Law society

Changes in the practice of law in Saudi Arabia

On February 16, 2022, a Royal Decree was issued, setting out proposals on how foreign law firms can practice in Saudi Arabia (KSA).

Modifications :

  • regulate the licensing of foreign law firms practicing law in Saudi Arabia
  • govern how local lawyers can do business
  • change existing legal practice

We expect the changes to take effect in late 2022 or the first quarter of 2023, but businesses should start preparing now.

What are the main changes?

The new law aims to:

  • encourage businesses to locate in Saudi Arabia, so that legal work is designed within Saudi Arabia rather than outside the country
  • allow high-profile deals to stay in Saudi Arabia, rather than being taken overseas
  • increase the number of high quality avocados in Saudi Arabia

Licenses

All foreign law firms will now have to apply for a license from the Saudi Ministry of Justice, proving that they meet certain criteria, concerning:

  • reputation
  • live
  • customer base
  • international profile

Authorized companies must comply with the following regulatory obligations:

  • two partners representing the foreign law firm must live in Saudi Arabia
  • at least 50% of lawyers must be nationals of Saudi Arabia (70% from the end of 2022)
  • work related to Saudi law cannot be forwarded to other offices
  • no more than 30% of fee income may exit Saudi Arabia

Licenses must be renewed every five years.

Structures

Associations (as most foreign companies currently have) will no longer be allowed – including the system of alliances or partnerships that currently operates.

Businesses will have two options for structuring their operations:

  • a professional company in joint venture with registered KSA lawyer(s) as co-shareholder(s) (limited liability company):
    • The KSA partner(s) must own at least 25%
    • KSA legal advice can be given (via KSA lawyers)
    • details on how this will work are not yet clear (e.g. who can be a shareholder)
  • branch of a foreign law firm:
    • can be 100% owned by the parent company
    • Saudi legal advice cannot be given (except in very limited circumstances)

What does this mean for law firms?

Foreign law firms will have to end current arrangements and set up new structures.

The change may discourage new market entrants, as well as those who have been in the country for many years:

  • risk-averse foreign companies looking to invest may find five-year licenses unattractive
  • some companies may exit the market due to restrictions on the amount of KSA work that can be passed on to other offices (especially smaller companies)

In practice, a company cannot invoice the customer unless 70% is generated at the KSA office.

In the future, foreign lawyers working in Saudi Arabia may also need to undergo local continuing professional education (and possibly register individually with the Saudi Ministry of Justice).