone who acts as commercial agent and violates this regulation shall be fined a sum not exceeding 50,000 Riyals and not less than 5,000 Riyals with publication of such penalty on the account of the violator without prejudice to the right of anyone who suffers damages to claim compensation. If the violation is committed by a foreigner or by a Saudi company with one or more foreign partners, the penalty shall be, in addition to the fine quoted above, the administrative liquidation of the commercial agency business and the possibility of preventing the violator from practicing commerce either permanently or for a specific period. The Minister of Interior may, based upon a recommendation by the Minister of Commerce, order the deportation of the foreigner.

Article (5) Registration fees are fixed at 500 Riyals whether the agent is an individual or company. The fee shall be paid once.

Article (6) Without prejudice to the provisions of other laws, the Commercial Agency Regulations, promulgated by Royal Decree No. 11 dated 20/02/1382H and its amendments, shall apply to everyone who enters into a contractual agreement with the producer or his representative in his country, be it an agent or a distributor.

Article (7) Without prejudice to the laws and resolutions pertaining to the securing of maintenance and spare parts, the agent and distributor shall:

a.) Secure permanently spare parts that are demanded continuously by the consumers, and secure other spare parts within a reasonable period as stipulated by the Implementing Regulations.

b) Secure necessary maintenance for the products and guarantee manufacturing quality and other conditions made available by the producers, on a continuous basis and for the duration of the agency and for an additional year after the termination of the agency or the appointment of a new agent, whichever comes first, and in accordance with the Implementing Regulations.

c) The provisions of this article shall also apply to importers who are not agents or distributors and to anyone involved directly or indirectly in the sales operation for profit purposes; anyone who violates the provisions of this article shall be fined in accordance with the penalties that apply to agents and distributors.

Article (8) The Minister of Commerce shall issue the Implementing Regulations for the Commercial Agencies Regulations, and they will be published in the Official Gazette.

Article (9) The Ministry of Commerce shall prepare sample Contract Agreement (see Model Contract earlier in this section) forms as a guide to agents and distributors. These forms will include all necessary data for the Contract Agreement, such as the parties thereto, place, period and location, renewal and termination conditions, and obligations of the parties vis-a-vis one another and towards the consumer, especially regarding the securing of maintenance and spare parts.

 

Foreign Contractors' Agency RegulationsRoyal Decree No. 2 dated 21/01/1398H

Article (1) These regulations govern the Saudi agent and the foreign contractor, both individuals and companies performing works or acting as consultants for the Saudi Arabian government.

Article (2) These regulations apply on all contracts concluded between the foreign contractor and the Saudi Arabian government.

Article (3) In case a Saudi partner is not available, a foreign contractor must appoint a Saudi service agent; non-Saudis cannot act as agents for foreign contractors. In case the foreign contractor is a consultant, a Saudi consulting office shall act as the foreign contractor's agent.

Article (4) No agency agreement will be allowed in armaments contracts and associated services, nor in government-to-government dealings.

Article (5) The appointed agent should be a Saudi national residing in the Kingdom of Saudi Arabia with a commercial registration allowing him to act as an agent.

Article (6) A foreign contractor with diversified activities may appoint more than one Saudi agent; and a Saudi agent may act on behalf of no more than 10 foreign contractors.

Article (7) An agency contractual agreement, specifying the parties' obligations, shall regulate the relationship between the Saudi agent and the foreign contractor.

Article (8) The Saudi agent shall receive from the foreign contractor an agreed upon amount not to exceed 5 per cent of the contract value to be implemented by the foreign contractor.

Article (9) A Saudi agent cannot act as a consulting and executing agent for the same project; however, a Saudi service agent may be an agent for a foreign contractor assigned to perform consulting works for the project, and also be an agent for a foreign contractor assigned to execute the works on another project.

Article (10) The purpose of the agency shall not be to exploit influence or connections.

Article (11) Without prejudice to the provisions of other laws and regulations, the Commercial Disputes Arbitration Committee shall be empowered to look into any dispute arising between the foreign contractor and his Saudi agent.

Article (12) The foreign contractor who violates the provisions of these regulations shall be prohibited from practicing his activities in the Kingdom of Saudi Arabia; and the Saudi agent who violates the provisions of these regulations shall be prohibited from becoming an agent and his commercial registration shall be withdrawn.

Article (13) These regulations shall be implemented from the publishing date in the Official Gazette.

 

SUPPLY AND CONSUMER

PROTECTIONThe Saudi Government is committed to assist the private sector in handling domestic and foreign trade. In pursuit of its efforts to contain inflation, the Ministry of Commerce regularly checks the supply and prices of basic commodities such as flour, rice, sugar, milk and milk products, vegetable oil and ghee substitute, frozen meat and the imported animal feeds (barley, sorghum and millet).

 

Supply Policy:

 The Government has formulated a supply policy to achieve the following specific objectives:

Procuring essential commodities continuously and in sufficient quantities for all markets.Providing supply items at reasonable quantities and prices.Expanding consumer choice.Reinforcing fair competition among suppliers.Encouraging the establishment of distribution chains and upgrading

the level of commercial services in general.Promoting better understanding and cooperation between the private commercial sector and the government.

Further, the supply policy inspired by the country's socio-economic conditions is based on the following principles:

Reliance on the private enterprise system under normal conditions.Government intervention only under abnormal conditions and when it is absolutely necessary.Fixation of local ceiling prices for a selected number of basic supply and food items in order to make these available to the majority of consumers and also to protect the consumers from volatile international market prices of commodities. At the same time, an appropriate subsidy scheme is in force to compensate importers of supply commodities when the cost of importation exceeds local ceiling prices.Fixation of ceiling profit margins in the trade of another group of essential supply commodities.Monitoring and regulation by government of import storage and warehousing operations carried out by the private sector with respect to supply commodities.

Consumer Protection Objectives and Functions:

 Main objectives are: 

To protect the consumer from all kinds of commercial fraud and to keep him well-informed.To prevent the rise of monopolies.To contribute to price and cost of living stability.To achieve better quality control in locally produced and imported foods and other consumer products by checking on specifications and standards adopted by the Saudi Arabian Standards Organization or internationally. This is also done by examining the product’s conformity to the religious requirements of Islam.To ensure the commercial application of standardization rules with respect to volumes, weight, and measures.To ensure the commercial application of precious metal specifications with respect to gold, silver, platinum, etc.

Major functions are: 

Product and Price control.Quality control.

Standardization and Hallmarking.

Settlement of Commercial

Disputes  

For further details, contact Legal Department, Ministry of Commerce and/or Grievances Court .

Establishment and conduct of commercial courts is regulated by Royal Decree No. 32 issued on 15 Moharram 1350 H. (1930). Under this law, all commercial disputes, except for those related to insurance business, are settled by a "Committee for Commercial Disputes" comprising two "Shari’ah" Judges and one Legal Adviser. The disputes related to insurance business are referred to the Ministry of Commerce for decision.Arbitration Law, promulgated by Royal Decree No. M/46 dated 12/7/1403 H. (April 25, 1983) canceled and superseded the previous arbitration provisions contained in the above-mentioned Royal Decree No. 32.Since December 31, 1987, Commercial Disputes have been within the competence of the Grievances Court (Diwan Al-Mazalem), Commercial Circuit, instead of the Committee for Commercial Disputes.The disputes pertaining to negotiable instruments are governed by Negotiable Instruments Regulations approved by the Council of Ministers Resolutions No. 692 dated 26 Ramadan 1383 H. (1963) and issued under Royal Decree No. 37 dated 11 Shawwal 1383 H. (1963). These regulations supersede Chapters VI, VII, VIII and IX of Commercial Court Regulations issued under Royal Decree No. 32 of 1350 H. (1930).To settle commercial disputes related to negotiable instruments, committees in Riyadh, Jeddah, and Dammam have been constituted. The decisions of these committees are not binding. Any of the two parties can appeal against the decisions of these Committees to the Ministry of Commerce within 15 days of their issuance.Any of the two parties to the dispute can refer their dispute, pertaining to the negotiable instruments, directly to the Chairman of any of these Committees.Cases involving commercial fraud are governed by Regulations for

the Control of Commercial Fraud issued under Royal Decree No. 45 dated 14 Sha'ban 1381 H. (1961). Under these regulations, the Ministry of Commerce shall issue special decisions for setting up a Central Tripartite Committee in Dammam, Jeddah, and Riyadh. Each committee shall be headed by a representative from the Ministry of Commerce. These committees shall carry out the necessary investigations and issue punishments provided for in these regulations. The decisions of these Committees are not binding except after being confirmed by the Ministry of Commerce. There is, however, permission to appeal to the Ministry of Commerce against these decisions within 15 days from the date of their issuance.The Commercial Office of the Royal Embassy of Saudi Arabia in Washington, D.C. (see appendix II for address) mediates commercial disputes between Saudi and American companies only when both parties are willing to reach an amicable out-of-court compromise. Since Arabic is the official language of the Kingdom of Saudi Arabia, translation of documents and related material into Arabic is recommended.

SAUDI ARABIA INDUSTRIAL

LICENSINGINDUSTRIAL LICENSING PROCEDURES

Licenses for establishing an industrial unit are granted according to one of the two following regulations:

The National Industries Encouragement Act, which applies to industrial projects to be established by Saudi citizens with full Saudi capital.The Foreign Capital Investment Act, which applies to industrial projects fully owned by foreign capital or joint ventures with foreign capital.

All industrial projects owned by foreign or national capital or by joint ventures whose fixed capital exceeds SR1 million (excluding the value of land and holdings) must be licensed by the Ministry of Industry and Electricity. Investors planning to start an industrial project should submit an application to the Evaluation and Licensing of Industrial Projects Department stating the product and the production capacity, approximate capital, and proposed location. If the Department considers the project suitable, it will provide the applicant with a license application form. The investor must fill in the license

application form with details of the economic feasibility of the project and return the form and the feasibility study to the Department, with copies of the identity cards of the project owners. For projects with foreign capital, a copy of the initial partnership contract should be attached with the documents.

Special units in both the Evaluation and Licensing of Industrial Projects Department and the Foreign Capital Investment Committee are responsible for evaluating applications. They submit their recommendations to the Minister of Industry and Electricity, who gives the final approval.

Projects with a fixed capital of less than SR1 million are not subject to the industrial license system but should be recorded in the Commercial Register. For these projects investors should obtain a registration form from the Ministry’s Evaluation and Licensing of Industrial Projects Department. The investor must submit the form, along with equipment invoices, to the Department. If the Department approves the registration, it will contact the commercial registration office where the project is located and notify the investor to contact the Registration Department to complete the registration procedure. Bakeries, cold stores, ice factories, and cement-mixing projects can be registered commercially, without an industrial license from the Ministry.

NATIONAL INDUSTRIES ENCOURAGEMENT ACT

The National Industries Encouragement Act was sanctioned by Royal Decree No. M/50 dated 23/12/1381 AH. Its articles apply to existing and new industries and include the following concessions:

1) Customs duty exemption on all imports for industrial establishments, including equipment, machinery, tools, spare parts, raw materials (primary or semi-manufactured), and packaging materials, including tins, bags and cylinders.

2) Provision of plots of land for the construction of factories and residences for laborers and personnel, at a nominal rent.

3) Support for local production by limiting imports to the Kingdom of commodities similar to those produced locally.

4) Extending financial aid to the industrial establishments.

5) Exempting local products from export duties and all other taxes.

Concessions 1 and 2 are awarded by the Minister of Industry and Electricity on the recommendation of the Technical Industrial Bureau in the Ministry. Concessions 3 and 4 are granted by the Council of Ministers on the recommendation of the Minister of Industry and Electricity. Concession 5 is governed by a Royal Decree based on the decree of the Council of Ministers. To receive these concessions, industrial establishments should meet the following conditions:

Provide all the information about the industrial project and details required by the Ministry, and allow the Ministry’s representatives to inspect the project according to the articles of the Act.Use equipment, machinery, spare parts and raw materials exempted from custom duties only in licensed factories and for the purposes for which exemptions were granted.Employ Saudi laborers and technicians, unless otherwise approved by the Ministry of Labor and Social Affairs.

FOREIGN CAPITAL INVESTMENT ACT

The Foreign Capital Investment Act covers currencies, financial and commercial papers, equipment, machinery, spare parts, raw materials, products, transportation means, patent rights, and trade marks, provided that they are officially registered and officially recognized. Foreign investments in the oil and mineral sectors are subject to a special act applied by the Ministry of Petroleum and Mineral Resources.

To enjoy the concessions allowed in the Foreign Capital Investment Act, foreign capital should meet three conditions:

The planned investment should be in projects within the framework of the development plan or projects of the same nature in existence in the Kingdom;It should involve foreign technical expertise; andIt should have an industrial license from the Ministry of Industry and Electricity, upon recommendation of the Foreign Capital Investment Committee.

The license, with all information and documents, and signed by the authorized official or his authorized representative, should be submitted to the office of the Foreign Capital Investment Committee, where it is registered and evaluated and referred to the committee along with any relevant evaluation.

The application should include information on the legal status of the applicant, the company and the products it plans to produce in the

Kingdom, with information on the local competition, a description of the manufacturing process, and details of the equipment, machinery and raw materials, manpower requirements and plans for the training of Saudi labor and personnel, the value of the project, the economic feasibility study, the project cost and marketing plans.

The Foreign Capital Investment Committee is comprised of the Undersecretary for Industrial Affairs of the Ministry of Industry and Electricity, as Chairman, together with representatives of the Ministries of Planning, Finance and National Economy, Petroleum and Mineral Resources, Agriculture and Water, and Commerce. Among the committee’s functions are suggesting development projects, assessing investment applications, investigating complaints or disputes, recommending penalties for violators, and establishing rules for the implementation of the Act.

The Foreign Capital Investment Act grants foreign capital the same concessions as national capital under the National Industries Encouragement Act. It exempts industrial or agricultural projects with foreign capital from income and corporate taxes for ten years, and exempts other projects from these taxes for five years from the start of production, provided that the project has local equity participation of not less than 25 percent during the period of exemption. If the project was in existence before the issue of the Act, the exemptions will be applied.

The Industry and Electricity Minister can draw the attention of any of the licensed industrial establishments to violations of the provisions of the Act and require them to remedy the violation within a specified time. In case of non-compliance, the Minister may, on the recommendation of the Foreign Capital Investment Committee, withdraw the license or liquidate the establishment.

The owners of the establishment may appeal to the Board of Grievances against the penalty within 30 days from the date of notification, through the official channels.

 

DEVELOPMENT PROJECTS QUALIFYING FOR FOREIGN INVESTMENT

The Ministry of Industry and Electricity designates five categories of development projects as qualifying for foreign investment, as described below. However, other development projects may be

accepted on the recommendation of the Foreign Capital Investment Committee.

Industrial Development:

Converting raw material into manufactured or semi-manufactured materials, transferring semi-manufactured materials into fully manufactured materials or preparing, packaging and filling fully manufactured materials.

Agricultural Development:

Agricultural resources, for example the production of fruit, vegetables, grains (except wheat and barley), nurseries, greenhouses, crop seeds, or green fodder.Animal resources, such as cattle fattening and breeding, beehives, dairy products.Fish resources, such as fishing and the establishment of artificial ponds for fish breeding.

Health Development:

Building, maintenance, operation and management of hospitals, clinics or health centers.

Services:

Banks, hotels, and tourism servicesTraining, maintenance and operation services that require technologyEnvironmental protection servicesShippingComputersTechnical workshopsRefrigerated storesRestaurants

Contracting:

Civil construction, such as notable buildings, medical installations, airport buildings, terminals, subways, tarmac roads, water and sewerage, civil works and railway lines.Electricity works, such as power generating plants, power relay and distribution networks and communications networks, and electronic

fittings.Mechanical works, such as cooling and dry air-conditioning works, and pumping and purification plants.

Industrial Works:

Construction of factories, refineries and petrochemical works, such as construction of tanks and petrochemical installations, laying of oil and gas pipes, construction of desalination plants, and related mechanical installations.

 

LICENSE APPLICATIONS FOR ESTABLISHING FOREIGN CAPITAL INVESTMENT PROJECTS

I. Submission of License Applications

A. Industrial Projects:

Investors who want to establish an investment project should briefly describe the nature of the proposed project, in terms of products, production capacity and investments, etc., to the Evaluation and Licensing of Industrial Projects Department of the Ministry of Industry and Electricity and enquire about the possibility of licensing the project.

If there is a possibility of issuing a license on the basis of the production capacity of existing factories and of market conditions, the potential investor will receive license application forms from the Evaluation and Licensing of Industrial Projects Department at the Ministry.

If a license is to be granted to a joint venture, the Saudi or the foreign partner, or his authorized representative should submit the license application form to the Secretariat of the Foreign Capital Investment Committee along with the following documents:

If the foreign partner is a company:

1) The partnership agreement, signed by all partners.

2) The license application form for the establishment of an industrial project, in Arabic, with another form in English if one of the partners is non-Arab. The form should be signed by the authorized applicant.

3) The resolution of the Board of Directors of the foreign company to invest or participate in the establishment of the project in the Kingdom to be attested by the concerned authorities. The resolution should mention the name and the nationality of the company’s representative as well as the name of the Saudi partner.

4) The project economic feasibility study and catalogues of production, machinery and equipment.

5) For special trademarks or patent rights, an attested certificate approving the use of industrial patent rights, as well as copies of the technical agreement if any.

6) An attested letter of a valid authorization to the applicant stating the authority of the applicant.

7) An attested registration certificate of the foreign company in the country of origin, issued by the authority that approved the company. The certificate should state the date of registration, with an Arabic translation of the certificate.

8) Attested documents stating the experience of the foreign company participating in the proposed project in manufacturing similar products and stating the date on which the company assumed its industrial activity.

9) If the foreign company participating in the project has no industrial experience and is affiliated with another company which does have experience, the following should be presented:

a) An attested certificate stating the relationship between the foreign company and the parent company.b) An attested registration certificate of the parent company in its country of origin, issued by the authority which gave it the right to carry out its work, and bearing the registration date. c) An attested certificate of the experience of the parent company in the manufacture of products similar to those of the proposed project.d) An undertaking attested by the competent authority, including an undertaking by the parent company to extend technical assistance to the proposed project.e) Budgets of the parent company for the last three years.

10) The final accounts and the general budgets of the foreign partner for the last three years.

11) The permanent addresses, phone, and fax numbers of the Saudi and foreign partners.

12) A copy of the Commercial Registration of the Saudi partner for the establishment, and copies of the identity cards of the individual Saudi partners.

13) An undertaking by the foreign partner confirming that it is not a partner in other companies in the Kingdom that have similar activities.

14) An undertaking by the principals to furnish the Ministry with the address of the project after its completion.

15) The initial consent of the Ministry of Information for printing and advertisement projects.

16) For lubrication oil blending projects, the initial consent of the Ministry of Petroleum.

If the foreign investor is an individual:

He shall present the documents listed in 1, 2, 4, 5, 6, 11, 13, 14, 15 and 16 above in addition to the following: certified copies of the individual’s curriculum vitae and diplomas translated into Arabic; a copy of the individual’s passport, residence permit if he is resident in the Kingdom, and a letter from his sponsor approving the transfer of sponsorship if the project is endorsed.

B. Transportation Projects:

Shipping projects mentioned in Article 5 of the ministerial resolution on development projects are available to foreign investors. Transportation projects require a license in accordance with the Foreign Capital Investment Act before the registration and formation of the company according to the Companies Act.

The foreign investor, in the case of a joint venture, or the Saudi partner or a duly authorized representative is to present the following documents:

1)  The partnership agreement, signed by all partners.

2)  A copy of the license application in Arabic (with a copy in English in the case of a foreign partner) along with a statement specifying the activity, the capital, each partner’s share and their nationalities.

3)  An attested certificate with the authorization of the person who represented the application.

4)  An attested certificate from the official authorities (annual reports can also be accepted) showing the activities of the foreign partner inside and outside the Kingdom, with a statement on the means of transport he owns and their value.

5)  The resolution of the Board of Directors of the foreign partner to invest in the Kingdom and the appointment of an agent of the company in the Kingdom. The resolution should be approved by the concerned authorities.

6)  An attested registration certificate of the foreign company participating in the project, in its country of origin.

7)  The annual reports and general budgets of the foreign partner for the last three years.

8)  A document stating the assistance and facilities to be extended by the parent company for the joint venture project.

9)  The address of the foreign partner in his country of origin, the address of the Saudi partner in the Kingdom and the address of the proposed project.

10)  Copies of the Commercial Registrations of the Saudi partners, in the case of companies and establishments, and identity cards in the case of individuals.

11)  An attested certificate stating the date and place of manufacture of the project’s vessels, loads and any other statements (for shipping projects).

12)  The economic feasibility study of the project in Arabic.

13)  The consent of the Ministry of Communications (The Deputy Minister for Transportation Affairs) for the establishment of the project in the Kingdom.

14)  An undertaking by the foreign partner company that neither it nor its branches or associate companies is participating in any project of similar activity in the Kingdom.

C. Services and Contracting Projects:

The Ministerial Resolution related to development projects, under the Foreign Capital Investment Act, states the types of projects related to the provision of services or contracting works that have foreign capital and can be licensed. All these projects require licenses according to the Foreign Capital Investment Act before formation and registration of the company according to the Companies Act. Companies licensed according to the Foreign Capital Investment Act that have been founded and registered for carrying out certain services or contracting works should obtain an amendment of the previous license given to them.

Foreign companies that do not hold licenses but have temporary registration from the Ministry of Commerce for carrying out a contract need a license under the Foreign Capital Investment Act to continue their work in the Kingdom on projects for the public or private sector.

In all cases above, the foreign investor, or the Saudi partner or their duly authorized representative, is to present the following documents.

If the foreign partner is a Company:

1)  The partnership agreement signed by all partners.

2)  The license application for the establishment of a contracting and services project in Arabic and another form in English if one of the partners is non-Arab. The forms should be signed by the authorized representative, and a preliminary feasibility and marketing study should be included.

3)  The resolution of the Board of Directors of the foreign company to invest or participate in the establishment of the project in the Kingdom, including the name of the Saudi partner, and the name and nationality of the foreign company’s representative in a joint venture. The resolution should be approved by the competent authorities.

4)  An attested letter of authorization supporting the applicant’s validity and stating the applicant’s authorities.

5)  An attested statement mentioning projects carried out by the foreign partner inside and outside the Kingdom, their values, the dates of their execution, the name of clients, and a detailed description of the executed works.

6)  An attested registration certificate of the foreign company in the country of origin issued by the authority that granted it the right to

carry out its works. The certificate shall give the date of registration, with a translation in Arabic.

7)  If the foreign company participating in the project is owned by another company, an attested certificate should be presented stating the relationship between the foreign partner and the parent company, with an undertaking by the parent company to extend technical assistance and facilities to the joint Saudi company. The parent company shall also present its budgets for the last three years.

8)  The final accounts and the general budgets of the foreign partner for the last three years.

9)  If the project is for maintenance, contracting or laboratories or any similar activity, a statement of the equipment for the establishment and its value should be presented.

10) The addresses of the foreign and Saudi partners and the address of the foreign partner in the Kingdom if any. If there is no permanent address, the applicant shall undertake to provide the Ministry with the permanent address upon its registration together with his signature on the prescribed form.

11)  A copy of the Commercial Registration of the Saudi partner if it is an establishment or a company, and copies of identity cards if the Saudi partners are individuals.

12)  An undertaking by the foreign partner that he is not a partner in any other company in the Kingdom that has similar activity.

13)  The initial consent of the Ministry of Agriculture and Water for companies engaged in the drilling of water wells.

14)  The consent of the Ministry of Petroleum and Mineral Resources for companies engaged in excavation, drilling of oil wells and mining.

15) The consent of the Ministry of Health for hospitals and clinics.

16) The consent of the Saudi Arabian Monetary Agency (SAMA) for banks.

17)  On application for license by the fully owned branch of a foreign company in the Kingdom, the parent company shall undertake to be responsible for financial and non-financial obligations resulting from the activities of its branch in the Kingdom. The undertaking shall be

duly approved by the official authorities.

If the foreign investor is an individual:

He shall present the documents mentioned in 1, 2, 4, 9, 10, 11, 12, 14, 15 and 16 in addition to the following:

1)  A copy of diplomas and other educational certificates attested and translated into Arabic.

2)  A copy of his passport and residence permit, if he is residing in the Kingdom, together with a letter of approval for the transfer of sponsorship if the project is endorsed.

II. Evaluation of Investment Projects and Issuing of Licenses

Industrial projects are evaluated by the Evaluation and Licensing of Industrial Projects Department in association with the Secretariat of the Foreign Capital Investment Committee. Other projects are evaluated by the Secretariat of the Foreign Capital Investment Committee after consulting other government organizations if necessary. The Secretariat of the Foreign Capital Investment Committee presents to the Committee the project application and the evaluation report for decision. The decision of the Committee is to be submitted to the Industry and Electricity Minister for approval.

The evaluation of the project and the issuing of the license takes between four and six weeks, provided all documentation is complete and depending on the nature of the project and schedules of sessions to be held by the Foreign Capital Investment Committee. The Secretariat of the Foreign Capital Investment Committee sends the license to the applicant with copies to:

The Ministry of PlanningZakat and Income Tax DepartmentThe Ministry of Commerce, Companies DepartmentThe Saudi Arabian Industrial Development Fund (SIDF), in case of industrial projectsOther departments of the Ministry of Industry and Electricity, as appropriate

If an application is rejected, the applicant may submit a petition to the Minister of Industry and Electricity. If the investor is requesting the amendment of a project license, he should submit an application to the Secretariat of the Foreign Capital Investment Committee within three months from the date of rejection or receipt of the license.

III. Project Procedure and Registration

The application for the foundation and registration of a company, under the Companies Act, or for the amendment of articles of association, if the company is in existence, should be submitted to the Ministry of Commerce with a copy of the license within a month from the date of the issue of the license.

Investors should also obtain a registration amendment certificate under the Commercial Registration and the Companies Act from the Administration of Companies or the Commercial Registration offices of the Ministry of Commerce in the Kingdom’s main cities.

Investors should take all necessary steps for the establishment of the project within six months from the date of issuance of the license as stated therein. Delay in taking these steps without acceptable reasons could cause the license to be canceled.

Applications for an extension of the period for the establishment of the project should be submitted to the office of the Secretariat of the Foreign Capital Investment Committee with supporting reasons. In addition, the following should be taken into consideration for industrial projects:

In applying for the lease of a plot of land at the nominal rent, the appropriate form should be submitted, along with a copy of the license and a sketch map of the required plot, to the Industrial Parks Department at the Ministry of Industry and Electricity.The Ministry’s land distribution committee determines the area of land to be allocated to the project according to the land available and the proposed products.Should a plot of land be allocated to the project, the investor should visit the industrial park within ten days of being informed of the allocation of the land and make an application to the Director of the Industrial Park for a firm reservation.Within four months of the allocation of the plot of land, the layouts and detailed designs of the factory building and the layout of the site should be submitted to the Saudi Consulting House (SCH) through the Ministry’s Engineering and Projects Department.The layout and designs shall be evaluated by the Ministry’s Engineering and Projects Department and the Saudi Consulting House (SCH), in consultation with the company/investor.After approval of the factory’s layout and designs, the plot lease agreement shall be concluded with the Director of the Industrial Park within six weeks of the date of the layout’s approval.The factory shall be constructed according to the approved layout.

Any changes required during the factory construction should be submitted for the approval of the engineering body affiliated with the Director of the Industrial Park, Engineering and Projects Department.All investors should submit regular progress reports on the establishment of the project: industrial projects to the Follow-up Division of the Evaluation and Licensing of Industrial Projects Department of the Ministry of Industry and Electricity; other projects to the Foreign Capital Investment Office. Failure to do so could result in the cancellation of the license.

IV. Procedures for Obtaining Exemptions and Incentives

All owners of projects that apply for entry visas and resident permits for foreign laborers and personnel from the Ministry of Interior should seek the advice of the Foreign Capital Investment Committee on its resident permit (Iqama) and its renewal before applying to the Passports Department, and the advice of the Industrial Encouragement Department on the manpower needed by the industrial project before applying to the recruitment office at the Ministry of Interior.

Industrial projects requiring loans at concessionary terms from the Saudi Industrial Development Fund (SIDF), should submit applications, with the required details in the prescribed form and a copy of the license, to the SIDF. Industrial projects that require exemption from customs duties for the importation of machinery and equipment, and raw materials under the National Industries Encouragement Act should submit a request for each exemption to the Encouragement Department of the Ministry of Industry and Electricity. The owner of the industrial project should apply to the department before the arrival of the goods that he plans to import, giving a detailed description of imported items, names and addresses of sources, country of origin and the Saudi port through which they will arrive, number and dates of invoices showing the amounts of goods and their prices in foreign currency.

The applicant should attach ten copies (eight in Arabic) of the preliminary invoices for the imported goods stating specifications, quality and value. The applicant should also fill in a form undertaking to use the imports for industrial projects only.

AMENDMENTS TO INDUSTRIAL AND NON-INDUSTRIAL LICENSES

Documents to be submitted along with applications for amendment of ownership or shares, increase or decrease of capital; the opening

of follow-up offices or marketing centers; and the expansion of facilities or modification of a project site are as follows:

Principal Documents

Partner's resolution on the required amendment.Company’s balance sheet and report for the last finished year.Certificate of payment of Zakat and taxes (from the Ministry of Finance and National Economy).A copy of the company’s commercial registration certificate (to be submitted only with the first application of an amendment).Copies of the original license and any subsequent modifications to it.

Amendments Requiring Additional DocumentsOwnership amendment (industrial and non-industrial):

Amended articles of association.In the case of the admission of a new Saudi partner, copies of the identity cards of individuals, and the Board of Directors’ resolution approving his participation in the joint venture company, accompanied by a copy of the commercial registration certificate in the case of companies.In the case of the admission of new foreign partners (individuals or companies), the documents related to the foreign partner that are mentioned in the list of required documents for licensing a new project that has a foreign partner.Approval from the Saudi Industrial Development Fund (SIDF) for the requested modification or a letter from SIDF stating that it has no dealings with the company.In the case of the withdrawal of a partner, a certified statement regarding his withdrawal signed by the partner withdrawing from the company. For the joint venture company to retain the name of the withdrawing foreign partner, the certified document of withdrawal should state that his share and the use of his name have been sold.The Principal Documents listed above.

Modification of Joint Venture Company’s Name and/or Statutory Status (industrial and non-industrial):

Amended articles of association containing the modification required (signed and dated).Approval from the SIDF for the requested modification (industrial projects only).The Principal Documents listed above.

Opening Branches (non-industrial projects):

Details of total cost to set up the branch.For bank branches, an approval from the Saudi Arabian Monetary Agency (SAMA).For branches of a transportation company, an approval from the Ministry of Transportation (Deputy Minister for Transportation Affairs).For drilling water wells, an approval from the Ministry of Agriculture and Water.For oil exploration, drilling and mining, an approval from the Ministry of Petroleum and Mineral Resources.For hospitals and clinics, an approval from the Ministry of Health.The Principal Documents listed above.

Opening Follow-up Offices (non-industrial):

A copy of contracts to carry out works in the districts where the company wants to open offices.Names of cities in which the required offices will be operated.The Principal Documents listed above.

Increasing/decreasing Capital (non-industrial):

A detailed memo on the amendment method.Amended articles of association including the modified capital and any modifications in partners’ shares.An undertaking from the partners that they will meet dues or obligations to the company’s creditors before decreasing the capital.A certificate from a chartered accountant, licensed to work in Saudi Arabia, stating that the capital of the company after decreasing will still cover all the debts due from the company.The Principal Documents listed above.

Adding or Deleting an Activity (non-industrial):

Amended articles of associationIn the case of the addition of an activity, a certified document including the experience of the foreign partner in the activity.The Principal Documents listed above.

Dissolving and Liquidating a Company (industrial and non-industrial):

A copy of the cancellation certificate of commercial registration of

the company from the Ministry of Commerce.

Extending a Company (industrial):Increasing production capacity, adding new products, opening a new branch

A copy of the preliminary approval letter concerning the required extension issued by the Evaluation and Licensing of Industrial Projects Department to the company.Completed license application form for the requested extension.A feasibility study (when required).The Principal Documents listed above.

Opening Marketing Centers or Showrooms (industrial):

Names of cities in which the required centers will be opened.The Principal Documents listed above.

 

Formation and operation of business firms and companies is regulated by companies Law promulgated by Royal Decree No. M/6 dated 22 Rabi I 1385 H., (1965). Royal Decree No. M/5 dated 12 Safar 1387 H. (1967) and Royal Decree No. M/23 dated 28 Jumada II 1402 H. (1982) amended the regulations for companies. Under Article 1 of the Companies Law, a company has been defined as a contract pursuant to which each of two or more persons undertake to participate, in an enterprise aiming at profit, by offering in specie or as work a share, for sharing in the profits or losses resulting from such enterprise.

Following are some of its important provisions:

Under article 2, companies can take any of the following forms:

- General Partnerships.- Limited partnerships.- Joint Ventures.- Corporations.- Partnerships Limited by Shares.- Limited Liability Partnerships.- Variable Capital Companies.- Cooperative Companies.

Without prejudice to the companies acknowledged by the Islamic "Shari’ah" Law, any company not having any of the legal forms as given in Article 2 of the Companies Law shall be null and void.

Partner's contribution may consist of a certain sum of money (a contribution in cash), or of a capital asset (a contribution in kind). It may also comprise services except in the cases where the provisions of the Companies' Regulations imply otherwise, but it may not consist (solely) of the partner's reputation or influence.Every partner shall be considered indebted to the company for the contribution he has undertaken to make. If he fails to surrender it on the date set therefore, he shall be liable to the company for any damages arising from such delay.Save in the case of a joint venture, a company's memorandum of association and any amendment thereto must be recorded in writing in the presence of a registrar. Otherwise, such memorandum or amendment shall not be valid vis-à-vis third parties.With the exception of joint ventures, any company incorporated in accordance with these Regulations shall establish its head office in the Kingdom. It shall be deemed to have Saudi nationality, but this shall not necessarily entail its enjoyment of such rights as may be restricted to Saudis.

For details pertaining to formation and operation of companies, please contact Companies Department, Ministry of Commerce (see appendix I for address).