Entering Into Commercial Contracts in the Kingdom of Saudi Arabia – What You Should Know - Mateusz Szkop | Intercultural Consulting & GCC Business Advisory

Entering Into Commercial Contracts in the Kingdom of Saudi Arabia – What You Should Know

June 2, 2026 Mateusz Szkop 0 Comments

Saudi Arabia’s Vision 2030 has fundamentally reshaped the Kingdom’s energy landscape. Ambitious targets, 50% of electricity from renewable sources by 2030 and the opening of previously closed sectors to foreign investment, have placed the Kingdom firmly on the radar of European partners, contractors and investors. Yet the legal framework governing commercial relationships in Saudi Arabia remains poorly understood by most European companies approaching the market.

This article sets out what I consider the most practically relevant entry points for European companies (particularly those in the energy sector): the contractual and civil law framework under Saudi law, the dispute resolution landscape, and the cultural dynamics that shape how agreements are negotiated and performed in practice. In short: everything you will not find in a standard travel agency brochure.

1. The Saudi Civil Transactions Law – a new foundation

Historical context and legal origins

To understand the Civil Transactions Law (“CTL“), it helps to understand what came before it. Since the formation of the Kingdom in 1932, Saudi Arabia’s express policy was that the country is governed by Islamic law (Sharia). The Basic Law of Governance, enacted in 1992, confirmed this constitutional position. Civil disputes were resolved by courts applying the doctrine of the Hanbali school of Islamic jurisprudence – the most conservative of the four major Sunni schools – without a codified statute, interpreting each case individually.

This created genuine unpredictability for foreign contracting parties. Even experienced practitioners found it difficult to advise clients on how a Saudi court would apply Sharia principles to a modern commercial contract involving project finance, supply chain liability, or digital services. The sheer unfamiliarity of the Saudi legal system was a persistent headache for foreign counterparties and, as is well known, painkillers are not included in the price of due diligence.

The change came with Royal Decree No. M/191 of June 2023. The CTL, comprising 721 articles covering contract formation, obligations, tort liability, and property rights, entered into force on 16 December 2023. Crown Prince His Royal Highness Mohammed bin Salman stated that the CTL is “motivated by the need to strengthen the principles of property protection, stability and validity of contracts and will have a positive impact on the business environment, enhance transparency and increase the ability to predict judgements in the field of civil transactions.“

Which legal systems inspired the CTL?

The CTL did not emerge in a vacuum. Its primary inspiration was the Egyptian Civil Code, itself modelled on the French Civil Code of 1804. This genealogy is well established: France exerted significant legal influence over Egypt in the 19th and early 20th centuries, and the Egyptian code subsequently served as a template for many Arab civil law codifications, including those of Jordan, Kuwait and the UAE. The preparatory works for the CTL also reference Omani law and, notably, the US Uniform Commercial Code (UCC).

The practical consequence for European lawyers is significant. The CTL operates within a civil law tradition that many continental European practitioners will recognise far closer in structure and reasoning to French, German or Polish civil law than to English common law. In other words: if you graduated from a Polish law faculty, you already have a decent head start though not quite enough to skip reading this article.

It is important to note, however, that Sharia has not been displaced. Article 720 of the CTL explicitly provides that Sharia principles apply where no relevant statutory provision exists. The relationship between codified civil law and Islamic jurisprudence continues to evolve, and Saudi courts are still developing their approach to the new statute.

2. Drafting Contracts – a desert of legal complexity or an oasis of clarity?

Drafting contracts is an art form, regardless of whether we are talking about European or Saudi law. In both cases it is a process that demands precision and care, because every clause matters and the only welcome camels are the ones you ride across the desert, not the ones that sneak into your contract through an oversight. So what should you watch out for when drafting an agreement with a Saudi counterparty?

Language of the contract

Contracts with Saudi counterparties are typically executed in Arabic, with English translations provided for reference. In the event of a discrepancy, the Arabic version prevails unless the contract explicitly states otherwise. Relying solely on an English version reviewed only by your European counsel is a common and costly mistake. Nobody enjoys discovering linguistic discrepancies after a contract has been signed. Least of all the client.

Payment terms and penalty clauses

The CTL addresses penalty clauses (liquidated damages) and grants courts some discretion to adjust them if manifestly disproportionate. This differs from the expectations of many European companies, where agreed damages are generally enforced as written.

Termination

It is worth noting that despite a number of similarities, the CTL contains material differences compared to Polish civil law that must be taken into account both when drafting contracts and when enforcing them. By way of example, Article 107 of the CTL provides as a default rule that in order to terminate a contract, the creditor must first obtain a court order. Sounds familiar? Yes until you realise that the impossibility of excluding hardship protection (the equivalent of the rebus sic stantibus clause) means that it is mandatory even in contracts negotiated between sophisticated commercial parties who thought they had agreed everything.

3. Qahwa, camels and negotiations – a few words on cultural differences

No discussion of contract law in Saudi Arabia is complete without addressing the cultural framework within which contracts are negotiated, performed and (when necessary) renegotiated. This is not a matter of soft “cultural awareness”: these dynamics have direct legal and commercial consequences.

Relationships before contracts – wasta and its implications

Saudi business culture is relationship-centric in a way that is structurally different from Western transactional norms. Central to this is the concept of wasta – loosely translated as “connections” or “influence”, but more accurately understood as a form of social capital rooted in tribal traditions, loyalty and reciprocal obligation. Research on Arab business negotiations consistently shows that wasta functions as a key element of bargaining power: who introduces you, who vouches for you, and how long you have invested in the relationship – these are the factors that determine the pace and effectiveness of almost every commercial process.

For lawyers advising European clients, this has concrete implications. A legally valid licence, permit or claim may still face practical delays without the right interpersonal connections to navigate the process. Conversely, a relationship built through numerous visits and meetings can open doors that documentation alone cannot – even if that documentation runs to five hundred pages and has passed through the hands of four notaries.

“You (Europeans) have watches. We (Arabs) have time.”

Saudi negotiating culture operates on a polychronic time system, where the quality of the relationship takes precedence over strict adherence to schedules. Qahwa – Arabic coffee (delicious, with cardamom, cloves, saffron and rose water – I strongly recommend it) – carries a significance that extends far beyond a simple beverage. It is an expression of hospitality and the first step towards building a lasting relationship. In this context, a cup of coffee is often more effective than item two on the meeting agenda.

Meetings may begin late, be interrupted for prayer, or shift direction as social conversation takes precedence over agenda items. This is not disorganisation – it reflects a cultural logic in which the quality of the interpersonal exchange is itself a signal of commitment and respect. For someone who has flown in from Warsaw with slide seventeen meticulously prepared, this can come as something of a surprise.

Decision-making authority in Saudi organisations typically sits at the top of the hierarchy. Negotiations may progress smoothly at working level, only to slow significantly when final approval is required from a senior principal who was not present at any of the meetings but who has the final word.

What this means for contract drafting

There is a productive tension between the legal formalism of the CTL and the relational informality that still governs much of Saudi commercial life. Experienced practitioners note that Saudi contracts are often less detailed than their European counterparts partly because the parties expect the relationship, rather than the document, to resolve unforeseen circumstances. This creates risk for European companies accustomed to comprehensive contractual allocation of risk.

Conversely, Saudi counterparties commonly expect flexibility if circumstances change. A European party that insists rigidly on contractual terms in a changed situation without, first engaging in good-faith discussion, may win a legal argument while losing a commercial relationship. In business in the Middle East, that can be a deeply unfavourable trade: your client in that relationship is often “blacklisted” and will find a sign reading “no go” waiting for them at the door.

Conclusion

Saudi Arabia offers genuine and growing opportunities for European companies. The legal framework particularly following the introduction of the CTL is becoming increasingly accessible to foreign counterparties, providing greater certainty in both the law and its application by the courts.

That said, commercial negotiations in the Middle East are not only about legal provisions – they are, above all, about relationships. Companies that invest early in understanding the contractual, regulatory and cultural dimensions of doing business in the Kingdom are consistently better positioned than those that treat legal advice as an afterthought.

Factor this into your strategy, and you will gain not only a commercial contract but connections that often develop into lasting friendships. And with a little luck, an invitation to the next cup of qahwa. This time without an agenda.

SOURCES & FURTHER READING

1. Saudi Civil Transactions Law, Royal Decree No. M/191 of 1444H (18 June 2023 r.), entered into force 16 December 2023.https://www.trans-lex.org/605650

2. HRH Crown Prince: Civil Transactions Law Is a Major Shift in Judicial Reform.https://www.spa.gov.sa/en/8bb0a8a9f5f

3. Elbalti, B., “The New Saudi Civil Transaction Act and its Potential Impact on Private International Law in Saudi Arabia”, Conflict of Laws, June 2023.https://conflictoflaws.net/2023/the-new-saudi-civil-transaction-act-and-its-potential-impact-on-private-international-law-in-saudi-arabia/

4. Chambers & Partners, “The New Saudi Civil Code (2023) – a Primer”, November 2023.https://chambers.com/legal-trends/the-saudi-civil-code-2023

5. International Bar Association, “Saudi Arabia’s Civil Transactions Law”, IBA Global Insight, June 2024.https://www.ibanet.org/clint-june-2024-feature-3

6. International Bar Association, “The Saudi Civil Transactions Law: substantive contract rules…”, October 2025.https://www.ibanet.org/saudi-civil-transactions-law

7. Derayah LLPC, “The Civil Transactions Regulations — Overview”.https://www.saudilegal.com/insights/civil-transactions

8. Aljaser A., Meskic Z., “Historical Background on the Limitation of Liability in Saudi Arabia”, International Journal of Scientific Research, Vol. 3, No. 3, 2024.https://vsrp.co.uk/wp-content/uploads/11-IJSR-Vol.-3-No.-3-Mar-2024-Paper10-Mr.-Abdulrahman.pdf

9. Arabia Interculture, “Business Culture in Saudi Arabia”, 2025.https://www.arabia-interculture.com/en/business-culture-in-saudi-arabia/

10. Istizada, “Saudi Arabia Business Practices Guide: Negotiations and Contracts”, 2025.https://istizada.com/blog/saudi-arabia-business-practices-guide/

11. Cultural Atlas (SBS Australia), “Saudi Arabian Business Culture”.https://culturalatlas.sbs.com.au/saudi-arabian-culture/saudi-arabian-culture-business-culture

12. Metcalf, B.D. et al., “Culture and business networks: International business negotiations with Arab managers”, International Business Review, Vol. 21, 2012.https://www.sciencedirect.com/science/article/abs/pii/S096959311200100X