Franchising in Saudi Arabia: what the Commercial Franchise Law requires

By Chadi Kouatly, Managing Partner, Foretus. Published September 2026.

Saudi Arabia's Commercial Franchise Law requires franchisors to have at least one year of operating history in two units, to give franchisees a disclosure document at least 14 days before signing or payment, and to register the agreement and disclosure document with the Ministry of Commerce within 90 days. Here is what that means for structuring a Saudi franchise.

Why the law matters

Before 2020, franchising in Saudi Arabia ran under the Commercial Agency rules and case-by-case contracts. The Commercial Franchise Law and its implementing regulations created a specific regime with statutory obligations for both parties. It protects franchisees from under-prepared franchisors, and it protects franchisors that follow the rules by making the relationship enforceable.

The core requirements

Operating history. A franchisor must have operated the franchised business for at least one year through two businesses (one of which may be the franchisor itself) or at two locations before offering franchises in the Kingdom.

Disclosure document. A franchise disclosure document must be delivered at least 14 days before the agreement is signed or any payment is made, whichever comes first. It covers the franchisor's background, the system, fees, obligations, territory, term and renewal, and financial information.

Registration. Both the franchise agreement and the disclosure document must be registered with the Ministry of Commerce within 90 days of signing. Material changes must be updated.

Term, renewal and termination. The law does not fix a minimum term. A franchisee wishing to renew must notify the franchisor at least 180 days before expiry. Termination grounds and remedies must be set out in the agreement, and non-compete covenants are limited to the term and a reasonable period after it; courts may reduce periods that exceed five years.

How the law changes deal structure

Development schedules have to be realistic, because a franchisor that cannot support them faces statutory exposure. Disclosure means fee structures and supply-chain margins are visible, so they must be defensible. Registration creates a public record, which helps enforce exclusivity. And because the franchisee has remedies, franchisors should choose partners on capability rather than on the size of the initial fee they will pay.

Master franchise versus area development in Saudi Arabia

A master franchise grants the partner the right to sub-franchise across a territory; it transfers more risk and reward and suits franchisors with limited capacity to support the market. Area development obliges the partner to open a schedule of company-owned units; it keeps more control with the franchisor. In Saudi Arabia, strong family groups often prefer master rights, while franchisors with regional teams increasingly prefer area development with city-level exclusivity.

Frequently asked questions

Does a foreign franchisor need a Saudi entity? Not to franchise; the agreement is registered by the parties. Many franchisors later establish a MISA-licensed support entity.

Are royalties subject to withholding tax? Payments abroad for royalties are generally subject to Saudi withholding tax; the rate depends on the payment type and any treaty, so structure with tax advice.

Can the franchisor terminate for non-performance? Yes, if the grounds are in the agreement and follow the law's notice provisions; documenting performance against the development schedule is essential.

Sources: Commercial Franchise Law (Royal Decree M/22, 2019) and Implementing Regulations; Ministry of Commerce franchise registration service; Pinsent Masons, Franchising in KSA. Talk to Foretus about your franchise strategy: info@foretus.com