SELLING FOREIGN
PRODUCTS AND SERVICES
INTO SAUDI ARABIA
4 OCTOBER 2012
1. PRELIMINARY COMMENTS
•
General commentary only
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Not legal advice
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Ongoing reform
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Questions
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2. OVERVIEW
» In a Saudi legal context, there are three basic options
for selling products and services into Saudi Arabia
(a) Selling products and services from outside of Saudi
Arabia to customers in Saudi Arabia;
(b) Appointing an agent in Saudi Arabia to promote and/or
sell products or services to customers in Saudi Arabia; and
(c) Creating an investment vehicle in Saudi Arabia to
promote and/or sell products and services in Saudi Arabia.
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3. FIRST OPTION – FOREIGN SALES
“Foreign Sales”: the sale from outside of Saudi Arabia
of products manufactured or services provided
outside of Saudi Arabia to customers in Saudi Arabia
3.1
Advantages
(a) Inexpensive
(b) Retain control
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3. FIRST OPTION - FOREIGN SALES (Cont’d)
3.2 Disadvantages
(a) Commercial Disadvantages
(i) No one on the ground in Saudi Arabia
(ii) Can travel to Saudi Arabia but:
(A) Language
(B) Culture
(C) Market
(b) Legal Disadvantages under Saudi Law
If dispute, best option is to use Saudi courts:
(i) Difficult to enforce foreign judgments and foreign arbitral
awards in Saudi Arabia.
(ii) New Arbitration Regulations in July 2012 but no
implementing regulations yet.
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4. SECOND OPTION – APPOINTING A SAUDI
AGENT
4.1 Appointing an Agent Generally
(a) Advantages
(i) Full-time person on the ground in Saudi Arabia
(A) Language
(B) Culture
(C) Market
(ii) Better market penetration
(b)
Disadvantages
(i) Some loss of control
(ii) Cost
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4. SECOND OPTION – APPOINTING A SAUDI
AGENT (Cont’d)
4.2 Types of Agents
Generally two types of agents:
(a) Commercial Agent; and
(b) Non-commercial agents.
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4. SECOND OPTION – APPOINTING A SAUDI
AGENT (Cont’d)
4.3 Commercial Agents
Governed by Saudi Arabian Commercial Agencies Law
(a) Definition
Contracts, in return for consideration, in any form of agency
directly with:
(i) foreign manufacturer or foreign service provider; or
(ii) Agent of foreign manufacturer or foreign service provider
in foreign manufacturer’s or foreign service provider’s
country of incorporation.
(b) Characteristics
(i) Saudi national or wholly Saudi owned Saudi business;
(ii) Registered in Agents’ Register; and
(iii) Must provide after sales service and spare parts for 1 year
after termination or expiration of commercial agency or
until appointment of replacement commercial agent,
whichever is earlier.
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4. SECOND OPTION – APPOINTING A SAUDI
AGENT (Cont’d)
4.4 Commercial Agents – Advantages
(a)
Legal Advantages
(i) Saudi Arabian Government Procurement Regulations
requires Saudi government to purchase foreign products in
Saudi Arabia only from commercial agent for the product.
(ii) Appointing a commercial agent enables the foreign
manufacturer or foreign service provider to establish a
technical and scientific office in Saudi Arabia.
(b)
Commercial Advantages
(i) Many private businesses prefer to deal with commercial
agents because of the obligation to provide spare parts and
after-sales service imposed by the Commercial Agencies
Regulations.
(ii) Obligation to provide after-sales service and spare parts
helps protect the brand of the foreign manufacturer in the
Saudi market.
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4. SECOND OPTION – APPOINTING A SAUDI
AGENT (Cont’d)
4.5 Commercial Agents – Disadvantages
In certain circumstances, a commercial agent appointed as
an exclusive commercial agent might be able to prevent the
registration in the Agents’ Register of a replacement
commercial agent.
4.6
Non-commercial Agents
(a) Definition
An agent that is not a commercial agent.
(b) Characteristics
(i) Need not be a Saudi national or a wholly Saudi owned
Saudi business.
(ii) Need not be registered in the Agents’ Register.
(iii) Need not provide spare parts or after-sale service.
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4. SECOND OPTION – APPOINTING A SAUDI
AGENT (Cont’d)
4.7 Non-commercial Agents – Advantages
(a)
(b)
Legal Advantages
Has no ability to block registration of a commercial agent,
unless perhaps that right is granted to him by contract.
Commercial Advantages
A wider pool of non-commercial agents to choose from.
4.8 Non-commercial Agents – Disadvantages
(a)
(b)
Legal Disadvantages
Saudi Arabian Government Procurement Regulations
prevent Saudi government from purchasing foreign products
in Saudi Arabia from a non-commercial agent.
Commercial Disadvantages
Many private businesses prefer to deal with commercial
agents because of the obligation to provide spare parts and
after-sales service imposed by the Commercial Agencies
Regulations.
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5. THIRD OPTION – ESTABLISH AN INVESTMENT
VEHICLE IN SAUDI ARABIA
5.1 Advantages
(a) Full-time presence in Saudi Arabia
(b) Control
5.2 Disadvantages
(a) Time
(b) Expense
(c) Staffing:
(i) Expatriates:
(A) Difficult to attract and retain; and
(B) Expense.
(ii) Saudi nationals
(A) Saudization;
(B) Difficult to attract and retain; and
(C) Expense.
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5. THIRD OPTION – ESTABLISH AN INVESTMENT
VEHICLE IN SAUDI ARABIA (Cont’d)
5.3 Process Overview - Stage 1: Licensing the
Investment Vehicle
(a) Apply for Foreign Investment License
(i) Percentage foreign ownership
(A) Usually 100%
(B) Negative List
(C) Limited participation
(ii) Capital Generally
(A) Type of investment vehicle
(B) Activity
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5. THIRD OPTION – ESTABLISH AN INVESTMENT
VEHICLE IN SAUDI ARABIA (Cont’d)
5.4 Process Overview - Stage 2: Creating the
Investment Vehicle
(a) Types of Investment Vehicles
(i)
(ii)
(iii)
(iv)
Establishment: only an option for individuals
Limited Liability Company: at least two shareholders
Joint Stock Company: at least five shareholders
Branch
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5. THIRD OPTION – ESTABLISH AN INVESTMENT
VEHICLE IN SAUDI ARABIA (Cont’d)
(b) Creating the Investment Vehicle
(i) Investment vehicle created through the Ministry of Commerce and
Industry after foreign investment license has been issued.
(ii) Time required varies as between investment vehicles. Generally:
(A) Establishment: one or two weeks.
(B) Limited Liability Company: 30 – 60 days
(C) Private Joint Stock Company: 6 – 7 months or more
(D) Branch: 30 – 60 days
(iii) Process ends with the issuance of a commercial registration
certificate
5.5 Process Overview – Stage 3: Post-creating Tasks
(i) Register the investment vehicle with:
(A) Department of Zakat and Income Tax.
(B) General Organization for Social Insurance.
(C) Ministry of Labor.
(ii) Obtain municipal license for offices.
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6. QUESTIONS
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