{"id":152538,"date":"2026-10-19T14:09:32","date_gmt":"2026-10-19T14:09:32","guid":{"rendered":"https:\/\/www.legal500.com\/guides\/?post_type=comparative_guide&#038;p=152538"},"modified":"2026-10-19T14:14:42","modified_gmt":"2026-10-19T14:14:42","slug":"saudi-arabia-franchise-licensing","status":"publish","type":"comparative_guide","link":"https:\/\/www.legal500.com\/guides\/chapter\/saudi-arabia-franchise-licensing\/","title":{"rendered":"Saudi Arabia: Franchise &amp; Licensing"},"content":{"rendered":"","protected":false},"template":"","class_list":["post-152538","comparative_guide","type-comparative_guide","status-publish","hentry","guides-franchise-licensing","jurisdictions-saudi-arabia"],"acf":[],"appp":{"post_list":{"below_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Hammad &amp; Al-Mehdar Law Firm<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/www.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2022\/10\/GroupLogoMIdnightCMYK_page-0001.jpg\"\/><\/span><\/div>"},"post_detail":{"above_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Hammad &amp; Al-Mehdar Law Firm<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/www.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2022\/10\/GroupLogoMIdnightCMYK_page-0001.jpg\"\/><\/span><\/div>","below_title":"<span class=\"guide-intro\">This country specific Q&amp;A provides an overview of Franchise &amp; Licensing laws and regulations applicable in Saudi Arabia<\/span><div class=\"guide-content\"><div class=\"filter\">\r\n\r\n\t\t\t\t<input type=\"text\" placeholder=\"Search questions and answers...\" class=\"filter-container__search-field\">\r\n\t\t\t<\/div>\r\n\r\n\t\t\t\r\n\r\n\r\n\t\t\t<ol class=\"custom-counter\">\r\n\r\n\t\t\t\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a legal definition of a franchise and, if so, what is it?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 1\u00a0of the\u00a0Franchise Law defines a franchise as a right granted by a franchisor to a franchisee to run a franchise business on its own account under the trademark or brand name of the franchisor or its licensor, including the transfer of technical expertise and the manner of operation, for financial or non-financial consideration, excluding amounts the franchisee pays for goods or services.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any structuring considerations for foreign franchisors (e.g. use of master franchisees, local presence requirements)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A foreign franchisor need not establish a local presence or entity; it may grant directly to a local franchisee from abroad. A master franchisee may not sub-franchise until it or another franchisee has operated the business in the Kingdom for at least one year (Article 5(2)).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 5(1) of the Franchise Law prohibits offering or granting a franchise until the franchised business has been operated for at least one year, in at least two outlets or by at least two persons. In January 2026 the Council of Ministers approved the non-application of Article 5 to certain franchisors in specified sectors (including entertainment, tourism and sports) that meet conditions assessed by a Ministry of Commerce committee, including an innovative or economically beneficial activity and no franchise consideration before operations begin (Council of Ministers Resolution No. 511 of 24\/7\/1447H). Failure to comply carries the consequences in Questions 24 and 25, and a fine of up to SAR 500,000 under Article 24 of the Franchise Law.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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 practical or timing implications (e.g. typical registration timelines, delays in practice)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 6 of the Franchise Law requires the franchise agreement and related disclosure document to be registered with the Ministry of Commerce, and Article 3(1) of the Implementing Regulations requires the franchisor to register them within 90 days of signing. Any amendment must be re-registered within 90 days (Article 3(2)) and revoked within 90 days when the agreement ends (Article 5 of the Implementing Regulations). The consequences of non-compliance are in Question 3.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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 minimum disclosure period before signing or payment (e.g. cooling-off period)), 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)? What are the consequences of late or incomplete disclosure?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The franchisor must give the prospective franchisee the disclosure document at least 14 days before the franchise agreement is concluded or any payment is made (Article 7(1) of the Franchise Law). It must be in Arabic (or accompanied by a certified Arabic translation), clear and precise, in the prescribed form and accompanied by the franchise agreement form (Article 7(2) of the Franchise Law; Article 6(1) of the Implementing Regulations). The same applies on a sale to a sub-franchisee, because \u201cFranchisor\u201d includes a master franchisee in relation to its sub-franchisees (Article 1(6)).<\/p>\n<p>The disclosure must be kept current: if it materially changes before signing, the franchisor must provide an updated or supplementary document before signing or payment (Article 6(2) of the Implementing Regulations). The law does not require repeating the 14-day disclosure for a standard renewal of an existing franchise, but any amendment to the agreement must be re-registered within 90 days (Article 3(2); see Question 4). The consequences of late or incomplete disclosure are in Question 3.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Disclosure to the parent company alone is not sufficient where the SPV will sign the franchise agreement; it must be made to the contracting entity, which is the \u201cFranchisee\u201d (Article 1(7) of the Franchise Law). The franchisor must therefore give each SPV its own disclosure, observing the 14-day period for each (Article 7(1); see Question 5), or risk termination or damages.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What actions can a franchisee take in the event of mis-selling by the franchisor?  What are the main legal grounds for such claims (e.g. misrepresentation, statutory disclosure breaches, unfair commercial practices)?  To what extent can liability be excluded or limited by non-reliance or entire agreement clauses or disclaimers in the franchise agreement, disclosure document or sales material?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A franchisee has remedies under both the Franchise Law and the Civil Transactions Law (\u201c<strong><em>CTL<\/em><\/strong>\u201d). Under the Franchise Law, mis-selling breaches the duty of good faith (see Question 14), and substantial disclosure or registration breaches carry the consequences described in Questions 24 and 25. Under the CTL, the franchisee may seek nullification of the contract for material deceit (Article 62) or material mistake (Articles 57 and 58).<\/p>\n<p>The franchisor\u2019s ability to exclude or limit this liability is narrow. Liability cannot be excluded for breach resulting from fraud or gross negligence (Article 173(1) of the CTL), so a non-reliance or entire-agreement clause cannot protect a franchisor that lies or is grossly negligent, nor can liability for a harmful act be excluded (Article 173(2)). The Law requires one disclaimer: where the disclosure document includes financial figures, it must state that income may vary between franchises and that each franchisee should consider its own circumstances and geographical scope (Article 7(d) of the Implementing Regulations).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Would it be legal to issue a franchise agreement on a non-negotiable, \"take it or leave it\", basis?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A non-negotiable, \u201ctake it or leave it\u201d franchise agreement is an adhesion contract, and acceptance is deemed made when the franchisee acknowledges the franchisor\u2019s non-negotiable terms (Article 40 of the CTL). Two constraints apply: the court may amend arbitrary conditions or relieve the franchisee of them, and any contrary agreement is void (Article 96 of the CTL); and the mandatory pre-signing disclosure and contract contents (Article 11) still apply (see Questions 5 and 10).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How are trademarks, know-how, trade secrets and copyright protected in your country?  Are there any specific requirements or risks relating to the licensing of know-how and trade secrets in a franchise context?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Trademarks are registered with the Saudi Authority for Intellectual Property (\u201c<strong><em>SAIP<\/em><\/strong>\u201d); under Article 21 of the Trademark Law the registrant is the exclusive owner and may sue to stop unauthorised use or confusingly similar signs. Copyright arises automatically on creation for original works, including software and manuals (Article 2 of the Copyright Law), and registration at SAIP is optional (Article 1 of the Optional Registration Regulation for Copyright Works). Trade secrets and know-how are protected under the Regulation for the Protection of Confidential Commercial Information if secret, commercially valuable and subject to reasonable protection measures (Article 1); unlawful acquisition, use or disclosure is an unfair practice (Article 3).<\/p>\n<p>The disclosure document must give trademark data and, where applicable, a description of trade secrets and their permitted use (Item 13 of the Disclosure Document Requirements). Operations manuals, training and the mandatory terms on intellectual property, confidentiality and competition are in Questions 10 and 13. Infringement of the franchisor\u2019s intellectual property permits immediate termination (Article 18(9) of the Franchise Law); cessation of trademark use is in Question 27.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The Franchise Law and its Implementing Regulations impose statutory duties that apply whether or not they are written into the contract:<\/p>\n<p><strong>Good faith:<\/strong> both parties must perform in good faith (Article 10 of the Franchise Law); see Question 14.<\/p>\n<p><strong>Franchisor\u2019s obligations:<\/strong> unless otherwise agreed in writing, the franchisor must train the franchisee\u2019s personnel, provide support, manuals and the franchise goods or services, keep the franchisee\u2019s financial data confidential, and not operate or license a competing business in the agreed territory (Article 8 of the Franchise Law). <strong>Franchisee\u2019s obligations:<\/strong> approval, reporting and inspection duties (Article 9); see Question 23.<\/p>\n<p><strong>Required terms:<\/strong> Article 11 of the Franchise Law and Article 8 of the Implementing Regulations list the terms the agreement must contain; see Questions 13 and 21.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales or use of online marketplaces (e.g. Amazon, third-party platforms), insist on exclusive supply, fix or set maximum retail prices, operate dual distribution\/hybrid franchisor models)? If applicable, provide an overview of the relevant competition laws.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A franchisor and franchisee are each an \u201centity\u201d under the Competition Law (Article 1), and Article 5 prohibits any agreement whose object or effect is to prejudice, limit or prevent competition. The General Authority for Competition (\u201c<strong><em>GAC<\/em><\/strong>\u201d) may review restrictive clauses in franchise agreements on this basis.<\/p>\n<p><strong>Online sales \/ marketplaces:<\/strong> a blanket ban is high-risk, because restricting the free flow of goods and services (Article 5(3)) and dividing markets (Article 5(6)) are prohibited, though reasonable online quality standards remain acceptable.<\/p>\n<p><strong>Exclusive supply:<\/strong> permissible in principle, but a dominant franchisor (generally a 40% or greater market share) may not require a party to refrain from dealing with others (Article 6(6)), a per se violation under Article 9(2)(a) of the Competition Law\u2019s Implementing Regulations.<\/p>\n<p><strong>Resale prices:<\/strong> fixing an exact or minimum resale price is prohibited (Article 5(1)), as is a dominant franchisor setting resale prices (Article 6(2)). A maximum or recommended price is exposed, because Article 5(1) also catches proposing prices, unless the franchisee stays free to charge less. <strong>Dual distribution:<\/strong> higher-risk, because price-fixing, market division or exchange of sensitive information between competitors is a per se violation (Article 8(2) of the Competition Law\u2019s Implementing Regulations).<\/p>\n<p><strong>Exemptions:<\/strong> the GAC Board may exempt, on application, an arrangement producing consumer-benefiting efficiencies (Article 8 of the Competition Law).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any ESG, compliance or supply chain-related legal requirements impacting franchise systems?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no franchise-specific ESG or supply-chain legislation or mandatory due-diligence regime; a franchise business must comply with the generally applicable environmental and anti-corruption laws. ESG reporting is not mandatory for private companies; a franchisor or franchisee listed on the Saudi Exchange (Tadawul) is expected to report against Tadawul\u2019s voluntary ESG Disclosure Guidelines.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are in-term non-compete and non-solicitation clauses enforceable and are there any limitations on the franchisor's ability to impose and enforce them?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In-term non-compete clauses are enforceable and are expressly contemplated by the Franchise Law framework; non-solicitation clauses are not specifically regulated and are governed by the franchise agreement.<\/p>\n<p><strong>Non-compete:<\/strong> Article 8(f) of the Implementing Regulations requires the agreement to state any restrictions on competing during or after the term, without prejudice to the Competition Law (see Question 11).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 10 of the Franchise Law requires the parties to perform in good faith, reinforced by Article 95 of the CTL, which also binds them to what the law, custom and the nature of the contract require. The duty reaches negotiations: a party that negotiates or breaks off negotiations in bad faith, including by deliberately withholding material information, is liable for the harm caused (Article 41 of the CTL), and a party may not invoke its own mistake contrary to good faith (Article 60 of the CTL).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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 level of operational control may a franchisor exercise without creating employment or agency risk?  What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The franchisee engages and pays its own staff, so the franchisor is not their employer and does not become a joint employer by prescribing brand and operating standards. The agreement should state that the franchisee runs the business \u201con its own account\u201d (Article 1 of the Franchise Law) and is the sole employer of its staff.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The Franchise Law excludes agreements subject to the Commercial Agency Law (Article 4(2)), so a relationship that in substance operates as an agency risks being recharacterised as one. A franchisee operates \u201con its own account\u201d (Article 1 of the Franchise Law), whereas a commercial agent acts for the principal for \u201cprofit, commission or facilities of any nature\u201d (Commercial Agencies Law); the line blurs where the franchisor exercises intense control and the franchisee earns commission rather than buying and reselling at its own risk.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?  Are there any restrictions on structuring payments (e.g. royalties vs service fees vs mark-ups)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes, the main constraints are tax, the prohibition on interest and anti-avoidance rules; there is no requirement to pay in local currency, and fees may be denominated in a foreign currency. <strong>Royalties:<\/strong> withholding tax of 15% applies; see Question 19.<\/p>\n<p><strong>Interest:<\/strong> interest is prohibited as riba, so a clause charging interest on late payments is unenforceable; the creditor may recover only the principal (Article 385 of the CTL), and a contract resting on an unlawful cause is null (Article 75 of the CTL); see also Question 18.\u00a0 <strong>Structuring payments:<\/strong> labelling does not determine tax treatment. The Zakat, Tax and Customs Authority (\u201c<strong><em>ZATCA<\/em><\/strong>\u201d) may disregard a transaction whose form does not reflect its substance and apply arm\u2019s-length pricing and fair market value to related-party transactions (Article 38 of the VAT Implementing Regulations).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 178 of the CTL permits the parties to fix compensation in advance, in the contract or a subsequent agreement, with no notice required, unless the obligation is a sum of money (see Question 17). Such clauses are compensatory rather than punitive, and Article 179 is mandatory: an agreement contradicting it is void (Article 179(4)), and the court reverts to general damages (Article 180).<\/p>\n<p>Agreed compensation is not payable if the debtor proves the creditor sustained no harm (Article 179(1)); the court may, on the debtor\u2019s petition, reduce an excessive amount or reduce it for part performance (Article 179(2)); and it may increase the amount where fraud or gross negligence caused greater harm (Article 179(3)).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Royalties paid to a non-resident franchisor are subject to withholding tax at 15% (Article 68 of the Income Tax Law and Article 63 of its Implementing Regulations), which the Saudi franchisee must deduct and remit to ZATCA within the first ten days of the following month.<\/p>\n<p>The franchisee is subject to Zakat at 2.5% or corporate income tax at 20% according to its shareholding, may deduct arm\u2019s-length royalties, and must self-account for VAT at 15% under the reverse charge.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?  Are there any rules regarding online sales within or outside a franchisee\u2019s territory?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>E-commerce is regulated principally by the E-Commerce Law and its Executive Regulations, which apply to providers in the Kingdom and to traders abroad targeting Saudi consumers.<\/p>\n<p>The obligations attach to whoever operates the e-store, so the agreement should state whether the online channel is run by the franchisor or the franchisee and allocate registration, disclosure and data-controller responsibility accordingly.<\/p>\n<p>Franchisees may be restricted from e-commerce: the franchisee needs the franchisor\u2019s approval before changing the manner of operation (Article 9(1)), and launching an online channel is such a change (see Question 23).<\/p>\n<p>Territorial restrictions on online sales are permissible in principle but The agreement must define its geographical scope (Article 11(2)(a)) and state whether the franchise is exclusive (Item 10 of the Disclosure Document Requirements); for competition-law limits see Question 11.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the applicable data protection laws and do they have any specific implications for the franchisor\/franchisee relationship?   In particular, what are the key data protection considerations in a franchise relationship, including: (a) allocation of controller\/processor roles; (b) use of customer databases; (c) cross-border data transfers; and (d) marketing and CRM activities?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>(i) The governing instruments are the Personal Data Protection Law (\u201cPDPL\u201d), its Implementing Regulation and the Regulation on Personal Data Transfer outside the Kingdom (the \u201cTransfer Regulation\u201d). The PDPL applies to processing of the data of residents of the Kingdom by entities outside it (Article 2(1)), and violations attract a warning or a fine of up to SAR 5 million (Article 36). Article 8(i) of the Franchise Law\u2019s Implementing Regulations makes data protection a mandatory term of the franchise agreement.<\/p>\n<p><strong>(a) allocation of controller\/processor roles;<\/strong><\/p>\n<p>(ii) The distinction turns on who determines the purpose and manner of processing, not on the contract. Typically, the franchisee is controller of its customers\u2019 data and the franchisor a processor of a central platform, but a controller where it sets its own purposes, such as network analytics. The Implementing Regulation prescribes the minimum content of the processing agreement (Article 17(1)) and treats a processor acting outside instructions as a controller (Article 17(4)).<\/p>\n<p><strong>(b) use of customer databases;<\/strong><\/p>\n<p>(iii) Personal data is not subject to property rights. Processing is limited to the purposes of collection, subject to exceptions including consent and documented legitimate interests (Article 10 of the PDPL; Article 16 of the Implementing Regulation). Transferring a database to the franchisor on termination is a disclosure, permitted only in the cases in Article 15, subject to Article 16.<\/p>\n<p><strong>(c) cross-border data transfers; and<\/strong><\/p>\n<p>(iv) A centralised CRM or loyalty system run by a foreign franchisor involves a transfer, including remote access from abroad. Article 29 of the PDPL permits transfer subject to national security, adequate protection and necessity, and Article 2(4)(a) of the Transfer Regulation allows transfer where needed to carry out the controller\u2019s activities. Absent an adequacy decision, appropriate safeguards (Article 5(1)) and a documented risk assessment (Article 8) are required.<\/p>\n<p><strong>(d) marketing and CRM activities?<\/strong><\/p>\n<p>(v) Marketing requires the recipient\u2019s consent and a clear opt-out (Article 25 of the PDPL) and data collected directly from its owner (Article 26), a real constraint on national campaigns run on data collected by franchisees. Consent must be independent for each purpose (Article 11(1)(e) of the Implementing Regulation), so a franchisee\u2019s consent will not support the franchisor\u2019s separate marketing.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?  Can the franchisor impose conditions on transfers (e.g. approval rights, fees, qualification criteria)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes, to both, but as a regulated default. Under Article 13 of the Franchise Law, unless the agreement provides otherwise, the franchisee must obtain the franchisor\u2019s approval before assigning the agreement and business or changing the person controlling the franchisee. Transfer fees are a matter for contract, subject to disclosure in the disclosure document.<\/p>\n<p>The discretion to refuse is limited: the franchisor may neither object nor revoke a prior approval except in specified cases, principally where the assignee lacks sufficient funds, fails to meet the franchisor\u2019s selection criteria (Article 13(3)) or will not assume the franchisee\u2019s obligations in writing, or where the franchisee owes money or is in unremedied material breach (Article 13; Article 10 of the Implementing Regulations).<\/p>\n<p>Silence operates as consent: a franchisor that fails to respond in writing is deemed to have approved (Article 14), and a refusal must state its reasons and be given within 30 days of receiving any further information requested (Article 11 of the Implementing Regulations).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">To what extent can a franchisor impose audit rights, reporting obligations, and operational controls on a franchisee, and what legal limits apply?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The franchisor\u2019s discretion is broad, because control is foundational: a franchise includes the transfer of technical expertise and the specification of the manner of operation (Article 1(5)), and the franchisor must specify the business model and supply operation manuals (Article 8(2)).<\/p>\n<p>Unless otherwise agreed in writing, the franchisee must obtain approval before changing the goods, services, manner of operation or premises, provide business data, including financial and accounting data, and permit inspection of the facilities (Article 9). Audit, reporting and operational standards are therefore the statutory substance of the relationship.<\/p>\n<p>Inspection must not disrupt or harm the business (Article 9(3)), the franchisor must keep the franchisee\u2019s financial information confidential (Article 8(6)), and the duty of good faith constrains the arbitrary exercise of approval, inspection and audit discretions (Article 10; see Question 14).<\/p>\n<p>The controls must be set out in the written agreement (Article 11 of the Franchise Law and Article 8 of the Implementing Regulations) and disclosed before signature; a substantial breach of disclosure exposes the franchisor to damages (Article 19) or termination (Article 17). Termination for breach of a fundamental obligation requires written notice and a cure period (see Question 25).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under Article 15, unless the agreement stipulates otherwise, a franchisee wishing to renew or extend must notify the franchisor in writing at least 180 days before expiry.<\/p>\n<p>Article 15 lists the grounds for non-renewal as follows:<\/p>\n<p>(a) the franchisor and franchisee agree new terms and conditions;<\/p>\n<p>(b) any of the Article 18 termination grounds has occurred;<\/p>\n<p>(c) the franchisee has failed to pay amounts due under the agreement;<\/p>\n<p>(d) before expiry, the franchisor has approved the franchisee\u2019s assignment of the agreement and the business to a third party meeting the franchisor\u2019s criteria;<\/p>\n<p>(e) the franchisor ceases to engage in franchising or in granting franchises in the Kingdom;<\/p>\n<p>(f) or the franchisee fails to conclude the renewal or extension agreement more than sixty days before expiry, despite the franchisor\u2019s reasonable requirements.<\/p>\n<p>The Franchise Law gives the franchisee no right to compensation merely because the agreement expires or is not renewed on a permitted ground. Article 20 applies only where the franchisor has acted wrongly, by terminating early without a lawful ground under Article 18 or refusing renewal for a reason outside Article 15(2) to (5): the franchisor, or a member of its group, must then buy back the assets the franchisee holds exclusively for the franchised business and, on early termination, compensate its losses. Article 20(2) also gives the franchisor a damages claim where the franchisee terminates in breach of the Franchise Law, unless the agreement provides otherwise.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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 requirements regarding notice periods and opportunities to remedy breaches before termination?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 23 voids any agreement by which the franchisee waives rights conferred by the Franchise Law, such as the rights to terminate without liability for the franchisor\u2019s material disclosure or registration breach (Article 17), to claim damages for it (Article 19) and to buy-back and compensation (Article 20), unless part of a final settlement or otherwise authorised by the Franchise Law, making them mandatory floors. Under Article 18, the franchisor may not terminate before expiry without the franchisee\u2019s written consent unless there is a legitimate cause, such as an uncured material breach, abandonment of the business for 90 consecutive days, commercial fraud or infringement of the franchisor\u2019s intellectual property.<\/p>\n<p>No minimum notice period is prescribed; notice is left to the agreement, which must address termination (Article 11 and Article 8 of the Implementing Regulations).<\/p>\n<p>The only statutory cure right is in Article 18(1): failure to perform a fundamental obligation is a legitimate cause only if not rectified within fourteen days of the franchisor\u2019s written notice.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The Franchise Law gives the franchisee no proprietary right over any intangible asset on expiry or termination; its only asset-recovery mechanism, Article 20(1)(a), is limited to material assets used exclusively in the franchised business (see Question 24).<\/p>\n<p>Customer data is subject to a separate regime: personal data is not subject to property rights, so any transfer of a customer database requires a lawful basis and, for an offshore franchisor, compliance with the Transfer Regulation (see Question 21).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What post-termination obligations are typically enforceable (e.g. de-branding, return of confidential information, non-compete, non-solicitation) and how readily are such post-term restrictions enforced in practice?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Enforceability varies by obligation, depending on whether it has a statutory foundation independent of the franchise agreement.<\/p>\n<p>De-branding is the most readily enforced: termination, expiry, non-renewal or assignment ends any agreement to use the trademark or brand name (Article 22), and the franchisor must notify SAIP (Article 13 of the Implementing Regulations). Continued use is then trademark infringement, irrespective of any contractual covenant.<\/p>\n<p>Confidentiality and return of know-how follow from the definition of a franchise (Article 1(5)) and the mandatory termination terms (see Question 10).<\/p>\n<p>Non-compete and non-solicitation obligations are the most difficult to enforce. The Franchise Law prescribes no standard, so the restraint must be reasonable in duration, territory and activity (see Questions 11 and 13).<\/p>\n<p>In practice, enforcement is harder than the drafting suggests. A claimant recovers only proven loss that is a natural result of the breach (Article 137 of the CTL), agreed compensation may be reduced if deemed excessive (Article 179(2) of the CTL), interest is unrecoverable (see Question 17), and urgent restraint of a terminated franchisee generally requires the Saudi courts notwithstanding an arbitration clause.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The Franchise Law does not require membership of any franchising association. The main franchise body is the Franchise Centre, within the Small and Medium Enterprises General Authority (\u201c<strong><em>Monsha\u2019at<\/em><\/strong>\u201d), a government development and support body rather than a membership association or the regulator, which is the Ministry of Commerce.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">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)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>(a) The Franchise Law draws no distinction between foreign and domestic franchisors (Article 5 applies to both), although foreign entities may face additional registration documentation and notarisation and legalisation, or apostille, of the agreement and disclosure document.<\/p>\n<p>(b) No debt\/equity restrictions are imposed. A Saudi entity may be capitalised at the statutory minimum. Sector-specific minimum capital may apply.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement be governed by local law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Saudi law need not govern, and party autonomy on choice of law and forum is preserved. However, Article 3 applies the Franchise Law to any franchise agreement implemented in the Kingdom, the agreement and disclosure document must be registered (see Question 4), franchisee rights are non-waivable (Article 23) and Sharia operates as public policy, so a foreign governing law cannot displace its core requirements.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What dispute resolution procedures are available to franchisors and franchisees?  Are there any advantages to out of court procedures such as arbitration versus litigation, in particular if the franchise agreement is subject to a foreign governing law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 25 permits disputes to be settled by alternative means such as arbitration, mediation and conciliation. Where the agreement is silent, litigation before the Commercial Courts is the default, with enforcement through the Enforcement Court.<\/p>\n<p>Arbitration allows proceedings in English and appearance by foreign counsel, whereas only Saudi-licensed lawyers may appear before the courts.<\/p>\n<p>Where the agreement has a foreign governing law, arbitration is preferable because of enforcement: Saudi Arabia acceded to the New York Convention, so a foreign-seated award is in principle enforceable.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement and disclosure documents be in the local language?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The franchise agreement (Article 11(1)) and the disclosure document (Article 7(2)) must be in Arabic or accompanied by a certified Arabic translation (see Question 5).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 11 requires writing and signature but is silent as to form; under the Electronic Transactions Law, certificate-based electronic signatures have the same effect as wet-ink signatures if supported by a valid certificate from a licensed certification provider.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Do you foresee any significant commercial or legal developments that might impact on franchise relationships over the next year or so?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Tax reform is the most significant development in prospect: ZATCA\u2019s draft <em>Income Tax Law<\/em> and <em>Zakat and Tax Procedures Law<\/em> remain in draft but would, if enacted, unify withholding on services at <strong>10%<\/strong> and replace the loan-charge formula under <strong>Article 9(2)<\/strong> of the <em>Income Tax Implementing Regulations<\/em> with a 30% BEPS-style cap (see Questions 17, 19 and 29).<\/p>\n<p><em>Amendments to the PDPL regulations are<\/em> expected to tighten controller accountability, the GAC\u2019s <em>Guideline on Vertical and Horizontal Agreements<\/em> signals closer scrutiny of territorial and online-sales restrictions, and the unified national commercial register requires franchisees expanding to multiple outlets to align registrations and trade names.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\r\n<div class=\"word-count-hidden\" style=\"display:none;\">Estimated word count: <span class=\"word-count\">5139<\/span><\/div>\r\n\r\n\t\t\t<\/ol>\r\n\r\n<script type=\"text\/javascript\" src=\"\/wp-content\/themes\/twentyseventeen\/src\/jquery\/components\/filter-guides.js\" async><\/script><\/div>"}},"_links":{"self":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide\/152538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide"}],"about":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/types\/comparative_guide"}],"wp:attachment":[{"href":"https:\/\/www.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=152538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}