The Kingdom of Saudi Arabia (hereafter referred as “KSA”) is widely known for its vast oil reserves and historically oil-driven economy. In recent years, the government of KSA launched Vision 2030, which has become a catalyst for economic diversification aimed at broadening income sources, reducing reliance on oil and gas revenues, attracting foreign investment, and boosting non-oil sectors. These reforms span various industries, reflecting a holistic approach to long-term economic sustainability. For these purposes, the legal environment and e-government legal services in KSA have undergone major reforms, including the issuance of several new regulations and laws. Some examples of the changes in the legal landscape include the introduction of a comprehensive and modern Saudi Bankruptcy Law in 2018, which established the Bankruptcy Commission and provided a framework for financial restructuring that allows debtors to resolve financial difficulties and resume their activities while safeguarding creditors’ rights. Additionally, a new comprehensive Civil Code (Civil Transactions Law) was issued, containing over 700 articles regulating civil contracts, civil partnerships, sources of rights, and torts. In mid-2022, a new modern Companies Law was introduced, emphasizing corporate governance, encouraging foreign investment, regulating holding and affiliated companies, mergers and acquisitions (M&A) and non-profit organizations. Additionally, ongoing amendments to the Saudi Labor Law aim to further protect foreign employees’ rights, including provisions such as the transfer of sponsorship.
Further to be above, the legal reform in KSA has also included the issuance of the Saudi Franchise Law (Regulation) under Royal Decree No. (M/22) dated 9-2-1441 Hijri corresponding to 8-10-2019 Gregorian calendar, which came into effect on 24/8/1441 Hijri corresponding to 17-4-2020 Gregorian calendar (herein referred to as the “Franchise Law”), along with its Implementing Rules issued by Ministerial Order No. (591) dated 18-9-1441 Hijri corresponding to 22-5-2020 Gregorian calendar, published in the Saudi Official Gazette (Umm Al-Qura) on 29-9-1441 Hijri corresponding to 22-5-2020 Gregorian calendar (herein referred to as the “Implementing Rules“). Collectively, the Franchise Law and the Implementing Rules are referred to as the “SFL.”
The SFL is a modern, comprehensive, and specialized franchise law that aligns with international franchising standards and practices. It is unique within the Gulf Cooperation Council (GCC) and Arab countries, where in most jurisdictions franchising is still primarily regulated under commercial agency laws. The SFL provides a comprehensive legal framework; however, it does not stand-alone cover the entire franchise industry in KSA. The role of specialized franchise committees and associations, comprising entrepreneurs, franchisors, franchisees, and legal specialists, is essential in this regard. Additionally, in accordance with the issuance provisions of the Franchise Law, the Small and Medium Enterprises General Authority known as “Monsha’at” in cooperation with the Ministry of Commerce (herein referred to as the “Ministry”), has established the Franchise Center, which is tasked, among other functions, with developing the franchise industry in KSA. In practice, the Franchise Center plays a significant and ongoing role in promoting and supporting the success of franchising in KSA.
It is worth mentioning that prior to the issuance of the SFL, franchising was governed by the provisions of the Commercial Agencies Law and its Implementing Regulations, as per the Ministerial Order No. (1012) dated 17-9-1412 Hijri corresponding to 20-3-1992 Gregorian calendar.
Laws in KSA are typically referred to as (regulations); therefore, any reference to a regulation in this document refers to a codified law. Regulations and laws in KSA are promulgated in Arabic, and any English translation is provided for guidance only and does not guarantee exact equivalence with the Arabic text. The translations of articles or sections of the SFL in this document are based on the official translation prepared by the Official Translation Department, established under Council of Ministers’ Resolution No. (134) dated 2-5-1422 Hijri. This department is responsible for official government document translations and reports to the Chief of the Bureau of Experts at the Council of Ministers (herein referred to as the “Bureau”). However, as mentioned, the translation may not fully capture the precise meaning of the original Arabic text, and in case of any discrepancy, the Arabic version of the regulation or law prevails.
This document is based on the laws and regulations of KSA, particularly the SFL, as of 30 September 2025 Gregorian calendar. These laws are subject to change, and therefore, the accuracy of the information herein cannot be guaranteed at all times. This document does not constitute legal advice or opinion.
According to the official translation prepared by the Bureau, Article 2 of the Franchise Law states: “The Franchise Law aims to: a) Promote franchise activities in KSA by establishing a legal framework that regulates the relationship between the franchisor and franchisee, emphasizing the principles of freedom to contract and transparency; and b) Provide necessary protections for franchisors and franchisees, particularly upon the expiry of the franchise agreement; and c) Ensure the disclosure of rights, duties, and risks relating to the franchise to assist prospective franchisees in making informed investment decisions; and d) Improve the quality and sustainability of goods and services provided in KSA”.
It should be noted that we have been honoured to be part of the team involved in drafting, reviewing, and editing the SFL. One of the primary objectives and philosophy in drafting the SFL was to establish certain provisions as mandatory, imperative, binding on both franchisors and franchisees and provisions that cannot be waived or altered by agreement between the parties. Examples include the requirements to provide and register the FDD, the registration of the franchise agreement itself, and other conditions stipulated in Article 11 of the Franchise Law, as detailed hereunder. The intent behind these mandatory provisions is to protect the franchise industry as a whole and to practically minimize disputes between the parties by setting minimum rights that safeguard both the franchisee and franchisor, as well as the franchise business. This is clearly reflected in Article 23, which states that “Any agreement by which the franchisee waives or relinquishes any of the rights he is entitled to under this Law shall be deemed null and void, unless such agreement is part of a final settlement with the franchisor or is authorized under this Law.” As noted earlier, the Franchise Law aims not only to protect franchisors and franchisees but also to support the broader economy by acting as a catalyst for increasing non-oil revenues in KSA. On the other hand, many provisions and articles of the SFL have been drafted with the understanding that certain terms are non-imperative and non-mandatory, allowing the franchisor and franchisee the flexibility to agree in accordance with their own terms to suit their specific needs. These provisions serve primarily as a framework to assist the parties in regulating their contractual relationship. For instance, the first part of Article 11 paragraph 2 of the Franchise Law emphasizes the parties’ right to include additional terms and conditions, provided that the mandatory requirements are satisfied, clearly demonstrating that the law is designed to balance practicality with legal certainty.
Pursuant to Article 14 of the Implementing Rules, the Ministry may issue model forms for the franchise agreements and disclosure documents. We are proud that Monsha’at entrusted our Firm with the important task of preparing the model form for the franchise agreement in KSA. Our Firm took great care to draft a practical and balanced model forms for the franchise agreement that effectively regulates the franchise legal relationship while providing fair protection for both parties. The said model forms of the franchise agreements are only for guidance and not obligatory.
-
Is there a legal definition of a franchise and, if so, what is it?
-
Are there any requirements that must be met prior to the offer and/or sale of a franchise? If so, please describe and include any potential consequences for failing to comply.
-
Are there any registration requirements for franchisors and/or franchisees? If so, please describe them and include any potential consequences for failing to comply. Is there an obligation to update existing registrations? If so, please describe.
-
Are there any disclosure requirements (franchise specific or in general)? If so, please describe them (i.e. when and how must disclosure be made, is there a prescribed format, must it be in the local language, do they apply to sales to sub-franchisees) and include any potential consequences for failing to comply. Is there an obligation to update and/or repeat disclosure (for example in the event that the parties enter into an amendment to the franchise agreement or on renewal)?
-
If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, is it sufficient to make disclosure to the SPVs’ parent company or must disclosure be made to each individual SPV franchisee?
-
What actions can a franchisee take in the event of mis-selling by the franchisor? Would these still be available if there was a disclaimer in the franchise agreement, disclosure document or sales material?
-
Would it be legal to issue a franchise agreement on a non-negotiable, “take it or leave it”, basis?
-
How are trademarks, know-how, trade secrets and copyright protected in your country?
-
Are there any franchise specific laws governing the ongoing relationship between franchisor and franchisee? If so, please describe them, including any terms that are required to be included within the franchise agreement.
-
Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales, insist on exclusive supply or fix retail prices)? If applicable, provide an overview of the relevant competition laws.
-
Are in-term and post-term non-compete and non-solicitation clauses enforceable and are there any limitations on the franchisor's ability to impose and enforce them?
-
Is there an obligation (express or implied) to deal in good faith in franchise relationships? If so, what practical effects does this have on the relationship between franchisor and franchisee?
-
Are there any employment or labour law considerations that are relevant to the franchise relationship? Is there a risk that the staff of the franchisee could be deemed to be the employees of the franchisor? What steps can be taken to mitigate this risk?
-
Is there a risk that a franchisee could be deemed to be the commercial agent of the franchisor? What steps can be taken to mitigate this risk?
-
Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and/or how much interest can be charged? Are there any requirements for payments in connection with the franchise agreement to be made in the local currency?
-
Is it possible to impose contractual penalties on franchisees for breaches of restrictive covenants etc.? If so, what requirements must be met in order for such penalties to be enforceable?
-
What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?
-
How is e-commerce regulated and does this have any specific implications on the relationship between franchisor and franchisee? For example, can franchisees be prohibited or restricted in any way from using e-commerce in their franchise businesses?
-
What are the applicable data protection laws and do they have any specific implications for the franchisor/franchisee relationship?
-
Is the franchisor permitted to restrict the transfer of (a) the franchisee's rights and obligations under the franchise agreement or (b) the ownership interests in the franchisee?
-
Does a franchisee have a right to request a renewal on expiration of the initial term? In what circumstances can a franchisor refuse to renew a franchise agreement? If the franchise agreement is not renewed or it if it terminates or expires, is the franchisee entitled to compensation? If so, under what circumstances and how is the compensation payment calculated?
-
Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?
-
Are there any intangible assets in the franchisee’s business which the franchisee can claim ownership of on expiry or termination, e.g. customer data, local goodwill, etc.
-
Is there a national franchising association? Is membership required? If not, is membership commercially advisable? What are the additional obligations of the national franchising association?
-
Are foreign franchisors treated differently to domestic franchisors? Does national law/regulation impose any debt/equity restrictions? Are there any restrictions on the capital structure of a company incorporated in your country with a foreign parent (thin capitalisation rules)?
-
Must the franchise agreement be governed by local law?
-
What dispute resolution procedures are available to franchisors and franchisees? Are there any advantages to out of court procedures such as arbitration, in particular if the franchise agreement is subject to a foreign governing law?
-
Must the franchise agreement and disclosure documents be in the local language?
-
Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?
-
Do you foresee any significant commercial or legal developments that might impact on franchise relationships over the next year or so?