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

agencyBy 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 2013 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;
  • 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.

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 focuses his practice on Corporate Law and International Business Transactions.  For more information, please visit the About Us page or request more information on our Contact Us page.  

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Doing Business in Saudi Arabia: Establising a Foreign Presence in the Lucrative Construction Sector

wassem amin saudi arabiaBy 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.

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.

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: Financing International Commercial Transactions

This Article was published in the Summer 2013 Newsletter of the International Commercial Transactions, Franchising, and Distribution Committee of the American Bar Association’s (ABA) International Law division.  The ABA is the largest association of attorneys and lawyers worldwide.

By: Wassem M. Amin, Esq.

If a company is exporting goods to Saudi Arabia, the Middle East, or anywhere else for that matter, a key consideration is how to collect payment from the importer or buyer.  A risk assessment of the underlying transaction and the buyer is necessary to determine what option to choose.  For the exporter, on the risk spectrum, the least risky is to request that the importer pay up front prior to shipment.  However, unless there is an established history between the parties involved, it is highly unlikely for the buyer to do so. On the other end of the spectrum is the option to sell on an open account – which involves simply shipping the goods to the foreign buyer along with an invoice.  Again, this method of payment is ill-advised, because the U.S. company may end up not getting paid and, instead, quickly finding out how difficult it is to collect debts in foreign jurisdictions.

An alternative to both these options is the use of a Letter of Credit (“LC”).  Frequently used in international transactions, LCs are a document issued by a bank in which the bank agrees to pay money upon the presentation of specified documents.  The transactional costs in obtaining LCs are miniscule compared to the risk of loss that comes with nonpayment.  The most basic LC transactional structure is one where the buyer-importer opens a LC with an agreed-upon bank (the issuing bank) in favor of the seller-exporter (the beneficiary).  The Letter of Credit is then transmitted to the seller’s bank (usually, the advising bank) which releases the funds to the seller upon the seller’s presentation of a bill of lading or any other agreed-upon documents.  In the event the issuing bank’s credit rating is low, a third bank, a confirming bank, can act as a surety for payment.

Terms for Letters of Credit are strictly defined in an internationally-agreed upon nomenclature.  In addition, an uniform set of rules are used to govern the interpretation of terms as well as the rights and obligations of each party involved.  Today, these payment instruments are used in complex financing transactions which may involve multiple banks, parties and stipulations.  There are two main types of LCs: a standby LC and a performance LC.  The standby LC is used to guarantee payment in the event of default or non-performance by a party; while a performance LC is used to guarantee payment for performance (usually the shipment or receipt of goods).

In some transactions I have structured, a combination of both types is used to ensure compliance by the buyer and the seller.  One example involved a U.S. manufacturer of custom-designed casework and a Saudi Arabian subcontractor who contracted for the supply and installation of laboratories in connection with the construction of a new hospital complex in the Kingdom’s Eastern Province.  The total value of the contract exceeded several million dollars.  Due to the highly technical and specialized nature of these goods, the challenge was to design a financing mechanism that protected the interests of both the buyer and the seller.  The U.S. manufacturer was hesitant to begin fabrication and manufacturing without an advance payment.  On the other hand, the Saudi subcontractor did not want to bear the risk of losing the down payment in the event of the manufacturer’s default.  In addition, there was still the need to secure payment for the remainder of the project.

First, to provide security for the down payment, the U.S. manufacturer was asked to issue a standby letter of credit through its U.S. issuing bank to the subcontractor’s bank in Saudi Arabia.  The bank in Saudi Arabia would in turn issue a guarantee against default only for the advance payment amount.  The standby letter of credit would be triggered in the event of the U.S. manufacturer’s non-performance.

Second, to ensure that the U.S. manufacturer would be paid, the subcontractor issued a (performance) letter of credit for the remaining amount through a Saudi Arabian issuing bank to the manufacturer’s bank in the United States.  The terms of the LC stipulated payment to the manufacturer against presentation of Bill of Lading documents, which allowed staggered payment for each phase of the project.  This structure allowed minimal risk exposure for all parties involved.

The following sketch illustrates the steps performed by each party, numbered in the order they were performed.

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  1. U.S. supplier instructs its advising bank to issue a standby letter of credit to the importer’s bank in Saudi Arabia;
  2. Saudi bank, using the standby letter of credit of collateral, issues a bank guarantee to the importer for the advance payment;
  3. Saudi importer wires the advance payment to the U.S. supplier’s account;
  4. Saudi importer instructs its bank to issue a performance letter of credit for the outstanding amount;
  5. Saudi bank issues the letter of credit to the supplier’s U.S. bank;
  6. U.S. supplier ships goods to Saudi importer;
  7. U.S. supplier presents bill of lading to its bank for payment against the letter of credit;
  8. If documents presented conform to the letter of credit requirements, U.S. supplier’s bank releases funds, pro-rata, according to the bill of lading.

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.  Wassem has extensive experience in the Middle Eastern region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Corporate Law and International Business Transactions.  For more information, please visit the About Us page or http://www.dharlawllp.com. 

Investor Immigration in the USA: The EB-5 Visa Professional’s Guide

EB-5 Dhar Law LLP

An Attorney and Service Provider’s Overview of Requirements for Eligibility and Implications under Different Areas of the Law

By: Wassem Amin, Esq., M.B.A.[1]

[NOTE: The following is a preview of a forthcoming Article on the same topic.]

Click Here for the Full Article in PDF Format.

In 1990, the United States Congress created the employment-based fifth preference (“EB-5”) immigrant visa category for immigrants who invest in and manage U.S. commercial enterprises that benefit the U.S. economy and create jobs. Allotted 10,000 immigrant visas annually, the EB-5 immigrant visa was designed to attract foreign direct investment into projects that would directly impact the economy (i.e., not merely passive investments).

Immigrant investors can apply for an EB-5 visa through two primary routes. The first route is through a direct investment into a qualifying “new commercial enterprise.” The second is through the Regional Center Pilot Program. Created by Congress in 1992, and recently extended by President Obama in the fall of 2012 an additional three years, the Pilot Program allows the United States Citizenship and Immigration Service (“USCIS”) to designate so-called Regional Centers to function as conduits or administrators of large or medium scale projects funded, at least in part, by EB-5 investors.

However, due to inconsistent administration by USCIS primarily caused by lack of proper training for its adjudicators, the Regional Center Pilot Program—as well as the EB-5 visa overall—was relatively under-utilized by practitioners, investors, and developers. For example, in Fiscal Year 2007, USCIS approved only 11 Regional Centers and issued 473 EB-5 Visas—out of the 10,000 available under the quota. In the following years, however, EB-5 visa issuances and Regional Center approvals exponentially increased in number. In FY 2012, EB-5 visas are projected to reach the visa cap for the first time in the program’s history.[2] Furthermore, Regional Center approvals in the same period spiked to an all-time high of 209. The increased interest in EB-5 investments has been attributed to a combination of factors including: (1) the overhaul of the program by USCIS and the creation of a dedicated EB-5 adjudication department; (2) the decrease in domestic investment capital after the 2008 recession; and (3) the increased political instability in foreign countries leading many high-net worth immigrants to relocate to the United States.

Forecasts for FY 2013 estimate that EB-5 capital will account for over $2 Billion in foreign direct investment. Since 2005, the program has injected over $6 billion in capital to the U.S. economy and added over 95,000 U.S. jobs. There have been many EB-5 and Regional Center success stories.

A particularly notable example is the Vermont EB-5 Regional Center. The Vermont EB-5 Regional Center is the only USCIS-designated Regional Center in the United States that is owned, controlled, and supervised directly by a state government. In fact, as Brent Raymond—who is the Director of the Regional Center as well as International Trade and Foreign Investment for the state—noted, the Vermont Regional Center has had a 100% success rate with immigration filings for affiliated alien investors and with investment returns on individual projects.

Advocacy groups have also had a strong positive impact in promoting the EB-5 Visa. The Association to Invest in the USA (“IIUSA”) is non-profit trade association that lobbies on behalf of Regional Centers nationwide. Led by Director Peter Joseph, it was founded in 2005 and represents over 80 Regional Centers, accounting for approximately 95% of all EB-5 capital.

Unfortunately, due to the growing popularity of the program, unscrupulous individuals and entities in the United States, as well as so-called “visa consultants” abroad, have attempted to use the EB-5 visa to defraud foreign investors. Foreign investors need to be diligent in their research and vetting process of such projects. Not surprisingly, counsel for the foreign investor or a Regional Center usually plays an integral role in this process. Unlike a traditional private offering, however, an attorney advising on an EB-5 visa, whether on behalf of the alien investor or the investment soliciting funds, needs to be well-versed in, not only also immigration law, but also corporate law, securities laws and regulations, tax law, international law, real estate law, and estate-planning—in addition to a fundamental understanding of business and economic forecasting models. It is a unique intersection of several areas of the law–each with their own complex regulatory and statutory regime.

Click Here for the Full Article in PDF Format.


[1] Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA. Wassem has extensive experience as a business advisor and consultant, domestically and abroad (in the Middle East region), having worked as a consultant for over 9 years. Wassem currently focuses his practice on Corporate Law, Business Immigration Law, and International Business Transactions; where he works with Firm Partners Vilas S. Dhar and Vikas Dhar to advise Regional Centers and individual investors on EB-5 Visa matters. For more information, please visit http://www.dharlawllp.com and email Wassem at wassem@dharlawllp.com.

Disclaimer: These materials have been prepared by Dhar Law, LLP for informational purposes only and do not constitute legal advice. This article 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. This material may be considered advertising according to the rules of the Supreme Judicial Court in the Commonwealth of Massachusetts. Reproduction or distribution without prior consent of the author is prohibited.

[2] USCIS EB-5 Statistics for Fiscal Years 2005-2012 (3rd Quarter), USCIS Office of Performance and Quality (OPQ), Data Analysis and Reporting Branch (July 23, 2012).

The EB-5 Immigrant Investor Program – U.S. Permanent Residency for Foreign Investors

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By: Wassem M. Amin

Overview of the EB-5 Program

Recently extended by President Obama, the Eb-5 Immigrant Investor Pilot Program provides a pathway to U.S. citizenship for foreign nationals by investing in domestic projects that will create or preserve a minimum number of jobs for U.S. Workers.  The program is administered by the United States Citizenship and Immigration Services (“USCIS”) and provides that foreign nationals may qualify to obtain a green card if the individuals invest $1,000,000 (or at least $500,000 in a “Targeted Employment Area”-i.e., a high unemployment or rural area), creating or preserving at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.

Under the EB-5 Program, a project developer may apply to be designated as a “Regional Center” by the USCIS.  If approved, this allows the developer to raise capital from foreign nationals while at the same time enabling the foreign investors to obtain permanent residency.  The benefit to the developer, or Regional Center, is usually minimal cost of capital (ROI on these projects are usually negligible) and the ability to charge the investor an “administrative fee.”  Most Regional Center investments are structured as Limited Partnerships, where the investor is sold a limited partnership interest and the developer is the general partner.

Below is an outline of the USCIS requirements for a foreign investor to qualify for an EB-5 visa, followed by a list of typical offering documents which I have seen from Regional Centers.

EB-5 Eligibility (Qualification of Foreign Investor)

The EB-5 employment-based immigrant visa is designated for foreign investors in new commercial enterprises.  There are 10,000 annual visas in this category (this quota has never been met).  This category covers two major types of investors: (1) those who invest in targeted employment areas ; and (2) those who invest anywhere else .  A targeted employment area is defined as (1) a rural area; or (2) any area experiencing high unemployment of at least 150% of the national average rate.

Criteria for Qualification:

  • Investment of at least $500,000 (if in a targeted employment area) or $1,000,000 if any other area;
  • Required capital must be placed “at risk” for the purpose of generating a return on the capital (Actual commitment of the capital is required);
  • The enterprise must create full time employment for not less than 10 U.S. workers (includes citizens and permanent residents, but not immediate family members of the investor);
  • Investment must be in a “new commercial enterprise,” defined as: (1) creating an original business; (2) by buying and reorganizing an existing business; OR (3) investing in an existing “troubled business”, created after November 29, 1990, if the capital infusion will result in, at least 40% increase in net worth or number of employees;
  • Capital must be obtained through lawful means; and
  • Investor must be engaged in the management of the enterprise, through either day to day management or policy formulation (inapplicable if through a Regional Center).

Immigration Filing Requirements:

Amount of Capital Invested – To show that the petitioner is in the process of investing $1million or $500,000 (targeted area), petition must be accompanied with:

  • Bank Statements showing amounts deposited in the United States business accounts for the enterprise (or held in an irrevocable escrow account);
  • Evidence of all the assets purchased in the United States;
  • Evidence of all property transferred from abroad for use in the US enterprise, including applicable commercial entry documents and fair market valuations; or
  • Evidence of Monies transferred to the new commercial enterprise in exchange for shares of stock (voting or nonvoting, common or preferred) or convertible debentures.

Lawful Means Evidence – to prove the investor’s funds are derived from a lawful source, the investor must show evidence such as:

  • Foreign business registration records;
  • Corporate, Partnership, and personal tax returns;
  • Evidence identifying any other source of capital; OR
  • Certified copies of judgments or evidence of all pending civil or criminal actions involving monetary judgments against the petitioner.

Job Creation Evidence Required – to show that the new commercial enterprise will create not less than 10 full time positions for qualifying employees, the petition must be accompanied by:

    1. Documentation consisting of photocopies of Form I-9, tax records, or other similar documents for 10 employees (if already hired); OR
    2. A Copy of a comprehensive business plan showing that, due to the nature and projected size of the new commercial enterprise, the need for not fewer than 10 employees will result, including approximate dates, within the next two years, when such employees will be hired.

Management – Evidence that a petitioner is or will be engaged in management (day to day or policy formulation), the petition must be accompanied by:

    1. A statement of the position title that the petitioner has or will have in the new enterprise, and a complete description of his duties;
    2. Evidence that the petitioner is a corporate officer or holds a seat on a corporate board of directors; OR
    3. If the new entity is a partnership, evidence that the petitioner is involved in management or policy-making.

Targeted Employment Area

    1. Evidence that the metropolitan statistical area, a specific county within such an area, or a county in which a city or town with a population of 20,000 or more is located, has experienced an average unemployment rate of 150% of the national average rate; or
    2. A letter from an authorized body of the government or political subdivision of the metro statistical area, or of the city or town with a population of 20,000 or more in which the enterprise is principally doing business, has been designated a high unemployment area.

Typical EB-5 Regional Center Offering Documents:

  • Project Summary Sheet
  • Memorandum of Terms (Term Sheet)
  • Private Placement Memorandum
  • Partnership Agreement
  • Subscription Agreement
  • Targeted Employment Area Designation
  • Business Plan(s)
  • Approved Economic Impact Report
  • Escrow Agreements for Subscription Fees & Capital Contribution
  • Completion or Performance Bond
  • Payment Bonds
  • USCIS Regional Center Approval Letter
  • Investor Qualification Questionnaire
  • Brochure(s) and other marketing material

Disclaimer: This article is for informational purposes only and it is not intended as legal advice.  Their are many other factors that may impact an applicant’s eligibility.  Consultation with a knowledgeable Immigration and Corporate Attorney is important.  For more information, please contact Wassem M. Amin.