Operating a franchise in Saudi Arabia

More than 1,200 brands are ready for franchising in KSA, according to a Monshaat report, and the market is now valued at approximately US$15 billion, with 1,788 franchise registrations by the end of the third quarter of 2024.

Key sectors driving KSA’s economy include oil and gas, which remains the backbone of the economy, contributing a substantial portion of the GDP. The country is also heavily investing in renewable energy sources like solar, wind, and green hydrogen to shift towards sustainability. 

The tourism and hospitality sector is experiencing rapid growth, driven by strategic initiatives such as Vision 2030, aiming to attract millions of visitors annually. Additionally, the technology and innovation sector is focused on advancements in AI, cybersecurity and digital transformation, making it a key growth area.

The construction sector is experiencing significant growth driven by ambitious projects like NEOM, Qiddiya, and the Red Sea Project. 

Legal considerations

Franchising in KSA is governed by the Franchise Law issued by Royal Decree No. M/22 in 2019 and its implementing regulations. The Franchise Law defines franchising as an activity of granting rights from the franchisor to a franchisee to carry out the franchise business under the franchisee’s own account, while undertaking the use of the intellectual property (IP) and related trademarks of the franchisor, whether with or without monetary compensation, exclusive of the compensation paid by the franchisee to the franchisor in return for goods or services.  

The Franchise Law establishes a regulatory framework and other requirements that the parties to a franchise agreement must adhere to, including the obligation to register the franchise agreement and disclosure documents with the Ministry of Commerce (MoC).

Additionally, the franchise agreement must include any restrictions imposed on the franchisor and franchisee regarding the exercise of any competing business during the franchise agreement, or after it is terminated or expires, without prejudice to the provisions of the Competition Law. The franchise agreement must be drafted in Arabic and signed by the parties; if drafted in another language, a certified Arabic translation must be provided. It must include items such as the franchised business and its description, any amounts to be paid by the franchisee to the franchisor, and the manner of resolving any dispute arising from the franchise agreement.

A franchisor can have any legal form, but it must have at least one year of operational experience by two businesses, one of which may be the franchisor, or at two locations, before it can offer franchises in the Saudi market. 

Limited liability companies (LLCs) are the most common legal form of franchises, and most local Saudi franchisors or master franchisees are established as LLCs. Other legal forms include sole proprietorships, joint stock companies, branches of foreign companies, partnerships and representative offices. Depending on the industry and business activity of the franchise, the franchisee may need to partner with a Saudi national when incorporating the franchise company. Where the franchisee is a foreign entity, it may also be required to obtain a foreign investment license.

Non-compete obligations are allowed in KSA and are commonly imposed throughout the term of the franchise and for a limited period after it is terminated. Non-compete clauses must, however, comply with broader competition law requirements. Generally, the courts will not enforce unreasonable or burdensome covenants, and the courts may, at their discretion, adjust the parameters of the covenant as they see fit.  For example, periods may be reduced if they are more than five years.

There are no restrictions on the franchisee’s ability to set resale prices and franchisees are generally free to set their own resale prices, so long as the franchisee is not behaving in an anti-competitive manner and does not hold a dominant position, in which case this practice may be considered as price-fixing by a dominant entity and thus may subject the franchisor or master franchisee to fines. 

There are no specific restrictions on the term length or renewal length of franchise agreements, however, the franchisee must notify the franchisor of their intention to renew or extend the franchise agreement within a period of at least 180 days before its expiration. 
The franchise agreement and the franchise disclosure document (FDD) must be registered with MOC within 90 days from the date of singing the agreement. As part of the application for registration, the franchisor is bound by strict and ongoing disclosure responsibilities, including registration of the FDD and related IP rights. The FDD should include all material details regarding the franchisor’s business, such as its financial standing, operations and litigation history. 

The franchisor is required to provide an FDD to potential franchisees at least 14 days prior to concluding the franchise agreement or from the date of any payment made by the franchisee in relation to the franchise, whichever occurs first. The FDD must be registered with the MOC within 90 days from the execution of the franchise agreement. The franchisor is also bound by an ongoing obligation to disclose any material changes that occur during the term of the franchise.

Intellectual property

In KSA, trade marks are registered and enforced under the GCC Trademark Law and the Statute of the Saudi Authority for Intellectual Property (SAIP). 

The GCC Trademark Law defines the ‘competent authority’ as the ministry responsible for trade and implementation of the GCC Trademark Law in each GCC member state. In KSA, the SAIP Statute designates SAIP as the competent authority for all intellectual property matters, including trade marks. 

The GCC Trademark Law authorises the competent authority to manage the trade mark register, including applications, ownership records, and legal action. It further empowers the authority to investigate trade mark infringement, ensuring effective enforcement. 
In addition to trade marks, KSA offers protection for copyrights, design rights, patents, know-how, trade secrets and other business-critical confidential information. 

KSA is also party to the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, Convention establishing the World Intellectual Property Organisation, the GCC Patent Law Treaty and the Patent Cooperation Treaty.