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KSA Market Entry Options

Commercial Agency: This is where the foreign company wishes to appoint a commercial agent or distributor to sells its products in Saudi Arabia.

Franchise Arrangement: This is where the franchisor grants the franchisee the right to carryout its business for its own account using the franchisor’s trademark or tradename.

KSA Incorporation: This is where the foreign entity directly enters the Saudi market and establish an entity either by itself or through a joint-venture with a partner.

ABOUT US

For over four decades we have been serving the diverse legal needs of dynamic regional businesses from our head office in Saudi Arabia, which has positioned our firm today as one of the leading private legal practices across Saudi Arabia and the wider Gulf Cooperation Council (GCC).

Whilst we operate from our five offices located across the Kingdom of Saudi Arabia and the United Arab Emirates, our regionally and internationally qualified teams have extensive experience working on complex, high-value transactions and contentious disputes for large, listed businesses, government entities, owner-managed firms and private clients across the wider region, along with working on multi-jurisdiction deals and litigations.

Our innovative spirit, coupled with our dedication to deliver exceptional quality services has enabled our firm to attract and retain a committed diverse panel of legal experts and professionals, who have supported our clients to navigate challenges, whilst leveraging industry and market opportunities relating to regulatory development, technology, innovation, and new age initiatives.

We’re a forward thinking, integrated legal services provider offering more than traditional legal advice. We’re about investing in relationships, not just transactional delivery of our services.

Whilst we are corporate in dynamic, we have retained our legacy value of entrepreneurial spirit, which has enabled our firm to take a leading position with owner-managed and private clients, which has resulted in some of the region’s largest and notable brands relying on our firm to support them with their legal needs.

The Middle East market is burgeoning as new and emerging industries grow, we operate at the legal forefront of these emerging industries, helping to navigate complex and changing regulations.

The rapid transformation of business in the Middle East requires legal support that is regionally relevant and internationally recognised. Our approach means we have the agility to anticipate and support our clients’ future needs in an era of technological disruption.

As regional economies continue to diversity and emerge, our firm is well positioned to leverage the new opportunities on the horizon, whilst supporting our clients to navigate the implications for their industry and business.

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KSA Market Entry Options

Commercial Agency: This is where the foreign company wishes to appoint a commercial agent or distributor to sells its products in Saudi Arabia.

Franchise Arrangement: This is where the franchisor grants the franchisee the right to carryout its business for its own account using the franchisor’s trademark or tradename.

KSA Incorporation: This is where the foreign entity directly enters the Saudi market and establish an entity either by itself or through a joint-venture with a partner.

VALUE-DRIVEN APPROACH

We place our clients at the heart of our firm; therefore, you can be assured of a client-centric approach, which means an agile, efficient and personable service. We don't just limit our scope to the engagement but think about your business challenges, providing guidance for areas which may present future risks and opportunities. Therefore, you have peace of mind that won’t charge by the minute but invest our time in building a relationship.

Clients at the heart of our firm

Empowered people who thrive

Our people are the most resourceful and valuable asset of our firm; therefore, we have created a culture of empowerment, trust, respect and integrity. We work as one-firm, irrespective of our clients practice needs, therefore you can be assured of the receiving the very best technical advice, support and experience which clients of Hammad & Al-Mehdar deserve.

Innovative & Efficiency

In keeping with the new-age technology and innovation available, our firm has digitalized its operations, which enables us to build efficiencies for you. You can be assured of value-add.

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OUR SERVICES

Corporate & Commercial

Dispute Resolution

Technology

Finance

Sports & Media

Employment

Risk & Reputation

Compliance

Commercial Agreements

General Corporate Restructuring

FDI

Project & Infrastructure

General Advisory

Joint Ventures

Competition & Antitrust

Arbitration Litigation Expert Witness Inheritance

Asset investigation SME Advisory

Sourcing Agreements Intellectual Property

Security

Crypto Security Data Investigations

M&A

PE & VC

Islamic Finance Capital Markets Funds

Banking Fintech

Sports

Media

Entertainment

Gaming

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Overview

KSA Incorporation

Commercial Activities and Regulatory Licensing

KSA Corporate Vehicles

Micro and Small Companies

Shareholders’ Agreements

HoldCo / OpCo Structure

Post Incorporation Filings

Employment Considerations

Key Features of Important Laws

E-Commerce Law

The New Personal Data Protection Law

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KSA Incorporation

Companies that are owned by nationals that are part of the Cooperation Council for the Arab States of the Gulf (“GCC”) are generally permitted to establish presence in any other GCC jurisdiction without any requirement to obtain a foreign investment license from any competent authority as long as the owners of said companies are wholly owned by GCC nationals.

The following incorporation steps are completed electronically through the Saudi Business Center:

Submit the draft constitutional document (Articles of Association “AoAs” or Bylaws) to be reviewed by the Ministry of Commerce (“MoC”).
Draft shareholders’ resolution for appointing managers of the new company, if managers are not appointed in the AoAs or Bylaws (optional).
Apply for and obtain the Commercial Registration certificate.
Apply for and obtain the requisite operational licenses from the competent authority.
Post incorporation filings (Banks, GOSI, ZATCA, Labour Office, etc).

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Constitutional Documents

Constitutional documents (being in the form of AoAs or Bylaws) in Saudi Arabia typically outline the rules and regulations governing the internal management of the company, including its capital structure, objectives, management, and distribution of profits. Some of the main provisions that are generally included in the AoAs include:

Company name;
headquarters;
purpose;
authorized capital (if any) and its issued and paid-up capital;
number of shares, their types and classes (if any), nominal value, and rights associated;
term (if any);
management provisions;
assignment of shares;
shareholder meetings and the quorum required;
issuance of shareholder decisions;
dates of the fiscal year; and
any other terms which the shareholders agree to include in the AoA which does not materially deviate from the MoC pro-forma.

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KSA Incorporation for Foreign Investors

Foreign entities that wish to establish their presence in KSA must do so by obtaining an Investment License through the Ministry of Investment (“MISA”).

Who is a foreign investor? Any non-GCC shareholder triggers the requirement to issue a foreign investment license from MISA.

Main Investment Licenses are as follows:
Trading License (wholesale and retail activities).
Service License (IT, game development, financial services, etc).
The Entrepreneur License is available to business leaders who wish to establish and emerge innovative and technical companies which are capable of expansion to provide a better and/or different product and service in the Saudi market.

Benefits of the Entrepreneur License

No submission of financial statements required.
License fees are waived as the only required payment is SAR 2,000 annually for five years as a maximum.
Capital requirements for certain activities may be waived by applying for an exemption from MISA.

The general requirements when applying for the MISA license include:
Shareholders’ or Board of Directors’ resolution to invest in the Kingdom duly attested up to the Saudi Embassy in the Client’s jurisdiction, or apostilled if said jurisdiction has acceded to the Apostille Convention. The resolution must include the following elements: Intent to invest in the Kingdom. Capital to be invested. Location of the local entity in the Kingdom. Type of activity. Name of the proposed Board of Directors in the Kingdom. Copy of the AoAs of the company attested up to the Saudi Embassy or apostilled if said jurisdiction acceded to the Apostille Convention. Commercial Register/Extract/ Certificate of incumbency attested up to the Saudi Embassy. Submission of the latest audited financial statements of the Client attested up to the Saudi Embassy.

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Commercial Activities and Operational Licensing

Companies must have a specific commercial activity stated in its Commercial Registration, with such activities being selected from the National Classification for the Economic Activities (“ISIC4”), a unified database with exact descriptions aligning to the activity code.

Certain activities require obtaining further approvals or licenses from the relevant governmental authorities overseeing the sector/business activity, in which the competent authority may set out several requirements and conditions that must be satisfied to proceed with offering such services.

The technology sector is generally governed by the Communications, Space, and Technology Commission (“CSTC”), Saudi Central Bank (“SAMA”), and the Capital Market Authority (“CMA”).

The list below includes the most relevant gaming activities and its required approvals:

620115 – Fintech Solutions – requires obtaining a license from SAMA.
641932 – Technology in Financial Services – requires obtaining a license from the Small and Medium Enterprises Genera Authority (“Monsha’at”).
649233 – Buy Now Pay Later – requires a license from SAMA.
620113 – Artificial Intelligence Technologies – requires a license from CSTC.
631112 – Block chain technologies – requires a license from CSTC.

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Form of Companies

	Limited Liability Company (“LLC”)	Joint Stock Company (“JSC”)	Simplified Joint Stock Company (“SJSC”)
Shareholders	One or more	One or more	One or more
Management	General Manager, two managers or board of managers	Board of directors (minimum 3 board members)	One or more presidents, managers, board of directors, or any other form of management.
Class of Shares	The share is indivisible and negotiable and is divided into shares of equal value. Negotiable debt instruments or financing instruments may be issued.	Can have different classes of shares, such as common shares, preferred shares, and redeemable shares.	Can have different classes of shares, such as common shares, preferred shares, and redeemable shares.
Resolutions and Decisions	Decisions re changing the capital of the company: 75% of the shares. Decisions to amend the AoA: 75% of the shares. Other decisions: Majority of the shares.	Ordinary General Assembly Decisions: Majority of stocks. Extraordinary General Assembly Decisions: 2/3 of stocks.	Decisions re disposition of shares, assignment of shares, and settlement of disputes: Unanimous decision. Extraordinary General Assembly Decisions: 75% of the shares.
Capital	No minimum capital requirement provided it is sufficient to carry out its activities.	Capital must not be less than SAR 500,000, 25% of which must be paid up at the time of incorporation. The remaining capital of the company must then be fully injected within five (5) years from the date of issuance of the shares.	No minimum capital, provided that the company's articles of association specify the amount of its issued capital and the value paid thereof, and it may be stipulated that it has an authorized capital.
Financial Statements	Financial statements shall be prepared by the end of each fiscal year by a financial auditor and said statements shall be filed with the Saudi Business Center through the electronic filing of financial statements program.	Financial statements shall be prepared by the end of each fiscal year by a financial auditor and said statements shall be filed with the Saudi Business Center through the electronic filing of financial statements program.	Same as JSCs.
Required Disclosures.	The company's managers must publish the AoA on the MoCs website within (30) days of its incorporation. The annual general assembly is held at least once a year during the six-month period following the end of the company’s fiscal year whereby the company must also approve and upload its financial statement to MoC and Qawaem.	The application for the incorporation of the company shall be submitted to the MoC, signed by the applicant, and attached to its bylaws. The annual general assembly is held at least once during the six months following the end of the company’s fiscal year whereby the company shall provide the MoC with a report on the company's activity at least 21 days prior to the date set for the annual general assembly meeting.	The bylaws of a SJSC shall specify the matters to be decided by shareholders and the manner and conditions for deciding on such matters. The meeting invitation shall be sent to all shareholders at least five days prior to the date set for the meeting. The invitation shall specify the meeting venue, date, and time and shall include the meeting agenda and the items that require a vote by shareholders.

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Micro and Small Companies

Micro and small companies in KSA have faced challenges related to financing and regulatory barriers. The government has therefore taken steps to support such companies, including establishing a dedicated agency, Monsha’at and simplifying the regulatory procedures that are burdensome for small businesses.

A company shall be deemed a micro company or small company during the first fiscal year of its issuance of a commercial register, or for two consecutive fiscal years. Further, according to the Implementing Regulations to the Companies Law, companies shall be designated micro or small companies when two of the following are met:

(a) The total revenues do not exceed 10 million SAR.

(b) The asset value does not exceed 10 million SAR.

Micro and small companies are generally not required to appoint an auditor, except in the following cases:

(a) If the bylaws or AoAs stipulate the appointment of an auditor.

(b) If it is listed in the capital market.

(d) If relevant laws require the appointment of an auditor.

(e) If it is a foreign company.

(f) If it owns another company or is a subsidiary of another company, unless the description of a micro or

small company applies to all such companies.

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Shareholders’ Agreements

The Shareholders’ Agreement is an agreement between the shareholders that sets out the rights and obligations of the shareholders in relation to the ownership and management of the company. The main provisions of a Shareholders’ Agreement includes:

Share Ownership: sets out the number of shares held by each shareholder and any restrictions on the transfer of shares.
Decisions and Resolutions: defines the decision-making process for important matters, such as the appointment of directors or the issuance of new shares.
Management and Control: outlines the roles and responsibilities of the shareholders in relation to the management and control of the company.
Distribution of Dividends: sets out the company's dividend policy and any restrictions on the company's ability to raise funds.
Intellectual Property Use and Ownership: may specify the ownership and usage rights of the company's IP assets and any rights or licenses granted to third parties.
Exit Strategy: may outline the process for the sale or transfer of the company or any of its shares, including the valuation of the company and any pre-emptive rights of the shareholders.
Dispute Resolution: provides a framework for resolving disputes between the shareholders, such as through mediation or arbitration, and the jurisdiction thereof.

The Shareholders’ Agreement is legally binding and may be part of a company’s AoAs, provided it does not violate the Companies Law nor the company’s AoAs.

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ADGM / Cayman HoldCo and

KSA OpCo Structures

ADGM/Cayman HoldCo.

Offers different class of shares to shareholders and investors.
No minimum share capital requirement.
No corporate tax.
Economic substance requirements must be met.

KSA LLC (OpCo)

Can either be established by one or more shareholders with no different classes of shares.
Foreign investment (MISA) license will be required in the event of foreign shareholders (excluding GCCs).
Filing with Zakat, tax, and customs authority is required.
2.5% Zakat on enterprise value re Saudi or GCC shareholder and 20% net income tax on a non-Saudi’s shares.
Share capital requirement could vary depending on the desired activity(ies).

The ADGM HoldCo or Cayman HoldCo would be owned by the founders and investors of the relevant cohort company. The HoldCo will own 100% of the OpCo.

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A summarized overview

OpCo Ownership by Company

FOUNDERS

ORDINARY SHARES

INVESTORS

PREFERRED SHARES

HOLD CO (ADGM/CAYMAN)

OPCO KSA LLC)

100% OWNERSHIP

The investors along with the founders will own shares in the HoldCo (ADGM/Cayman).
The Holdco usually issues preferred shares to investors and ordinary shares to the founders.
The HoldCo Owns 100% of the OpCos.
The HoldCo owns all the business assets including IP.

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Post-Incorporation Filings

Following issuance of the commercial registration of the company, it is required to complete the following post incorporation procedures:

Appoint the General Manager of the company and register his signature with the Chamber of Commerce.
Issue the municipality license from the Ministry of Municipal Rural Affairs and Housing.
Register with the General Organization for Social Insurance (“GOSI”) to implement the provisions of the Social Insurance Law and maintain the process of achieving the compulsory insurance coverage and pay the relevant contributions and benefits.
Obtain the registration certificate from the Zakat, Tax, and Customs Authority (“ZATCA”) to register for the VAT registration number and submit the annual tax filings.
Open a bank account with a local bank in Saudi Arabia and depositing the company’s capital. The bank account can be either opened by the appointed manager or by the lawyers handling the incorporation of the company.
Open a labor office account with the Ministry of Human Resource and Social Development (“MHRSD”) and abide by the Saudization rate implemented by MHRSD.
Obtain a national address with the Saudi Post.

It is worth mentioning that the aforementioned steps require “on-the-ground” presence, which may be resolved by issuing a Power of Attorney (“PoA”) to act on behalf of the company to carryout the necessary actions.

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Employment Considerations

Standardized online contracts through the Qiwa platform.

There are 2 main types of full-time employment contracts:

Fixed term contracts.
Indefinite term contracts.

Localization / Saudization requirements must be considered and which differ across industry to industry, depending on the commercial activity.

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Key Features of Important Laws in Saudi Arabia.

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Fintech Entities

Solutions that do not Require Licensing	SAMA/CMA Sandbox	CMA Licenses	SAMA Licenses
Business tools	Introduced in 2018, all fintech solutions would apply for the relevant sandbox in order to experiment their solution pursuant to a temporary licenses / letters issued by the relevant authority	Equity-based crowdfunding, which allows for the establishment of platforms that permit investors to engage in the funding of start-ups and SMEs in exchange for certain shares in the entity	Debt-based crowdfunding, which covers activities related to raising funds from finance participants through a digital platform to be granted to an institutional beneficiary in accordance with a loan contract
Back-office bank operations loan processing applications	Fintech companies that carry out activities licensed by SAMA and apply through the sandbox program will have up to six months, subject to renewal, to practice their activities in the Saudi market		Payment service provider, which covers entities involved in payment activities such as direct debits, credit transfers, execution of payment transactions, issuing electronic money, issuing payment instruments, money remittance, account information services, payment initiation services, and cash placement/withdrawals relating to payment accounts and the operation of such accounts
Enhancing banks’ customer experience	Companies that carry out activities regulated by the CMA and apply through their sandbox program will be given the opportunity to conduct business for up to two years and they may renew this license upon CMA’s approval		Finance support, such as finance debt collection, finance aggregator services, and any other activity approved by SAMA
Personal management such as budgeting apps and inheritance planning tools			Open banking, which enables customers to securely share their data with 3rd parties in order for fintech companies to benefit from access to customers’ data allowing new financial services to be offered
Regtech; the use of technology to support financial organizations to comply with financial services regulations
Reward based crowdfunding (e.g. funding the development of a new toy in exchange for receiving one of the first toys that are produced).

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E-Commerce Law

The E-Commerce Law applies to merchants offering services or goods online to consumers in Saudi Arabia.

The main obligations stipulated under the E-Commerce Law that must be considered are as follows:

Having T&Cs in place that are accessible to consumers, and that include the warranty obligations (where applicable).
Must include the details of the e-store (i.e., name, contact information, and commercial registration/commercial license number) on the website / place of business.
Must create a tax number.
If ads are offered on the e-stores, the ads should not contain misleading or false information.
Making the delivery, shipment, and return details and return information highly visible and available for all consumers.
Obligations on e-stores to protect consumer data.

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The New Personal Data Protection Law (“PDPL”)

The PDPL was recently issued pursuant to Royal Decree No. M147 dated 05/09/1444H corresponding to 27/03/2023G.

The PDPL regulates the processing of personal data in Saudi Arabia and aims to protect the rights of individuals with respect to their personal data.

The PDPL came into effect on 14/09/2023, where those who are subject to the PDPL are granted a one-year grace period to comply with the PDPL.

The rights granted to consumers under the PDPL include:

Knowledge of the collection of their personal data.
The right to access the personal data.
The right to amend or delete personal data.
Consent prior to processing.
Processing or personal data must be for a specific purpose.

General Obligations of the Controller:

The controller must notify the authority (SDAIA) of any disclosure of personal data, or if the personal data is destroyed. The controller is the person that decides the purpose of processing the personal data and is generally the company collecting the consumer data.

In the event that the controller desires to process the data through a third party, it must ensure such third party is compliant with the PDPL.

Under the recent amendments, controllers are no longer required to obtain approval from the competent authority prior to transferring or disclosing personal data to an entity outside KSA.

The transfer or disclosure of personal data is generally allowed (with certain conditions) under the amendments for specific purposes, including obligations under international agreements in which KSA is a party, serving national interests, performing obligations to which the data subject is a party, or for any other purpose as determined by the Implementing Regulations.

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PDPL Compliance Checklist

Organizations and businesses subject to the PDPL are required to take necessary steps to ensure compliance with the law before the expiry of the grace period. In order to comply with the PDPL, businesses are advised to:

Conduct staff training on the PDPL and integrate data protection policies and measures in the business.
Revise internal and external policies, such as privacy notices, to ensure compliance with the PDPL.
Identify the types of data collected and the purpose of collection.
Implement data minimization procedures to limit personal data processing and collection.
Monitor internal data flow to ensure transparent storage and transfer of personal data.
Develop and amend policies and procedures, including contracts, to reflect individual data rights and obligations.
Implement technical and organizational procedures to safeguard and protect personal data.

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How We Can Assist

As a Law Firm, we may assist Tech Startups with the following:

Advising on the preferred type of legal entity based on the structure and business activity.
Assisting with the incorporation of the company through a corporate service provider.
Assisting with drafting the required Shareholders’ Agreement or Founders’ Agreement (if any).
Assisting with obtaining any of the operational licenses from the relevant governmental authorities if any (such as CSTC or SAMA).
Assisting with the post-incorporation filings through a corporate service provider.
Assisting with conducting a compliance check for the company as may be required by any government entity.
Assisting with preparing or reviewing any of the commercial agreements for the company to protect the company’s interests while adhering to KSA laws and regulations.
Assisting with preparing the required T&Cs and Privacy Policies as required.

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