Doing Business in Saudi Arabia: Establishing Commercial Agency and Distribution Agreements

Amin - Doing Business in Saudi ArabiaBy Wassem M. Amin, Esq., MBA

Saudi Arabia is one of the largest importer of goods in the Middle East region and is, in fact, one of the largest per capita importers of goods in the world.  Saudi Arabia imports virtually all consumer and industrial goods that it uses.  It imports roughly triple the amount of goods that it exports.  For example, according to the Kingdom’s Central Department of Statistics and Information (Link in Arabic), in 2012, total imports were approximately 584 Billion Saudi Riyals (US $156 Billion) compared to non-petroleum related exports of 190 Billion Saudi Riyals (US $50 Billion).

With the recently-announced record 2014 national budget, demand for imported goods is expected to exponentially rise.  Most foreign companies seeking to establish a long-term presence in Saudi Arabia choose to do so via a commercial agency agreement with a local partner.  Commercial agency agreements in the Kingdom are governed by the Commercial Agency Act and associated regulations (the “Act”).  The law does not differentiate between a distributor or an agent and, therefore, the Act is applicable to both types of contractual relationships.  These two terms are used interchangeably in this Article.

The Act defines a commercial agency relationship as a contractual relationship between a Saudi company or individual and a foreign producer or their representative for the purpose of undertaking trading and commercial activities in the Kingdom.

Who Can Act as Agent/Distributor in Saudi Arabia?

The Act requires that the local agent or distributor be either a Saudi national (or 100% Saudi-owned company) or a citizen of the Gulf Cooperation Council (GCC).  The GCC’s members include the countries of: Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab Emirates.  In addition, the entity or individual must register with the Ministry of Commerce and the chamber of commerce in the region where the majority of trading activities will be undertaken.

Legal Obligations of Agents & Distributors

The Act imposes stringent legal obligations that function as a “warranty” for any goods distributed by the local agent .  Among the most significant are the requirements that an agent provide spare parts at ‘reasonable prices’ as well provide maintenance and repair services.  This requirement is imposed for a period of one year even after the termination of the agency agreement with the producer or until the appointment of a new agent.  The agent is also required to maintain extensive documentation disclosing all customs/duties information and the country of origin of the product.

The Commercial Agency Agreement

In order to impose uniform rights and obligations on all local agents and their foreign principals, the Ministry of Commerce has a standardized model contract which serves as a guide for both parties.   Although the agent and principal are not required to use the model contract, the use of a contract with terms that substantially differ from the model will prevent that agency relationship from being registered with the Ministry of Commerce–essentially invalidating the contract.

The mandatory terms in a commercial agency agreement, as set out by the Ministry of Commerce, are the following:

  • Parties to the Agreement;
  • Territory covered by Agency;
  • Exclusivity, if any;
  • Duration of Agency;
  • Conditions for termination and renewal;
  • Rights and responsibilities of each party towards each other and the consumer–specifically who is responsible for the cost of maintenance and provision of spare parts;
  • The products and services that are covered by the Agreement;
  • Capacity of the local agent, i.e., whether the agent is a direct representative of the principal or is an independent distributor; and
  • The terms of payment or formula for remuneration.

Saudi Arabia is a lucrative market for foreign companies and investors. At a time when the market in the United Arab Emirates is beginning to get stagnant and saturated, Saudi Arabia remains ripe with opportunities. However, the cultural, political, and legal landscape is complex and varies dramatically from that of countries such as the USA or in Europe. Unaccustomed foreign companies or investors should seek out advisory or legal firms who are proficient and have expertise in Saudi Arabia.

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Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Committee as well as the Islamic Finance Committee of the American Bar Association’s International Law Section. Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years. Wassem currently focuses his practice on Business Immigration (EB-5 Regional Center and Investor Representation) and International Business Transactions. For more information, please visit the About Us page or http://www.dharlawllp.com.

Doing Business in Saudi Arabia: How to Establish a Foreign Company in the Lucrative Construction Sector


wassem amin saudi arabia

By Wassem M. Amin, Esq., MBA

The Kingdom of Saudi Arabia is one of the fastest growing economies in the Middle East.  In 2013, the government increased its budget by more than 20% than the previous year, to approximately 820 Billion Saudi Riyals ($219 Billion).  Additionally, Saudi’s King Abdullah pledged more than $500 billion on social welfare and infrastructure projects over the next few years.  Saudi Arabia’s increased spending is part of its policy to create economic diversification and reform, in turn decreasing their dependence on oil revenue and creating new jobs for the local population.

A large proportion of the Government’s spending, approximately 300 billion Riyals, has been allocated to capital expenditures on investment projects and social infrastructure.  Ambitious plans include building 539 new schools and universities, as well as the development of several new cities in the sprawling desert kingdom.

The biggest beneficiary of this expansionary policy is the construction industry.  Demand in the construction and associated sectors, such as residential and commercial real estate development, will increase exponentially, representing an excellent market opportunity for foreign investors and international corporations seeking to enter the Saudi market.

Applicability of Islamic Finance

Construction projects in Saudi Arabia are typically either public or private.  The governing law which applies to all contracts, including construction, is Shari’a, or Islamic, law.  General principles of Islamic Finance are applicable, such as the duty to act reasonably, in good faith, and to mitigate losses.

In the private sector, within the construction sector specifically, the Islamic Finance principle that applies is the “istisna’a” contract, which is a contract for the sale of an asset that is yet to be constructed or manufactured.  Using this structure, the party providing capital, the financier, enters into a contract with the purchaser of the building to be constructed.  Usually the financier, whether a bank or investor, will then enter into a back-to-back construction contract with a general contractor for the project.   The financier realizes a profit from the spread between the cost of the construction contract and the price of the purchase contract.

Public Works Contracts

However, in the public sector, specific regulations and a complex legal framework govern bidding for public works, as well the interpretation and enforcement of underlying contracts.  While still generally subject to Islamic Law principles, public works contracts are considered administrative contracts and are subject to the Government Bids and Procurement Law, implemented with associated regulations.

Establishing a Foreign Presence in Saudi Arabia

Recent amendments in the law and a shift in policy by the government to attract foreign direct investment have made it easier than ever for a foreign company or investor to establish business operations in Saudi Arabia. Although there are a variety of business organizations in Saudi Arabia, the most commonly used by foreign companies in undertaking construction projects are Limited Liability Companies (LLCs).  That is due to the relative ease of incorporating an LLC (as opposed to, for example, a Joint Stock Company), minimal capitalization requirements, and the requirement of less corporate governance formalities.

The actual procedure of establishing an LLC in Saudi Arabia is typically a two-step process: (1) First, the foreign partner applies to the Saudi Arabian General Investment Authority (SAGIA) for a foreign investment license; (2) Second, once SAGIA issues the license, the partners in the proposed LLC apply to the Ministry of Commerce and Industry in order to incorporate the company.  Once approved, the Ministry will certify the formation documents of the LLC and issue a commercial registration certificate–which permits the LLC to begin operating in the Kingdom legally.

Risks and Opportunities

Although the Kingdom has begun to allow wholly-owned foreign entities to invest in the country, the laws and cultural differences there remain complex and, at times, even frustrating.  In order to effectively operate in Saudi Arabia, foreign investors need to consider a plethora of issues such as: (1) Cultivation of solid business relationship is essential to success; (2) unfamiliar and complex Islamic Finance Laws; (3) risks and incentives in this vast market; and (4) unique cultural and social differences.  Saudi Arabia is a lucrative market for foreign companies and investors.  At a time when the market in the United Arab Emirates is beginning to get stagnant and saturated, Saudi Arabia remains ripe with opportunities.  However, the cultural, political, and legal landscape is complex and varies dramatically from that of countries such as the USA or in Europe.  Unaccustomed foreign companies or investors should seek out advisory or legal firms who are proficient and have expertise in Saudi Arabia.

Dhar Law LLP is uniquely positioned to be able to provide investors with critical insights and advice to support and develop investment and business ventures in the Kingdom.  The Firm’s extensive knowledge is based on decades of first-hand knowledge and experience of the financial, legal, and cultural nuances of the Saudi market.  That, coupled with proven success in the U.S. market, has enabled Dhar Law LLP to provide a wealth of expertise and know-how in sourcing and structuring complex cross-border transactions and investment deals.  Dhar Law’s expert consultants and lawyers, all of whom have a vast legal and consulting background, are able to provide comprehensive solutions that are uniquely tailored to the Middle Eastern market.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Committee as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Business Immigration (EB-5 Regional Center and Investor Representation) and International Business Transactions.  For more information, please visit the About Us page or http://www.dharlawllp.com. 

EB-5 Regional Centers in Project Finance: Using EB-5 Capital in lieu of Mezzanine Financing

By Wassem M. Amin, Esq., MBA

The EB-5 program — which was created in 1990 but has grown in popularity only over the past few years — allows overseas investors to obtain a green card in exchange for providing a minimum of $500,000 in financing for qualified projects.  The explosive growth of the EB-5 program has caught the attention of real estate and project developers nationwide.  Developers have been using the program to establish so-called EB-5 Regional Centers, which are essentially entities, approved by the United States Citizenship and Immigration Service (“USCIS”) that allow a developer to raise capital from foreign immigrant investors for a specific project or projects.  The total capital raised per project has ranged from $1,000,000 to over $300,000,000.  As the use of EB-5 Regional Centers has expanded, the structure of EB-5 Regional Centers and underlying investments has also increased in complexity–which has allowed EB-5 capital to be used in increasingly diverse types of projects.

Of course, at the outset, it is critical to ensure that any contemplated EB-5 financing meet the stringent requirements set out by USCIS for the program.  The details of the program, and the differences between EB-5 financing through a Regional Center, are discussed in prior posts, here and here (each post includes downloadable PDFs, as well).

EB-5 Financing as an Alternative to Real Estate Mezzanine Capital

A potential, and increasingly popular, use of EB-5 funds in Real Estate finance is as a source of capital in lieu of traditional mezzanine loans.  In the context of real estate finance, mezzanine loans are typically used by developers as a source of supplementary financing for development projects.  Unlike a traditional mortgage, real estate mezzanine loans are collateralized by equity (such as stock or other ownership interest) in the development company rather than the property itself.  To account for the higher risk, lenders of mezzanine capital typically charge interest rates and fees that range between 12-20%, a substantial cost for the developer.

This is where EB-5 financing shines –  EB-5 cost of capital is one of the primary reasons the program has become very popular with developers.  EB-5 financing, whether structured in a debt or equity model (more on EB-5 financing structures, here), typically cost around 1-2%.  For example, in a debt model, an EB-5 loan from the foreign investor would carry an interest rate of 1%–significantly lower than traditional mortgage-backed loans, and exponentially lower than the cost of mezzanine financing.

EB-5 Financing as an Alternative to Mezzanine Capital in Leveraged Buyouts

In a leveraged buyout (“LBO”), mezzanine capital may be used in conjunction with other forms of financing and equity as part of the capital stack to fund the purchase price of a company being acquired.  In LBOs, Private Equity firms or an acquiring company often use mezzanine capital to lower the amount of capital invested.  Since Private Equity firms typically have higher target rates of returns than a mezzanine lender, use of mezzanine loans may increase the rate of return on an investment.  EB-5 Financing in the context of LBOs could replace the mezzanine loan in a capital stack and significantly enhance the rate of return on an investment or acquisition.  For example, in an LBO, if the capital stack of a purchase includes $50 million in mezzanine financing, at a cost of 15% to the borrower, using a simple interest rate calculation, the cost of capital to the purchaser is at least $7.5 million.  The significant cost of a mezzanine loan may have the effect of not only reducing the value of an LBO target, but also greatly diminishing the rate of return on an investment.

As in Real Estate finance, use of EB-5 capital in an LBO can have significant advantages.  For example, in the above scenario, if the LBO uses EB-5 capital in lieu of its mezzanine financing, the cost of capital would be around 1-2%, or between $500,000 to $1,000,000 in a $50 million capital raise–that is a savings of over $6,500,000.  In other words, using EB-5 capital just increased the return on the investment by an additional $6,500,000!

Making EB-5 Financing Work: Bridge Loans

Assuming the underlying project meets the requirements of the EB-5 program, many project developers or companies are still reluctant to use EB-5 financing simply because of the length of USCIS processing times.  Although USCIS has made significant strides over the past few years to address that issue, the fact remains that structuring an EB-5 financing takes a significant amount of time.  It may take anywhere from 6 months to 2 years before a developer is able to have funds from an EB-5 financing at its disposal.  The delay in access to these funds can prove fatal to a project.

However, the growth in EB-5 financing market has the creation of spurred specialized loan companies that address this very issue.  There are now several companies that provide specialized EB-5 bridge loans which allow a developer access to all or some of its anticipated capital.  Moreover, in its latest Policy Memorandum, USCIS has specifically indicated that such financial arrangements are allowed in the EB-5 context.  In a May 20, 2013 Adjudications Policy Memorandum, USCIS stated:

“It is acceptable for the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, to utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise still gets credit for the job creation [arguably the main requirement of the EB-5 program] under the regulations….Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.”

The increasing popularity and exponential growth of the EB-5 market has expanded the possibilities in which EB-5 capital can be used.  More than ever before, EB-5 capital can be used in a variety of flexible financing structures to fund increasingly diverse projects.  The key to successfully raising EB-5 capital is proper planning with the assistance of attorneys and professionals who, not only have expertise in Securities, Corporate, Immigration and, if applicable, Real Estate Law, but are also well-versed in the unique requirements the EB-5 program.  Finally, proper and extensive due diligence and risk analysis on the underlying project and the overall financing should also be completed contemporaneously.

If you would like more information about the EB-5 Visa or Regional Center development and investment offerings, please contact Wassem M. Amin, Esq., at wassem@dharlawllp.com.

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Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions.  He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers.  For more information, please visit the About Us page or request more information on our Contact Us page.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Massachusetts District Court Judge Issues Decision that Provides Protection for Whistleblowers

One of the major splits among lower courts has been around the whistleblower provision of the 2010 Dodd-Frank Act.  In July of 2013, the U.S. Court of Appeals for the Fifth Circuit issued a decision holding that an employee must provide information relating to a violation of the securities laws to the SEC in order to qualify as a “whistleblower,” under the Dodd-Frank Act.[1]  The decision, and other district court rulings that followed, appeared to deter employees from reporting violations directly to their employer because they were not guaranteed protection.  However on October 16th, a United States District Judge in Massachusetts ruled that the whistleblower provision of the 2010 Dodd-Frank Act protects employees whether or not they report the violations to the Securities and Exchange Commission (“SEC”) before they bring the information to their employer.[2]  (Read the opinion here)

The plaintiff, Richard Ellington, was employed as a financial planner by defendant, New England Investment & Retirement Group (“NEINV”).  After becoming aware of possible violations of the Investment Advisors Act of 1940, plaintiff discussed his concerns with the principal shareholder of the company compiled a twenty page report and submitted it to NEINV’s compliance officer, who subsequently began investigating.  Shortly thereafter, plaintiff was terminated from the company for emailing company files to himself after being warned that he was likely to be terminated.  After being terminated, plaintiff reported the information to the SEC and assisted in an investigation which ultimately led NEINV to pay $200,000 in civil penalties for violating the security regulations.

The issue in the case was whether plaintiff qualified as a whistleblower under the 2010 Dodd-Frank Act, which prohibits an employer from retaliating against a whistleblower.  The Act defines whistleblower as “any individual who provides..information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.”  The defendants moved for summary judgment arguing that plaintiff does not qualify as a whistleblower because he did not provide the information to the SEC until after he was terminated.

Judge Richard G. Stearns did not accept the defendant’s argument, which cited the 5th Circuit decision and instead relied on the SEC’s interpretation of the Act, which states that a person is provided protection when the information is provided “[t]o, a person with supervisory authority over the employee or such other person working for the employer who has authority to investigate, discover, or terminate misconduct.”  Judge Stearns stated that a person has a private right of action under Dodd-Frank “whether or not the employer wins the race to the SEC’s door with a termination notice.”

 The decision is in line with the purpose of the whistleblower provision, to encourage employees to report violations when they believe their employer is violating the Securities laws.  However, while the decision is a step in the right direction for employers, until there is clear guidance on the issue that resolves the lower courts split, employers will still be hesitant to report the violations to their employers for fear of being terminated without any avenue of recourse.


[1] Asadi v. G.E. Energy (USA), LLC, No. 12-20522 (5th Cir. July 17, 2013)

[2] Ellington v. Giacoumakis, No. 1:13-cv-11791 (D.Mass. Oct. 16, 2013)

EB-5 Investments in a Regional Center: A Due Diligence Guide for an EB-5 Immigrant Investor

eb-5-visa Wassem Amin

By Wassem M. Amin, Esq., M.B.A.

The EB-5 Visa program’s popularity has skyrocketed in the last couple of years.  A foreign investor can obtain permanent residency and, eventually, citizenship if the investment follows the United States Citizenship and Immigration Service’s (“USCIS”) guidelines of the EB-5 Visa Program.  The majority of EB-5 Investors invest through so-called Regional Centers.

A Regional Center is an entity, approved by USCIS, to develop projects that meet EB-5 guidelines.  The Regional Center could be the developer of the project or another entity that manages the project.  Obtaining the designation of an approved regional center from USCIS allows that entity to solicit foreign EB-5 Investors.    Although the program has been a huge success – generating billions of dollars in direct investment and creating tens of thousands of U.S. jobs – this success has attracted the attention of unscrupulous individuals.

A couple of recent high-profile examples include the Chicago Regional Center (discussed here) and, more recently, an individual who created a fraudulent regional center to solicit funds and divert them for his personal use.   Despite these unfortunate, the vast majority of EB-5 Regional Centers are legitimate.

If you are considering investing in an EB-5 Regional Center, it is important to conduct your own research and due diligence.  Although this should not be viewed as a comprehensive list, the following guide should be used to assess the viability of the Regional Center and feasibility of the underlying project.

EB-5 Investors: Due Diligence Guide

  1. The beginning step should be to always confirm that the Regional Center has been approved by USCIS.  Start by checking on www.uscis.gov.  USCIS maintains an up-to-date list of Regional Centers across the country.
  2. After you have located a potential Regional Center, request a copy of their USCIS approval letter.  This will help ensure that you are not dealing with an imposter instead of the actual Regional Center.  Further, obtain copies of the actual filings with USCIS.  Regional Centers must file an application (Form I-924) to obtain initial designation and approval.
  3. Stay away from Regional Center projects that do not have clearly written and planned investment offering documents.  Reputable Regional Centers will usually have a Private Placement Memorandum (PPM), or similar, to send to an interested investor.  In addition to the PPM, investment documents for a typical Regional Center project include: Request the above investment information in writing.  If you do not have experience in evaluating the profitability or viability of a potential project, hire an experienced professional, such as a Corporate Lawyer or Business Consultant, to assist you.
    • Memorandum of Terms or Term Sheet;
    • Partnership Agreement or similar;
    • Investor Qualification Questionnaire;
    • Subscription Agreement;
    • Escrow Agreement;
    • USCIS Approval Letter
    • Investor Certificates;
    • Comprehensive Business Plan;
    • Economic Impact Plan by a qualified professional;
    • Wiring Instructions;
    • Disclosures of Administrative Fees;
    • Marketing Plan and Sample Marketing Material
    • Among others
  4. Consider the project developer’s involvement in the project.  A majority of EB-5 Regional Center developers often make significant capital investments in the project.  This would be a positive indication for the investor, because it means the developer’s own funds are at risk and they have their “skin in the game”–their financial return is linked to the success of the project.

Remember, although the EB-5 visa program has one of the highest USCIS approval percentages for individual investors, it is not “guaranteed.”  A telltale sign of potential fraud are promises of a conditional or permanent green card or citizenship.  In addition, be wary of promises of returns on the investment that are significantly higher than market rates.

Keep in mind that a requirement of the EB-5 investment is that the investor’s funds must be at risk–that means that the Regional Center or developer cannot even guarantee the return of your principal investment.  Although most reputable Regional Centers will in fact pay return the investment funds at the end of the agreed-upon period, a promise or guarantee at the outset is not feasible – and could even result in the denial of application with USCIS.

The EB-5 Regional Center program has been very successful and is gaining in popularity.  It has significant potential in generating foreign direct investment in rural and high unemployment areas.  It is also very popular with investors because of it has a track record of success and high rate of USCIS approvals.  However, a potential foreign EB-5 investor should always exercise caution when considering an EB-5 Regional Center investment.  Comprehensive due diligence and research, as with any other investment, is necessary and highly recommended.

If you would like more information about the EB-5 Visa or Regional Center development and investment offerings, please contact Wassem M. Amin, Esq., at wassem@dharlawllp.com.

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Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions.  He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers.  For more information, please visit the About Us page or request more information on our Contact Us page.