Understanding Saudi Franchise Law

Franchising is one of the most dynamic models for business expansion worldwide, and Saudi Arabia has developed a clear and modern legal framework to govern franchising relationships, protect investors, and foster sustainable growth. In the Kingdom, the Saudi Franchise Law—enacted under Royal Decree No. (M/22) of 2019—serves as the principal legal structure regulating how franchisors and franchisees conduct business. This framework reflects Saudi Arabia’s Vision 2030 priorities of economic diversification, investment certainty, and small business enablement.

Understanding this law is essential for any company planning to offer or acquire franchise rights in the Kingdom. The following overview outlines the key legal facets of franchising in Saudi Arabia, updated for 2026.

What Is a Franchise Agreement?

A franchise agreement is a legally binding contract between a franchisor (the party granting rights) and a franchisee (the party receiving rights) under which the franchisee operates a business using the franchisor’s trademark and system, in exchange for financial consideration and compliance with specified standards.

Under Saudi law, this contract must be carefully drafted to include:

• The rights and duties of both parties

• Fees and financial terms

• Duration and renewal procedures

• Territory and exclusivity

• Conditions for transfer or assignment

• Confidentiality, non-competition, and termination provisions

• Dispute resolution arrangements

Franchise agreements in Saudi Arabia must be either written in Arabic or accompanied by an Arabic translation certified in the Kingdom. This requirement is mandatory for registration and legal enforceability.

Types of Franchise Arrangements

Although the Saudi Law itself does not categorize franchise formats in the same way as some other markets, in practice the most common models observed are:

• Single-Unit Franchise – Rights to operate one unit

• Multi-Unit Franchise – Rights for multiple outlets within a defined territory

• Master Franchise / Sub-Franchise – Rights to develop, operate, and grant sub-franchises in a region

• Area Development Franchise – Obligations to open a set number of outlets within a period

These structures are not explicitly labeled by the Law but are widely used in practice and informed by commercial norms and regulatory expectations.

Key Legal Requirements Under Saudi Franchise Law

1. Disclosure Requirements

Before a franchise agreement is signed—or before any franchise payment is received—the franchisor must provide the potential franchisee with a Franchise Disclosure Document (FDD) containing detailed and accurate information. This includes:

• Description of the franchise system

• Intellectual property rights involved

• Financial obligations and fees

• Risks and financial performance information

• Training and operational support plans

The disclosure document must be delivered at least 14 days before signing the agreement or receiving any consideration, whichever comes first.

2. Registration of Franchise Agreements

After the franchise agreement and the disclosure document are signed, the franchisor must register both with the Ministry of Commerce within 90 days of execution. This registration is necessary for the franchise relationship to be legally recognized and enforceable.

The registration step is handled through the Franchise Center platform managed by the General Authority for Small and Medium Enterprises (Monshaat) in cooperation with the Ministry of Commerce.

3. Pre-Granting Operational Experience

To protect investors and ensure the franchise model is established and viable, a franchisor may not offer or grant a franchise until:

• The franchised business has been operational for at least one year, and

• It has been practiced by two separate entities or at two separate outlets.

This requirement applies to both the franchisor and any master franchisee before sub-franchising can occur.

However, the Saudi government has recently indicated that exemptions may be considered for high-growth or innovative sectors to accelerate economic diversification.

4. Mandatory Arabic Language Compliance

Both the franchise agreement and the FDD must be drafted in Arabic or translated into Arabic by a certified translator. This is essential not only for registration but also for enforcing rights and obligations locally.

Intellectual Property and Trademark Considerations

The franchise model in Saudi Arabia is fundamentally built on intellectual property (IP)—especially trademarks. A foreign franchisor should ensure:

• Their trademarks are registered in Saudi Arabia, or

• A legally compliant arrangement is in place to protect rights if registration is ongoing.

Trademark registration protects both parties, ensures legitimate use, and guards against infringement by unauthorized third parties.

This aligns with Saudi Arabia’s commitment to IP protection under its domestic laws and international agreements.

Royalty Fees, Franchise Fees, and Tax Implications

Franchise arrangements normally involve two primary financial components:

1. Franchise Fees
A one-time fee paid by the franchisee for entry into the system. This fee is negotiated between the parties and reflects the value of access to the brand and systems.

2. Royalties
Ongoing payments often calculated as a percentage of gross or net sales. While not fixed by law, royalty rates in practice typically range between 4 % and 12 % depending on industry norms and franchise maturity.

From a tax perspective, royalties paid to non-resident franchisors are subject to Saudi withholding tax under the Kingdom’s tax regulations (commonly around 15 % on cross-border royalties). This must be factored into financial planning and legal compliance.

Post-Termination Obligations and Risks

Termination of a franchise agreement does not absolve legal responsibilities. The Law and implementing regulations emphasize:

• Proper notice and adherence to procedural requirements

• Protection of the franchisor’s intellectual property after termination

• Prevention of unlawful competition by the former franchisee

• Recovery of confidential information and proprietary materials

Failure to manage post-termination obligations carefully can lead to litigation, reputational damage, or infringement claims.

Franchise Governance, Consumer Protection & Good Faith

Saudi Franchise Law requires parties to act in good faith throughout the relationship. Franchisors must provide ongoing training, operational guidelines, and technical support, while franchisees must operate within the scope of the franchisor’s brand standards and permit contractual inspections.

These provisions not only protect the commercial relationship but also enhance consumer protection, brand integrity, and the overall investment environment.

Conclusion

Saudi Arabia’s Franchise Law and regulatory framework provide a structured, transparent, and investor-friendly environment for domestic and international franchising. By emphasizing:

• Clear pre-contractual disclosure

• Mandatory registration and Arabic documentation

• Safeguards for both parties

• IP protection and tax compliance

the Kingdom is aligning franchising with its economic diversification goals under Vision 2030.

For businesses planning to enter Saudi franchising in 2026 and beyond, understanding and complying with these legal requirements is essential to building long-term, scalable, and legally secure franchise systems.