Presentation on theme: "Selling Foreign products and services into saudi arabia"— Presentation transcript:
1 Selling Foreign products and services into saudi arabia 4 october 2012
2 1. preliminary comments General commentary only Not legal advice Ongoing reformQuestions
3 2. overviewIn 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 SaudiArabia to customers in Saudi Arabia;(b) Appointing an agent in Saudi Arabia to promote and/orsell products or services to customers in Saudi Arabia; and(c) Creating an investment vehicle in Saudi Arabia topromote and/or sell products and services in Saudi Arabia.
4 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 ArabiaAdvantages(a) Inexpensive(b) Retain control
5 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 LawIf dispute, best option is to use Saudi courts:(i) Difficult to enforce foreign judgments and foreign arbitralawards in Saudi Arabia.(ii) New Arbitration Regulations in July 2012 but noimplementing regulations yet.
6 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
7 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.
8 4. second option – appointing a saudi agent (Cont’d) 4.3 Commercial AgentsGoverned by Saudi Arabian Commercial Agencies Law(a) DefinitionContracts, 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.
9 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.
10 4. second option – appointing a saudi agent (Cont’d) 4.5 Commercial Agents – DisadvantagesIn 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) DefinitionAn 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.
11 4. second option – appointing a saudi agent (Cont’d) 4.7 Non-commercial Agents – Advantages(a) Legal AdvantagesHas no ability to block registration of a commercial agent, unless perhaps that right is granted to him by contract.(b) Commercial AdvantagesA wider pool of non-commercial agents to choose from.4.8 Non-commercial Agents – Disadvantages(a) Legal DisadvantagesSaudi Arabian Government Procurement Regulations prevent Saudi government from purchasing foreign products in Saudi Arabia from a non-commercial agent.(b) Commercial DisadvantagesMany 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.
12 5. third option – establish an investment vehicle in saudi arabia 5.1 Advantages(a) Full-time presence in Saudi Arabia(b) Control5.2 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.
13 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
14 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) Establishment: only an option for individuals(ii) Limited Liability Company: at least two shareholders(iii) Joint Stock Company: at least five shareholders(iv) Branch
15 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 certificate5.5 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.