SAUDI ARABIA COMMERCIAL REGULATIONS
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:
Every industrial or commercial establishment must register with the Ministry of Commerces 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:
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:
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:
Original Saudi Arabian 1962 Commercial Regulations
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:
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
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.
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