Changes to practising law in Saudi Arabia

On 16 February 2022, a royal decree was issued, setting out proposals for how foreign law firms can practise in the KSA.

The changes will:

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

We expect the changes to come into force in June 2023, but firms should start preparing now.

What are the key changes?

The new law aims to:

• encourage firms to set up in KSA, so legal work is engineered within KSA rather than outside the country
• enable high-profile deals to stay within KSA, rather than be taken abroad
• increase opportunities for KSA lawyers

Licenses

All foreign law firms will now need to apply for a license from the Saudi Ministry of Justice, showing that they meet certain criteria, such as those relating to:

• reputation
• experience
• client base
• international profile

Licensed firms must meet the following regulatory obligations:

• two partners representing the foreign law firm must live in KSA
• at least 50% of the lawyers must be KSA nationals (proposed to increase to 70%)
• work related to Saudi law cannot be passed to other offices
• no more than 30% of fee income can go outside KSA

Licences must be renewed every five years.

Structures

Associations (as most foreign firms presently have) will no longer be permitted – including the system of alliances or partnerships which currently operate.

Firms will have two options to structure their operations:

• a professional company in joint venture with registered KSA lawyer(s) as co-shareholder(s) (limited liability company):
  • KSA partner(s) must hold at least 25%
  • KSA law advice may be given (via KSA lawyers)
  • details about how this will work are not yet clear (for instance, who can be a shareholder)
• branch office of a foreign law firm:
  • may be held 100% by the parent entity
  • Saudi law advice may not be given (except in very limited circumstances)

What does this mean for law firms?

Foreign law firms will need to wind up current arrangements and put new structures in place.

In practice, a firm cannot bill the client unless 70% is generated in the KSA office.