Saudi Arabia Market Entry

Saudi Arabia Market Entry

Subchapters:

  • Market entry
  • Forms and conditions of operation on the market
  • Marketing and Communications
  • Issues of intellectual property protection
  • Public procurement market
  • Payment terms, payment ethics and resolution of commercial disputes
  • Visas, fees, specific conditions of travel to the territory
  • Employment of citizens from the Czech Republic
  • Fairs and events

Market entry

From a commercial point of view, Saudi Arabia can be divided into three areas: Jeddah on the west coast and its surroundings, as the main commercial center of the country, Riyadh, which is the capital and also the largest city with approximately 5 million inhabitants, and the area of ​​the northeast coast – the area of ​​Dammam, Dahran and Al Khobar, where the industry related to oil and mineral extraction is concentrated. Check smber for agriculture and fishing facts of Saudi Arabia.

Distribution and sales channels correspond to the most developed economies. In retail, large hypermarkets and shopping centers with stores and boutiques of all world brands are common. The wholesale trade is dominated by large importers and distributors, mostly large family holdings, which, in addition to trade, also specialize in a number of other activities – production, construction, etc.

Although it is possible for local companies to be wholly owned by a foreign entity, this is not recommended, as the specifics of the local market and the successful overcoming of local administrative obstacles go best with local insight. Similarly, for market distribution, it is better to use a local partner with quality contacts throughout the country.

Commercial representation is legally regulated by the so-called Agency Law, which is Royal Decree No. M/11 of 22/7/1962 as amended by Law M/32 of 1980 and the Implementing Decree of the Ministry of Trade No. 1897 of 1981. KSA, together with Bahrain has one of the most liberal legal arrangements for commercial representation of all GCC countries.

Representative or agency contract with him, must be registered with the Ministry of Trade and Industry, which has drawn up a model agency contract. Although this model agency contract is not mandatory, many local companies are based on it and refer to its mandatory nature. The reason is mainly the fact that it favors the rights of the representative and enshrines the so-called “reasonable compensation” for the representative in the event of termination of the contract. However, this obligation is not enshrined in Saudi commercial law, and therefore it is recommended to delete this condition from the contract or to specify it in more detail in order to avoid possible misunderstandings.

Exclusivity of sales representatives is not mandatory. However, a number of local companies require it or try to prevent the Ministry of Trade and Industry from registering another agency contract for the same foreign supplier. In this case, it is recommended to bypass the requirement of exclusivity by limiting it to a region or city and further to a selected part of the company’s production portfolio (if its activities include several fields). However, the Ministry requires exclusivity in the import and distribution of medicines. For the importation of medicines, the law also stipulates that the agent’s commission may not be higher than 15%.

Engaging several representatives is also practical from the point of view of the large distance between individual business areas and their ethnic (tribal) differences.

For more information on customs rates, see Customs rates

Documents required for importation

Commercial invoice, certificate of origin, bill of lading or air waybill, insurance certificate, packing slip and declaration of conformity are the documents required for importation. Since admission to the WTO, customs formalities have also been simplified, and therefore the invoice and Certificate of Origin no longer need to be super-legalized by the KSA representative office in the country of export. The exporter can also sell his goods directly and not through an authorized distributor, as was the case previously.

Each product must be accompanied by a so-called Certificate of Conformity, which confirms that the product complies with the standards (an overview of local standards can be found at www.saso.org.sa ). of the Saudi market, which is announced by the Saudi Arabian Standard Meteorology and Quality Organization. The importer must enter all these documents into the SABER system. Here is also a list of organizations whose Certificate of Conformity SASO recognizes. Saudi partners often try to transfer the responsibility of registration in SABER to their partners. This is not technically possible due to the need to register via a Saudi ID number.

The import of food and medicine is subject to a special control regime, especially with regard to their packaging (product labeling and its composition must be in Arabic), the method of transport and import quality control and shelf life requirements. The import of medicines and food (including live animals) is governed by Saudi Food and Drug Authority, which is connected with customs authorities, reference laboratories, SASO and relevant ministries. SFDA has currently also taken over from SASO the creation of standards for the import of food and medicine.

All animals, i.e. even chickens, must be slaughtered in accordance with religious rules and have a so-called “Halal food” certificate. There is also a strict ban on the import of pork and alcoholic beverages.

The import of medical equipment is subject to the rules and standards of the Ministry of Health – Medical Supply Department and, in particular, the Saudi Food and Drug Authority, which certifies medical devices ( SFDA ).

Some items are prohibited for import, such as alcoholic beverages, pork, pornographic material, products with religious symbols of religions other than Islam (1 Bible for personal use is allowed) and goods of Israeli origin.

Forms and conditions of operation on the market

The entry of foreign capital in individual cases is approved and supported by the Ministry of Investments (MISA). Details can be found on its website, where fields of study that are currently closed to foreign investors are also specified. Their list is gradually reduced by government decisions (see List of businesses prohibited for foreign investments ).

One hundred percent share of foreign capital in the enterprise is possible and repatriation of funds, profit and salaries is not limited.

Basic forms of ownership (brief summary, see the MISA website for more details):

  • limited liability company – LLC, i.e. limited liability company – min. 2 partners – 100% joint ownership – min. deposit 500,000 SAR
  • joint venture – JSC, i.e. joint stock company – min. 5 companions – min. deposit of SAR 2 million (if publicly offered shares, then SAR 10 million) – GCC foreigners max share 25% – foreign ownership above 51% only for companies with capital above SAR 20 million
  • office limited in time to project implementation – project branch office – 100% domestic ownership – min. no deposit required
  • permanent branch office – 100% domestic ownership – min. deposit 500,000 SAR

The Saudi Investment Agency SAGIA may, depending on the business sector, increase the minimum capital requirement (up to SAR 1 million for a manufacturing company, SAR 20 million for a trading company).

When setting up a joint venture or a separate company, attention must be paid to the differential taxation of foreign and Saudi partners.

Marketing and communication

The forms of promotion, marketing and advertising correspond to developed economies and the use of mass media for promotion is quite common. In order to introduce consumer goods in particular to the market, it is necessary to invest funds in advertising, to promote the goods in business networks (especially FMCG – Fast Moving Consumer Goods), it is necessary to calculate, as in other developed markets, the costs of discount events, promotion in flyers issued by business networks, etc.

When addressing the target group of consumers, it is necessary to take into account the demographic composition of the population – 60% of the population is under 30 years old. Advertising campaigns tend to be aggressive and sophisticated.

However, many topics are inapplicable due to deeply rooted tradition or criminality, such as politics, foreign religion, sex, or the consumption of alcoholic beverages and pork. Furthermore, a number of direct marketing methods are not used, e.g. door-to-door sales (respecting the privacy of homes) and distribution of leaflets by post – state mail is not delivered to individual houses and flats, but only to PO Boxes. Parcel delivery is possible only with courier shipments from private companies such as DHL, TNT, Aramex, etc. During marketing events, it is necessary to respect the local interpretation and practice of Islam and the prohibition of any work and public activity during prayer times.

Currently, most companies use a combination of different types of advertising such as radio, television (especially satellite), newspapers, billboards and demonstration events, e.g. with shopping centers.

The Saudi advertising market is developing rapidly, with advertising revenue expected to grow by 20% year-on-year over the next 5 years. Print media still have the largest share of the advertising market (60%), especially Arabic-language dailies such as Al Shark Al Awsat, Okaz, Al Hayat, Al Jazeera, Al Riyadh, which have a circulation of 80-170. thousand prints. However, the share of print media is gradually decreasing, especially in connection with the growth of outdoor advertising (large screens for passing drivers) and digital media.

In recent years, as in the rest of the world and with a response to a significantly young population, the influence of social networks, especially Snapchat, Instagram and Twitter, has been rising sharply. This advertising also tends to be less regulated and controllable. Influencers are often guests of important corporate events (openings of car showrooms, etc.).

Issues of intellectual property protection

Saudi Arabia has relatively modern legislation for the protection of intellectual property. The governing authority is the Saudi Authority for Intellectual Property, which integrates the registration and management of all intellectual property protection subjects (especially patents, trademarks, topologies of semiconductor elements, plant varieties, industrial designs, etc.).

The SAISP portal also contains all valid legal standards in this area, unfortunately only in Arabic. In case of violation of intellectual property rights, it is possible to seek redress in the commercial courts.

We recommend entrusting the process of registering trademarks and other protected intellectual property to a reputable law firm, as well as any enforcement resulting from the violation of these rights.

Public procurement market

There is no central commission for awarding state contracts in KSA. Every office or state enterprise has full authority to award contracts and to issue tenders for this purpose. The Public Procurement Law requires tenders to be advertised in the Official Gazette (published in Arabic only), two local dailies and in electronic media, including the websites of regional chambers of commerce and industry. The period from the announcement of the tender to its closing must not be shorter than 30 days. Since 2018, the central public procurement portal ETIMAD has been operating.

Foreign companies that intend to participate in the respective tenders must first be registered with the tender issuing authority (ministry, local governments, state agencies) and pass general pre-qualification. For public works, the contractor must obtain the appropriate qualification level (class) from the Ministry of Municipality and Rural Affairs. When a tender is issued, the relevant organization will subsequently contact them to submit an offer. The law stipulates that all “qualified” companies will have the opportunity to participate in state contracts. The minimum number of respondents is 3, in the case of construction works 5. Contracts up to SR 1 million (EUR 200,000) can be awarded without a tender procedure. In the case of the purchase of weapons, the Prime Minister decides on the “qualification” of the manufacturer. Some resorts (e.g.

The State Procurement Act does not apply to public joint-stock companies such as Saudi Aramco or SABIC, however, in practice, these entities are also governed by the relevant rules.

Foreign companies can participate in the tender directly, however, their chances of winning increase if they have a registered branch in the country, or even better, a joint venture with a local partner. Indeed, the law states that in the case of state contracts, Saudi companies have priority followed by joint ventures with a preponderance of Saudi capital, and Saudi goods have priority over foreign goods, even in the case of lower quality, if they meet the tender requirements. The award of the tender usually also prescribes the minimum share of the contract that the foreign company must award to the Saudi subcontractor (in the case of a public works contract, it is 30%), or the minimum share of goods and services contracted locally. If a foreign company has a local representative or distributor in the country, the state entity is obliged to purchase the relevant goods from him (e.g. cars and spare parts). Spare parts can only be purchased from an official dealer.

A foreign company that does not have a branch in the country and has won a contract must register a so-called “temporary branch” within 30 days of the award of the contract.

Despite the necessity of prior qualification on the list of individual ministries (vendor list), most large tenders are two-round. The first round, the so-called “beauty contest”, is used to eliminate applicants who do not meet the requirements for financial adequacy, technical qualification or do not have the required references of previous contracts comparable to the advertised tender. In the second round, selected bidders are invited to submit a technical and financial offer (submitted separately in sealed envelopes). A bid bond of 2% of the bid value is required along with the bid, which must be issued or endorsed by a Saudi bank or an insurance company accredited to the central bank. The bid bond must be returned to the bidder within 7 days of its expiration.

Each tenderer must appoint two three-member tender committees. The so-called The “opening committee” opens the envelopes and assesses whether the offer meets the formal requirements of the tender. The “Decision Committee” then evaluates the offer from a technical point of view (the committee may request the opinion of an independent expert). The price and financial part of the offer may only be opened if the offer has passed the technical part of the tender process. The lowest price is not the only criterion for awarding the contract, the overall advantage is also assessed in terms of the time of performance, financial conditions and accompanying services (length of warranty, free service, etc.).

Contracts over SR 3 million (EUR 600 thousand) must be approved by a senior employee of the tenderer (e.g. the minister), contracts over SR 100 million (EUR 20 million) are approved by the Prime Minister.

The winner of the tender must open a performance bond in the amount of 5% of the contract value within 10 days of receiving the relevant notification and is then invited to sign the contract. Each state agency has its own “model contract”, the terms of which are more or less determined by the technical specifics of the contract. Most contracts are in Arabic, but in exceptional cases, the state agency may conclude a contract in English. The wording of the contract is usually part of the tender conditions. Regarding the payment terms, the standard payment is an advance payment of up to 20% of the contract value, then a payment linked to the execution of partial performance (delivery of goods, monthly work statements, etc.) and a so-called “retention money” in the amount of 10% of the order, which is released after acceptance of the work by the customer and presentation of confirmation of payment of all taxes associated with the subject of the contract performance, which is issued by the tax office (Department of Zakat and Income Tax). For late performance of the order, there is a penalty of up to 4% of the value of the order for the supply of goods and 10% for orders for construction or assembly work.

Possible disputes are resolved by the so-called Board of Grievances.

In the past, Czech companies were repeatedly the target of fraud attempts, when subjects pretending to be Saudi consultants or directly representatives of state authorities offered them participation or directly announced wins in tenders. In most cases, this is an excuse to lure money from Czech companies for various fictitious administrative fees. We recommend contacting the commercial and economic section of the Embassy of the Czech Republic in Riyadh to verify the existence and credibility of such offers.

Payment terms, payment ethics and resolution of commercial disputes

Due to the developed banking and financial sector with the presence of both foreign banks and foreign management in local banks, the payment conditions are at the standard world level. A commonly used payment term is payment by letter of credit, financial transfers are relatively fast.

Payment morality depends mainly on the overall economic situation. In the case of state payments to state contract contractors, due to the economic situation, there have been cases in the past when payments were made up to two years after they were due. Similarly, private companies whose activities are highly dependent on payments from the public sector can sometimes pay this late. In other cases, payment morale is relatively good.

Disputes are resolved according to Saudi law by the so-called Board of Grievances (a special tribunal designed to resolve certain types of disputes, e.g. between the contractor and the state in the case of state contracts and disputes between foreign entities and local partners). This institution also confirms judgments of foreign arbitrations.

In 2014, SCCA (Saudi Center for Commercial Arbitration) was established, which is an independent arbitration court for commercial disputes. This is probably the best alternative to out-of-court arbitration and mediation. His decisions are then directly enforceable.

Visas, fees, specific conditions for traveling to the territory

A visa is required to enter the SAK territory. In October 2019, tourist visas were introduced, which can also be used for business negotiations. The visa is processed entirely electronically.

For trips to Saudi Arabia, it is advisable to follow the current recommendations on the websites of the Ministry of Foreign Affairs and the Embassy of the Czech Republic in Riyadh, especially with regard to the dynamically changing conditions of entry according to the development of the pandemic situation.

Other visas must be obtained through the embassy of Saudi Arabia in Prague.

Contacts:

Royal Embassy of Saudi Arabia
English Royal Embassy of Saudi Arabia
Korunovační 622/35, 160 00 Prague 6 – Bubeneč
tel. 257 316 606 257 316 597
fax 257 316 593
e-mail [email protected]

opening hours Mon-Fri 9:00 a.m. – 3:00 p.m.

consular department
phone 257 316 606
fax 246 004 102

e-mail [email protected]
opening hours Mon-Thurs 10:00 a.m. – 3:00 p.m.

The data is updated at www.mzv.cz – Diplomatic offices – Foreign offices in the Czech Republic – Overview of offices of foreign countries for the Czech Republic – S – Saudi Arabia.

The condition for issuing a visa through the Saudi embassy is that the Czech applicant fills out the visa questionnaire of the electronic system of the Ministry of the Interior enjazit and also the application of ZÚ KSA and a signed statement with instructions on the prohibition of the import of selected commodities (alcohol, etc.), submission of 2 passport photos, a valid passport for at least 6 months from the date of planned departure to SAK, and payment of the administrative fee through the enjazit system. The visa fee changes according to the USD exchange rate and differs according to the type of visa, information will be provided by the Office of the SAK in Prague. A one-time visa is usually issued for a stay of up to 30 days, in justified exceptional cases a visa for 90 days or a multiple visa with a stay of up to 30 to 90 days can be obtained.

When applying for a work stay, an invitation from the sponsor (Saudi employer), approved by the SAK Ministry of the Interior (the Saudi Ministry of Foreign Affairs informs the relevant ZÚ about the approval), a letter from the sending organization from the Czech Republic, a health report, 2 passport photos and payment of an administrative fee is also required.

The importation of alcohol, drugs, suspected medicines, pork, weapons, pornography and materials for the promotion of a religion other than Islam is prohibited in SAK. The Bible can only be imported for personal use, the importation of large quantities of this and similar publications is considered importation for the purpose of promotion and carries severe penalties. It is illegal and severely punished not only to import alcohol and pornography, but also to possess it.

Do not enter SAK territory under the influence of alcohol, it can have unpleasant consequences in the form of a severe punishment. Homosexual behavior incl. homosexual intercourse is illegal and can lead to the death penalty. When traveling in the SAK, non-Muslims are strictly prohibited from entering the cities of Mecca and the city center of Medina. It is also prohibited to photograph and film people without their permission and objects important to the security of the state. During the ninth month of the local calendar (Ramadan), eating, drinking and smoking in public during the day (from dawn to dusk) is prohibited.

It is possible to choose a taxi for the trip from the airport, but the preferred option is shared services such as Uber, Bolt, Jeeny or Careem. It is possible to use already existing user accounts established in another country for these services.

The risk of infectious diseases is relatively low. For a longer stay, vaccination against hepatitis types A and B, typhoid and meningitis is recommended, malaria is practically non-existent in the area (malaria is occasionally recorded in the southern regions of SAK), on the contrary, hepatitis types C and D occur more often than in Europe. Further information eg www.who.int and many other websites dealing with travel medicine.

There are two mains available in SAK, namely 110 V/60 Hz and 220 V/60 Hz, you need to pay attention to the voltage when plugging devices into the socket (laptops, shavers, etc.). Electricity supplies are without problems. There are many different types of sockets, but the corresponding adapters are quite commonly available at SAK. Pay attention to the above-mentioned facts when buying electrical appliances at SAK. Quite often, however, 220V devices are also equipped with British plugs.

General crime is low, caution is appropriate only when staying, for example, at markets (souqs) at the time of peak attendance, where a foreigner moves in a small space in a crowd. Just like, for example, in Prague and other large European cities, you need to be careful of pickpockets who focus mainly on stealing mobile phones. In parked cars, it is not advisable to leave things in plain view of passers-by. Cars must be locked when parking.

Employment of citizens from the Czech Republic

A foreign company that establishes its branch in the country, a limited liability company, or a joint-stock company can employ both local and foreign people. The so-called “Saudiization” program, Nitiqát, is gradually taking place in the country , which establishes a quota system for the minimum proportion of Saudi employees. The quotas are set with regard to the field of activity and the size of the company (small companies have lower percentage quotas than large ones), so there are now a total of approximately 200 different categories of quotas. According to quota compliance, companies are marked with premium, green, yellow and red labels and are stimulated or sanctioned (premium and green no longer need to apply for permission to recruit foreign employees and can employ workers from companies from the yellow and red categories without the consent of their sponsors), yellow has stop status for recruiting new foreign forces and may not extend existing work permits for more than 6 years, and red has a stop status for extending existing work permits as well. In recent years, also work in some sectors, mostly in the retail sector, goes under full Saudization (sales of cars and motorcycles, sales of clothing, office supplies and furniture, electronics, watches, glass, medical and construction supplies, auto parts, carpets and desserts). Moreinformation.

Wages and salaries are not taxed, but the so-called GOSI (General Organization for Social Insurance) social insurance is deducted from them. The employer pays 11% for local workers, 2% for foreign workers, and local workers pay 9% of their salary. Social and health insurance are not mandatory for foreign workers. However, foreign companies usually pay health insurance for their foreign employees. Medical care is free for Saudis.

In March 2011, a decree was issued that set the minimum monthly wage in the state sector at SR 3,000 (approx. CZK 15,000). This limit does not apply to the private sector. The average monthly salary in the private sector is around SR 8,000. (driver – 2,000, accountant – 4,000, construction engineer 7,500, construction manager 15,000 SR. ). The minimum wage also varies by sector and whether one is a Saudi or foreign citizen.

Terminating employment with local forces is generally risky, especially without consulting a lawyer. The employment relationship is regulated by the so-called “Labour and Workmen Law” – Royal Decree No. M/21 of 1389 H. The employment contract must be in writing, in Arabic and in two originals. However, in the event of a dispute, even an orally concluded employment contract will stand up in court. The conditions concluded in the employment contract must not be in conflict with the law.

There is a relatively large interest in SAK in the employment of citizens from the Czech Republic, especially in the healthcare sector. In the healthcare fields, there are several agencies on the Czech HR market, specialized in the SAK territory, see below.

The basic condition of employment in SAK is the patronage of the employer, the so-called sponsor. Without the existence of a sponsor – and thus an employment contract and his invitation – it is not possible to obtain a Saudi visa. Employment contracts are usually one to two years, with a further one-year extension usually offered if the employer is satisfied. The employer is obliged to provide health insurance for the employee. The vacation period is usually between 40 and 49 days, including weekends (Fri, Sat) and holidays (Eid).

It is usual for the sponsor to provide the employee with accommodation (including energy consumption costs) and transport to the workplace. In the healthcare sector, accommodation is usually offered in its own premises within hospitals, where relatively strict rules apply (limited evening return to accommodation premises, ban on visits from the opposite sex, etc.). If the sponsor is unable to provide their own accommodation, they provide the employee with a lump sum for accommodation. In the case of middle and higher management functions, the sponsor usually also gives a one-time contribution for the purchase of a car. As a rule, the sponsor does not check whether the employee used any contribution provided by him in full or only in part. In the case of the possibility of accommodation outside the employer’s premises, accommodation in European-type compounds is suitable (if necessary with regard to safety, local customs and lifestyle).

The sponsor also provides the employee with at least one return ticket per year for the trip home (in some cases also a financial sum, the direct use of which it does not control).

We also recommend visiting the websites of the relevant staffing agencies that mediate work for Czech health professionals in SAK ( Go Global Consulting, Euro Staff ).

Fairs and events

A number of trade fairs are held in Saudi Arabia, but they are, with some exceptions, usually smaller in size than in neighboring countries. However, it is still a suitable opportunity to negotiate with potential partners and present your products and services. Fairs are starting up again after the pandemic, and with them some of the biggest fairs ever held in the country.

The most important fairs include:

World Defense Show – defense sector

LEAP – ICT, AI, Blockchain

Big 5 Saudi – construction industry

Saudi International Airshow – civil and military aviation

Intersec – security, defense, fire protection, cyber security

Riyadh Travel Fair – tourism

Global Health Exhibition – healthcare

Saudi Agriculture – agriculture and food industry

Saudi Arabia Market Entry