This article describes the regulation of foreign investment and participation in nurseries and primary/secondary schools (Education Institutions) in the Kingdom of Saudi Arabia (KSA), and highlights some of the matters that a foreign school operator or investor may wish to consider when contemplating an investment in Education Institutions in the KSA.
In order to directly conduct any type of business in the KSA, a foreign entity must first establish a legal presence there. Once established, it must conduct its approved activities in accordance with the terms of any licences and permits obtained from the Saudi Arabian General Investment Authority (SAGIA), the Saudi Ministry of Commerce and Industry, and other government departments.
As a general rule, foreign investment in KSA-based activities is permitted unless the activity appears on a list of businesses prohibited for foreign investment (the Negative List). However, certain activities which do not appear on the Negative List may still face foreign ownership restrictions and/or requirements to obtain additional consents or approvals as a matter of policy.
Although education activities do not appear in the Negative List, there appears to be a policy in the KSA whereby nurseries and primary/secondary schools must be fully owned by nationals of the KSA.
Nevertheless, it should still be possible, in principle, for a foreign school operator or investor to have an interest in Education Institutions in the KSA in a capacity other than direct investment. One option could be to enter into a collaboration-style arrangement with a local school owner pursuant to which the foreigner provides know-how (including aspects of its curriculum, teaching materials, etc) or management/consultancy services in return for licensing or management/consultancy fees.
There will likely be a myriad of legal and commercial matters for foreign school operators and investors to consider when contemplating such arrangements with Education Institutions in the KSA. Some of the key considerations include:
- Tax - Any licensing or management/consultancy fees paid to a foreign school operator or investor are likely to be subject to withholding tax. A KSA resident entity is required to withhold tax from payments made to non-residents that do not have a legal registration or permanent establishment in KSA with respect to income earned from a source in KSA (ranging from 5% to 20% depending on the type of payment).
- Employment - A foreign school operator or investor may have to rely on its collaboration partner to sponsor and obtain residence visas and work permits for any employees proposed to work from within the KSA. The foreign operator or investor will have limited control over the process and will have to carefully consider employment and immigration matters under KSA law.
- Intellectual Property - Careful thought will need to be given to how best to protect the foreign operator’s intellectual property during the collaboration, and provide for the protection and extraction of any intellectual property (and prevent continued use by the KSA-based operator) once the collaboration arrangement comes to an end.