Trading Business in KSA

The economy of Saudi Arabia showed an impressive performance in the retail sector as per survey of 2015. The retail sector of KSA is the largest in GCC, representing 42% of the GCC market siz followed by the UAE (29%) and Qatar (11%). In addition to the stronghold in the retail sector, the kingdom has launched drastic development program Saudi Vision 2030 to boost furthermore economic situation which includes the plans for the retail sector as well.

Trading business in Saudi Arabia

In terms of business, any foreign investor can own a maximum of 75% and a minimum of 25% of the ownership shares with a Saudi partner. The Saudi Arabian General Investment Authority(SAGIA) recently announced that any foreign investor or entity can have full ownership of shares without the presence of a Saudi partner in any business, but this announcement has not yet been implemented, as we are awaiting a certain degree of clarity subject to it. SAGIA has prepared a list of minimum capital requirements for foreign investors according to the field in which they intend to work in the Kingdom. As for the registration of any foreign commercial company, the requirement is that the total capital must amount to 26,666,700 Saudi riyals, provided that the minimum capital to be contributed by the foreign investor is 20 million Saudi riyals.
SAGIA has listed the minimum capital requirement from foreign investors based on the industry they intend to operate in KSA. However, and as for registering a foreign trading company, the total capital requirement is SAR 26,666,700.00 and out of which the minimum capital of SAR 20 million should be contributed by the foreign investor.
In general, any foreign entity entering the market to engage in commercial activities must first obtain the approval of SAGIA and obtain a foreign investment license from it as well. SAGIA shall study the products to be sold, the investment commercial plan, the Saudization plan, the financial statements for at least three years, and the incorporation documents such as the company’s registration certificate and incorporation regulations…etc. Once SAGIA grants its approval and issues a foreign investment license, the foreign entity may be established by heading to the Ministry of Commerce and Industry to issue a commercial registration certificate, open the personnel registration file through SAGIA, obtain a category (F) visa, a resident permit or a general manager’s permit, and subscribe to the Commercial Chamber. After incorporation, the foreign investor submits an application to the Department of Zakat and Income Tax at the General Organization for Social Insurance to obtain a tax certificate and a license from the municipality administration.

Appointing a distributor

Foreign producers and manufacturers outside the Kingdom of Saudi Arabia can appoint local Saudi agents to be their representatives in selling their products and services within the Kingdom, and this type of activity is subject to the Commercial Agencies Law. The law stipulates that non-Saudi foreign companies are not allowed to import and export and to act as commercial agents or distributors inside the Kingdom. It is also not permissible for a foreign distributor outside the Kingdom to appoint a distributor or sub-agent for him inside the Kingdom. Consequently, it is required that a direct legal relationship be established between the agent or distributor of the products and the company producing outside the Kingdom.
The agency contract is concluded in the designated form required by the Commercial Agencies Law. Contracts concluded with Saudi agents must be ratified and registered with the Ministry of Commerce and Industry within three months from the date of signing them. In the event of non-registration, Saudi agents shall be prohibited from working as agents. In the activities of certain agencies where spare parts and services are supplied, the foreign company, even after the termination of the distribution agreement, has the duty to support the terminated distributor and supply them with the spare parts and services for a period of one year from the date of termination or the appointment of a new distributor.

Disputes and litigations

With respect to dispute settlement and litigation, the contracting parties must choose their contracts carefully and stipulate the authority to settle their disputes either before the arbitral tribunal or commercial courts, especially the judicial jurisdiction and the law governing the agreement. In the absence of provisions for disputes in the agreement, the authority competent to hear disputes is the Board of Grievances. The contracts may provide for jurisdiction outside the Kingdom, provided that there is no conflict with the provisions of Sharia.

Written by: Akhil Raza

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