On 22 March 2015 Ministry of Commerce & Industry (the MoCI) issued an announcement requesting all companies and establishments (a KSA Agent) in KSA, which have commercial agencies or distribution agreements, to take the initiative and register these agreements in the Agents and Distributors Register. MoCI in its announcement stressed that it will apply the penalties set forth in the Commercial Agencies Law as enacted by Royal Decree No. M/5 dated 11/06/1389H (corresponding to 25/08/1969) (the Agencies Law) and its Implementing Regulations (the Implementing Regulations) against those who do not adhere to register during a period of six months starting from 01/06/1436 H (corresponding to 22 March 2015) (the Grace Period).

The Agencies Law establishes a comprehensive framework that govern the relationship between the KSA Agent and foreign principal. As required by Article (3) of the Agencies Law and Article (6) of the Implementing Regulations the KSA Agent must register in the Agents and Distributors Register each agreement into which it enters, although failure to register will not invalidate an agreement or adversely affect the foreign principal.

The time limit for the submission of the registration application in the Agents and Distributors Register is three months from the date on which the agency or distribution agreements came into effect. There is no requirement, under the Agencies Law, that the appointment of the KSA Agent be made on an exclusive basis.

The Agency Law imposes penalties for violating certain provisions of the Agency Law which include a fine of a sum not less than SAR 5,000 and not more than SAR 50,000, administratively de-registering the commercial agencies or distribution agreements, deportation of foreign personnel and prohibition against future commercial activities in the KSA. In addition, above penalties do not prevent an aggrieved party from initiating further legal action which could result in compensation being paid for damages caused.

MoCI further requested the KSA Agent that has already registered their commercial agencies or distribution agreements in the Agents and Distributors Register to update and renew the expired commercial agencies or distribution agreements during the Grace Period. In order to update the expired commercial agencies or distribution agreements, the KSA Agent must provide a letter from the foreign principal in the country of origin, certified and authenticated by the competent authorities, and to be translated into Arabic language by a certified translation office in KSA, stating the renewal and validity of the commercial agencies or distribution agreement.

Failure to update and renew the expired commercial agencies or distribution agreements during the Grace Period will result in MoCI, administratively, de-registering the commercial agencies or distribution agreements.

MoCI in its announcement reminded all KSA Agent to comply with the provisions of the Agencies Law and the Implementing Regulations including but not limited to:

provide consumers with necessary spare parts and maintenance.

guarantee the quality of the products and materials and ensure that they conform to the GCC standard specifications.

Conclusion

In summary, within the Grace Period, the KSA Agent which has commercial agencies or distribution agreements is required to register these agreements in the Agents and Distributors Register at MoCI and KSA Agent that has already registered its commercial agencies or distribution agreements is required to update and renew the expired commercial agencies or distribution.

It is too early to assess fully the impact this initiative will have on foreign company selling goods and services to KSA customers via KSA Agent, however, both existing foreign company selling goods or services to KSA customers via KSA Agent and those wishing to sell goods or services to KSA customers via KSA Agent will need to examine and assess the new MoCI objectives carefully.