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 partnership
Limited partnership
Joint venture
Joint stock company
Partnership limited by shares
Limited liability partnership
Company with variable capital
Co-operative company
Registered 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, the
agent 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 Regulations

Royal Decree No. 11 dated 20/02/1382H
Amended by Royal Decree No. M/8 dated 20/03/1393H
Amended 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 Regulations

Royal 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 PROTECTION

The 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 LICENSING

INDUSTRIAL 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; and
It 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 services

Training, maintenance and operation services that require technology
Environmental protection services
Shipping
Computers
Technical workshops
Refrigerated stores
Restaurants

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 Planning

Zakat and Income Tax Department
The Ministry of Commerce, Companies Department
The Saudi Arabian Industrial Development Fund (SIDF), in case of industrial
projects
Other 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 Documents

Ownership 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 association

In 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).