Doing Business in
Saudi Arabia
Doing Business in Saudi Arabia
Published by Al Tamimi & CompanyHead office
DIFC, Dubai
6th Floor, Building 4 East
Dubai International Financial Centre
PO Box 9275
Dubai, UAE
T: +971 4 364 1641
F: +971 4 364 1777
E: [email protected] Riyadh Office
Sky Tower (South Tower S.2.A)
2nd Floor King Fahad Road
Al Olaya Area, PO Box 300400
Postal Code 11372
Riyadh, Saudi Arabia
T: +966 11 416 9666
F: +966 11 416 9555
E: [email protected]
© Al Tamimi & Company. All rights reserved 2016.
The content of this book are not intended to be a substitute for specific legal advice on any individual matters. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except for individual use and other non-commercial uses permitted by copyright law. The permission to recopy by an individual does not allow for incorporation of the material in part or in whole of any work or publication, whether in hard copy, electronic or any other form, unless specific mention is made to the source, “Doing Business in Dubai, published by Al Tamimi & Company,” and written permission is granted by the firm. For more information, please contact us.
www.tamimi.comJeddah Office
Level 9, Jameel Square
Corner of Tahlia and Al Andalus Streets
PO Box 40538
Postal Code 21511
Jeddah, Saudi Arabia
T: +966 12 283 4780
F: +966 12 283 4785
E: [email protected]
Key Contacts:
Husam Hourani
Managing Partner
[email protected]
Sumit Soni
Head of Jeddah Office, KSA
[email protected]
Abdullah Al Tamimi
Partner, Head of Litigation, KSA
[email protected]
Angela Maglieri
Regional Head of Marketing & Business Development
[email protected]
Grahame Nelson
Partner, Head of Riyadh Office, KSA
[email protected]
Hesham Al Homoud
Partner, Corporate Structuring, KSA
[email protected]
Glenn Lovell
Partner, Banking & Finance, KSA
[email protected]
Hasan Bajis
Business Development Manager, KSA
[email protected]
5
Contents
Introduction......................................................................12
About Saudi Arabia
The Legal System
Setting up in Saudi Arabia..............................................16
Exporting to Saudi Arabia...............................................28
Employment Law.............................................................32
Dispute Resolution...........................................................36
Government Contracting.................................................40
Banking & Taxation..........................................................44
Real Estate.........................................................................48
Intellectual Property & Competition Law.....................52
Anti-Corruption Laws.....................................................60
Saudi Stock Market now open for Foreign
Investment.........................................................................66
6
About Al Tamimi & Company
Al Tamimi & Company is one of the premier law firms in the Middle
East and the largest law firm in the region, with presence in all of the
six GCC countries.
Established in 1989, the firm has 56 partners, staff of over 620, and
16 offices in nine countries throughout the UAE in Dubai, Abu
Dhabi, Sharjah, Ras Al Khaimah and in Bahrain, Qatar, Iraq, Saudi
Arabia, Jordan, Kuwait, Oman and Egypt.
The firm specialises in advising major international corporations and
financial institutions, Middle East banks and financial institutions,
government organisations, businesses and families in their global
operations and investments. It has particular expertise in arbitration,
banking & finance, dispute resolution & litigation, IP & data
security, shipping & aviation, project & infrastructure finance, real
estate & construction, corporate & commercial, technology, media &
telecommunications, insurance and private client.
We launched our first office in Riyadh in 2008 and expanded our
offering in Saudi Arabia in 2015 when we opened our office in
Jeddah. Our offices in Saudi Arabia offer full corporate services
to our clients in both the public and private sectors and are fully
supported by the Al Tamimi & Company network which spans the
Middle East.
For further information please visit:
www.tamimi.com
7
Saudi Arabia has a globally important and is by far the largest
economy in the Middle East. Historically, the economy has been
oil based and revenue from oil dominates export earnings and
government revenue. Saudi Arabia remains the world’s largest oil
exporter.
In recent years the Saudi government has introduced a number of
measures aimed at developing the country’s economy. These include
limited deregulation, the encouragement of foreign investment and
privatisation in selected areas of the economy.
Education and training, health, transport and infrastructure,
water and agriculture and municipality services are some of the
key government priorities which offer opportunities to foreign
businesses.
This guide is intended to provide an overview of some of the legal
considerations which may arise when considering a doing business
in Saudi Arabia.
We hope you find this information useful and we look forward to
working with you in Saudi Arabia.
Foreword
8
Husam Hourani
Managing Partner
Al Tamimi & Company
Essam Al Tamimi
Senior Partner & Founder
Al Tamimi & Company
9
And our unique ability to combine:
makes us the natural choice for those doing business in Saudi Arabia.
Doing Business in the
Saudi Arabia? So are we...
www.tamimi.com
local knowledge
and international
standards
national coverage
with regional
strength
a local service
in a globalised
marketplace
10
Introduction
About Saudi Arabia
12
About Saudi Arabia
Recent History
The Kingdom of Saudi Arabia was founded in 1932 by HRH Ibn
Saud, known within the Arab world as Abdulaziz. It is the second
largest oil producer in the world and is the only Arab country to be
part of the G-20.
Saudi Arabia is a desert country encompassing most of the Arabian
Peninsula. The Kingdom is well-known as the birthplace of Islam
and is home to the religion’s two most sacred mosques: Masjid al-
Haram, in Mecca, and Medina’s Masjid an-Nabawi, the burial site
of the prophet Muhammad (PBUH).
Population:
Approximately 28 Million
Religion:
Islam
13
About Saudi Arabia
Currency:
The Saudi Arabian Riyal (SAR) is the currency of Saudi Arabia. The Riyal is pegged to the (US Dollar) at the rate of SAR3.75 = USD1.
Language:
The official language of Saudi Arabia is Arabic, although English is widely used in business circles.
Government:
The Kingdom of Saudi Arabia is an absolute Monarchy, however the King governs in accordance with Shari’ah principles (Islamic Law) and the Holy Quran.
14
The Legal System
The Legal System
Shari’ah
Saudi Arabia is an Arab Islamic state and, pursuant to the Basic
Law of Governance, the Holy Qur’an serves as the constitution of
the country together with the Sunnah (the traditions of the Prophet
Muhammad, PBUH).
Together, these form the Islamic Shari’ah which is the primary
foundation of all Saudi Arabian laws.
Governance
As an absolute monarchy, Saudi Arabia is governed by HRH King
Salman bin Abdulaziz Al Saud, who governs in consultation with
the Shoura Council, a consultative body made up of Saudi national
leaders in various civic and other areas. HRH King Salman is also a
member of the Council of Ministers, made up of the Ministers of the
various portfolios in the Kingdom.
Each region of Saudi Arabia (an Emarah) is overseen by a Governor
who manages the region in consultation with a municipal council
made up of a combination of government appointees and members
voted into office through publicly held elections.
15
The Legal System
Judiciary
The independence of the Judiciary is a principle enshrined in the
Basic Law of Saudi Arabia and the Law of the Judiciary.
Contracts are fully enforceable
The formation and enforceability of contracts is governed by and
relies upon Shari’ah principles. The Shari’ah rules relating to
contracts are not codified.
Under Shari’ah, contracts which are not expressly prohibited by
the Holy Qur’an or the Sunnah are permitted as binding and valid.
In practice, the parties are generally free to agree their commercial
bargain except and to the extent that it contravenes Shari’ah
principles as interpreted and applied in Saudi Arabia. This is the
basis on which, for example, the payment of interest (known as riba
or more generally the payment of money on money) is generally not
enforceable in Saudi Arabia.
A Saudi court has considerable discretion to apply the basic Shari’ah
precepts to a particular set of circumstances. Saudi courts generally
regard themselves as competent, consistent with general Shari’ah
principles, to determine each particular case before them as it
considers is necessary to achieve a fair result in all the circumstances
of that case.
16
Employment Law
17
Employment Law
Setting up in
Saudi Arabia
18
Setting up in Saudi Arabia
Setting up Saudi Arabia
A. Overview
Deciding on a form of business presence in Saudi Arabia requires
consideration of a number of factors. For foreign (that is to say, non-
GCC) businesses, obtaining a foreign investment license is a necessary
component of the process. Other considerations, including type of
business to be conducted, sector/industry and taxation/zakat will also
factor in the investment decision about the most appropriate type of
presence.
B. Regulation of Foreign Investment
Foreign Investment Licences
The Foreign Investment Law, originally issued in 2000 and
supplemented since then through regulation, is the centrepiece of the
Saudi government’s foreign investment regulatory regime. Generally
speaking, foreign businesses wishing to establish commercial operations
in Saudi Arabia must obtain a foreign investment licence from the
Saudi Arabian General Investment Authority (“SAGIA”). There are
exceptions, including for example professional companies, which are
not required to obtain a foreign investment license but are subject to
other industry specific requirement. Serious penalties (which may
include criminal penalties as well as heavy fines) can result if activities
are undertaken in contravention of the Foreign Investment Law and
even more so if the business activity involves “fronting arrangements” in
19
Setting up in Saudi Arabia
breach of Saudi Arabia’s Anti-Cover Up Law. Breaches will also put in
peril future investment in Saudi Arabia.
The General Rules applicable to Licence Applications are published on
SAGIA’s website (www.sagia.gov.sa).
What level of foreign ownership is allowed?
Foreign investors may be allowed to own up to 100% of the capital
of the enterprise depending upon the business activity. However,
certain business activities have prescribed minimum Saudi ownership
requirements as set out below:
Business Activity Maximum Foreign Ownership
Services 100%
Manufacturing 100%
Trading (wholesale and retail) 75%
Professional Companies 75%
The Negative List
Some business activities are completely closed to foreign investment.
This group of activities comprises the so-called “Negative List”.
Business activities included in the Negative List are:
• Oil exploration, drilling and production, except certain services
related to the mining sector.
• Manufacture of military equipment, devices and uniforms.
• Manufacture of explosives for civilians.
• Military catering services.
• Security and detective services.
• Real estate investment in Makkah and Madinah.
20
Setting up in Saudi Arabia
• Tourist orientation and guidance services related to Hajj and
Umrah.
• Recruitment and employment services including local recruitment
offices.
• Real estate brokerage.
• Printing and publishing (subject to a number of prescribed
exceptions).
• Commission agents (this includes distributorships, commercial
agencies and franchises).
• Audiovisual and media services.
• Land transportation services, excluding inter-city passenger
transport by trains.
• Services provided by midwives, nurses, physical therapy services
and paramedics.
• Fisheries.
• Blood banks, poison centres and quarantines.
How long will it take to obtain a Foreign Investment Licence?
The licence application period will vary according to the type of
business enterprise proposed to be established and how quickly it takes
for the application to be lodged along with the required supporting
documentation. Typically an investment licence will be issued within
4-6 weeks following submission of all required information.
SAGIA has recently introduced a “fast track service” for qualifying
investors to process applications for foreign investment licences more
quickly than would otherwise be the case (licences are usually issued
in 5 business days from submission of all required information). “Fast
track” applications also benefit from a reduced set of documentary
requirements to be included in the application. SAGIA has set out
criteria to determine whether an investor qualifies for the fast track.
The present aim of the fast track service is to facilitate foreign direct
investment in the following targeted sectors of the Saudi economy:
21
Setting up in Saudi Arabia
• Information and Communications Technology.
• Downstream Petrochemicals and Mining.
• Industrial Manufacturing.
• Healthcare and Life Sciences.
• Transportation and Infrastructure.
• Human Capital Development.
• Energy and Petrochemicals.
C. Forms of Legal Entities
Introduction
Depending on the circumstances one or more types of business
structures may suit a foreign investor. However, ultimately the choice
of structure will depend upon a matrix of commercial, taxation and legal
considerations. They include whether the investor wishes to invest alone
or with a Saudi partner, although there are times when a Saudi partner
is mandatory. Examples of these mandatory situations include trading
or professional companies as well as certain industry specific ones like
insurance, banking, financing and telecommunications.
Set out below is further detail on the most common forms of entities
formed by foreign investors.
Limited Liability Company
A limited liability company (an “LLC”) is suited to a broad range of
business activities and is often the favoured structure of most foreign
businesses. Where a joint venture is entered into with a Saudi partner,
the LLC is usually the business structure of choice.
An LLC acts in its own name in its business dealings. It can sponsor
foreign employees for residency in Saudi Arabia, an important
characteristic for those investors looking to build their own employee
base in the country. It may also be able to obtain finance on favourable
terms from the Saudi Industrial Development Fund.
22
Setting up in Saudi Arabia
An LLC’s business activities are limited by the objects set out in its
articles of association and its foreign investment licence.
Limited Liability
Generally speaking, the personal liability of shareholders is limited to
the shareholder’s contribution to the LLC’s share capital. However,
shareholders may incur personal liability in certain situations, for
example where the LLC’s losses amount to 50% or more of its share
capital and the LLC continue to trade without mandatory remedial
action in accordance with the Companies Regulations 1965.
Minimum Capital Requirements
A decision will be made by SAGIA or the Ministry of Commerce and
Industry about the company’s capital requirement as part of the foreign
investment licence approval process.
Business Activity Likely Minimum Capital
Services SAR500,000
Manufacturing SAR1 million
Trading SAR26 million
(with a minimum of SAR26
million from the foreign investor)
Professional Company SAR500,000 (recommended)
The amount of capital required will depend on the company’s proposed
business activities and projected expenditure for the first five years of
operation.
Shares
An LLC can have between 2 and 50 shareholders (a wholly owned
subsidiary would still need 2 shareholders). Only one class of shares is
allowed and different voting rights are not permitted.
Generally speaking, each shareholder must hold at least 5% of the share
23
Setting up in Saudi Arabia
capital. An LLC may not offer its shares to the public nor can it engage
in certain activities (such as banking and insurance).
Transfers of Shares
Share transfers are permitted subject to statutory pre-emptive rights
enjoyed by the other shareholders and regulatory approvals.
Management
An LLC may either have one manager or a board of managers. An
LLC with more than 20 shareholders must have a supervisory board to
oversee and advise management. There is no requirement for a manager
to be a Saudi national but an expatriate would need a residency permit
(Iqama).
Branch Office
If the foreign business does not want or require a Saudi partner, opening
a Saudi Arabian branch office may be a suitable choice. The advantages
of doing so are that a branch is normally the quickest entity to establish,
it can carry on a broad range of activities (as approved by SAGIA), and
the minimum capital requirement is usually SAR500,000.
Because the branch is not legally distinct from the foreign business, its
business activities will be limited to those of the foreign business and
the foreign business will be liable for the debts and other liabilities of
the branch. Note, however, that business entities with Saudi ownership
may be preferred for certain Saudi Arabian government contracts.
Joint Stock Company
A joint stock company (“JSC”) can be either “open” (which means that
its shares are offered to the public) or “closed” (meaning its shares can’t
be offered to the public).
All companies listed on the Saudi Stock Exchange (the Tadawul) are
open JSCs. Certain types of activities may only be carried out by a JSC
(either open or closed), for example banking and finance businesses.
A JSC must have 5 or more shareholders. The shareholders are exempt
24
Setting up in Saudi Arabia
from personal liability on the same basis as shareholders in an LLC,
with the additional benefit that, unlike in an LLC, shareholders will
not become personally liable for the debts of the JSC should its debts
exceed 50% of its stated capital. Directors must hold (or have pledged
on their behalf) shares in the company of not less than a specified value.
Founders’ shares (i.e. shares owned by the promoters of the company)
cannot be transferred until financial statements for the JSC have been
published for two complete financial years. There will usually be a
minimum capitalisation requirement of at least SAR2 million.
Importantly, the annual audited financial statements of a JSC must be
published in a Saudi Arabian daily newspaper.
Temporary Commercial Registration
An investor can apply for a Temporary Commercial Registration
(“TCR”) if the proposed business activity will be conducted in Saudi
Arabia over a relatively short period of time and it is related to the
performance of a government contract, and no further business activities
are contemplated. The registration process is similar to that for a branch
although less documentation should be required to support the foreign
investment license application and no capitalisation amount is needed.
As such, the issuance of a TCR is restricted to those companies with
government contracts. They require a letter of contract award or a
signed contract from the contracting government agency.
While available on relatively short notice, as a special purpose license
the principal disadvantage of a TCR is that it is limited to the scope
and terms of the particular contract, and cannot be used to undertake
general business activities.
Technical and Scientific Services Office
A foreign company may establish a Technical Scientific Services Office
(“TSSO”) to provide technical and scientific services to its registered
Saudi agents, distributors and consumers. A TSSO may not engage in
any commercial activities or earn revenue. Its activities are limited to
providing technical information, market and technical research.
25
Setting up in Saudi Arabia
The registration process is similar to that for a branch. There are no
capitalisation requirements and a minimum number of Saudi nationals
need to be employed. However, the regulatory authorities may set a
cap on the number of expatriate employees (usually not more than 10).
A TSSO does not enjoy the benefit of investment incentives under
the Foreign Investment Regulations but can sponsor its own foreign
employees.
Professional Companies
While there are other forms of entities that can carry out certain
business activities in Saudi Arabia, a professional company is the only
type of entity that can legitimately conduct engineering, architectural,
legal, accounting and other professional services.
A professional company would require a joint venture arrangement with
a Saudi entity (or individual) currently licensed to carry out the particular
profession. For example, an engineer registered with the Saudi Council
of Engineers. The Saudi Council of Engineers is a professional semiindependent
body under the supervision of the Ministry of Commerce
and Industry and must approve of the proposed joint venture.
Under Saudi Arabian law, a professional company is treated more akin to
a partnership than a limited liability company, though it has similarities
with a limited liability company. As with a partnership, the partners of a
professional company have joint and several liabilities for the debts and
obligations of the professional company. However, partners are able to
apportion liability as between themselves.
Provided the foreign applicant meets certain experience and other
criteria, it may own up to 75% of the professional company. It is usually
left to the partners to decide capitalisation, although typically SAR200-
500,000 is allocated. Establishing this type of entity currently does
not require a foreign investment license from the Saudi Arabia General
Investment Authority.
26
27
Exporting to
Saudi Arabia
28
Exporting to Saudi Arabia
Exporting to Saudi Arabia
Overview
For many businesses, it may be not be necessary to set up a presence in
Saudi Arabia in order to access the domestic market. For businesses that
sell goods, for example, it may be possible to sell directly to consumers
or to appoint a Saudi agent or distributor. In each case, the result is that
the foreign business does not directly benefit from, or become subject
to, the same legislative regime as governs those businesses that do have
a commercial presence in-country.
Exporting to Saudi Arabia without having a legal presence in the
country
Sales to End Users
A foreign business does not require a legal presence in Saudi Arabia
where goods are being sold to an end user in Saudi Arabia.
Commercial Agencies
A foreign business does not need to set up a legal presence in Saudi
Arabia where its goods are imported for sale or resale through
distributorship, commercial agency or franchise arrangements, which
are known as “commercial agencies”. This is a commonly employed and
relatively straightforward manner for a foreign business to arrange for
its products enter the Saudi market.
29
Exporting to Saudi Arabia
The foreign business and the commercial agent must enter into a written
commercial agency agreement and the agency must be registered
within three months of it commencing with the Commercial Agencies
Department of the Ministry of Commerce and Industry. Failure to
register can result in fines and other penalties.
Only Saudi nationals or companies organised under Saudi law which
are wholly owned and managed by Saudi nationals can be commercial
agents.
The commercial agent must guarantee the quality of the products, and
provide necessary maintenance and spare parts to consumers.
The commercial agent has no statutory right to compensation upon
the non-renewal or termination of its commercial agency. However,
claims are often made by commercial agents for compensation for their
contribution to the goodwill of the principal’s business.
Approvals for the Import of goods into Saudi Arabia
Should a foreign business wish to import directly into Saudi Arabia, it
is important to note that the approval requirements for the import of
goods into Saudi Arabia are extensive and vary according to the nature
of the goods. Import agents are routinely appointed to ensure that
importation goes smoothly.
In order to obtain customs clearance, all imported goods must have a
“Conformity Certificate for the Goods Exported to the Kingdom of
Saudi Arabia”. A conformity certificate must be issued by an accepted
accreditation body authorised by the relevant official agency in the
country of origin.
The Saudi Standards, Metrology and Quality Organisation (“SASO”)
formulates national standards for products including labeling, inspection
and testing. The party submitting the conformity certificate must
declare compliance of the goods with SASO’s requirements.
Imported goods must identify the country of origin on both the
shipment packaging and the product itself.
30
Exporting to Saudi Arabia
Export documentation
The commercial documents required for all shipments include:
• Commercial Invoice with Arabic translation.
• Certificate of Origin.
• Bill of Lading or Airway bill.
• Steamship or Airline Certificate.
• Insurance certificate (where goods are insured by the exporter).
• Packing List.
There may also be additional authorisations and requirements applicable
to the particular products.
The Business Visit
In circumstances where no legal presence is established in Saudi Arabia,
the representatives of a foreign business may wish to visit Saudi Arabia
to meet with customers or agents.
Visit visas are required by all visitors except nationals of GCC States
and must be obtained prior to travelling. An invitation must be obtained
from a Saudi business (and lodged with the Ministry of Foreign Affairs)
in order to apply for the visit visa.
Application for a visit visa is made through an online process as
specified by the Saudi Embassy in the applicant’s country of residence.
The maximum permitted stay under a business visit visa is 1 month.
31
Exporting to Saudi Arabia
Employment Law
32
Employment Law
Employment Law in Saudi Arabia
The Labour Law
The Labour Law, originally issued in 2005 and since amended and
supplemented by regulation, is the principal legislation governing the
employer – employee relationship. The Labour Law is administered by
the Ministry of Labour.
The Labour Law applies to all workers in Saudi Arabia irrespective of
whether the parties nominate a foreign law as the governing law of the
employment contract.
Amongst other things the Labour Law outlines terms for terminating
employment, prescribes annual vacation entitlements, establishes a
retirement age, end of service benefits and a minimum age of 14 for
employees.
Non-Saudis
Non-Saudis may work in Saudi Arabia provided the requisite approvals
are obtained:
• the employee must have entered the country on a valid employment
visa issued by the Saudi Embassy in the country for which the
employee holds a passport; and
• the employer must obtain a work and residence permit (Iqama) for
the employee within 90 days of the employee’s arrival.
33
Employment Law
Employment Contracts
Under the Labour Law, employment contracts may be for fixed
(applicable to expatriates and Saudi/GCC Nationals) or unlimited
periods (applicable to Saudi/GCC Nationals).
Indefinite term contracts terminate at the discretion of either party
provided written notice is given to the other party stating the valid
reason for termination. At least thirty days notice is required for
contracts where the worker is paid monthly or not less than fifteen days’
notice in any other case.
Unfair dismissal may result in an award of monetary compensation.
Probationary Periods
An employer may request an employee to undergo a probationary period
of no more than ninety days with the possibility of an extension by a
further period of no more than ninety days. The probationary period
must be stated in the contract.
If an employee is working under a probationary period, the employee
may be dismissed for any reason by the employer either within or at the
end of the probationary period.
Social and Health Insurance
The Social Insurance Regulations require employers who have at least one
employee to make monthly contributions to the General Organisation
for Social Insurance (“GOSI”) on behalf of each employee. These
contributions are calculated as a percentage of the employee’s wage.
Employers must also provide medical insurance that covers the employee
and the employee’s family living in Saudi Arabia as dependents of the
employee. This is normally done at the employer’s cost.
Public Holidays and Annual Leave
Paid annual leave can vary but under the Labour Law employees are
34
Employment Law
entitled to 21 days leave on full wages. This increases to a period of not
less than 30 days if the worker has spent five consecutive years’ service
with the same employer. Provisions are contained in the Labour Law
dealing with parental leave, religious leave, unpaid leave, educational
leave and sick leave.
End of Service Benefits
At the end of the labour contract the employee is entitled to receive
an end-of-service award (also known as a “gratuity”). Generally the
amount of the award is calculated as half a month’s wage for each of
the first five years of service and one month’s wage for each of the
following years. However, the amount of the award can vary depending
on a number of factors including whether the employee resigned or was
terminated (without cause).
Saudisation (Nitaqat)
Foreign investors setting up in Saudi Arabia should be aware of the
Saudisation policy (Nitaqat) that requires a minimum number of Saudis
to be employed by each business. This minimum number depends on
the type of company, industry and job titles.
In 2011 the Ministry of Labour introduced the Nitaqat Programme by
which employers are penalised if they fail to achieve the Saudisation
targets which are applicable to them.
Companies are categorised as falling within one of four categories:
Excellent, Green, Yellow and Red. The classification is based upon the
percentage of Saudisation of the company. Companies in the Excellent
or Green categories have the greatest privileges for visa requests for
foreign workers. Companies in the Yellow and Red categories are subject
to various restrictions in relation to visa applications and work permits.
They are also not able to restrict their employees from transferring
sponsorship to a company in the Excellent or Green category.
Visas
Foreign workers must initially obtain a work permit visa and then with
the assistance of their employer make application for a residency permit,
the Iqama.
35
Employment Law
Dispute
Resolution
36
Dispute Resolution
The Saudi Court System
The basic structure of the Saudi court system is as follows:
General Courts
These courts have jurisdiction over all types of dispute unless otherwise
provided by law.
The General Courts usually adjudicate in civil and real estate disputes.
The General Courts are under the auspices of the Ministry of Justice
as are the specialized Criminal Courts and Personal Status Courts
established in some major cities.
It is expected that additional specialized courts will be established in the
next 5 years to deal with labour and commercial disputes respectively.
The General Courts are organised hierarchically into first instance courts,
appellate courts and the High Court (which is the final appellate court).
Board of Grievances or Administrative Court
The Board of Grievances is the mandatory dispute resolution forum
where a dispute involves a Saudi governmental entity (though some
exceptions apply). Currently, many types of commercial disputes are also
heard by the Board of Grievances although these cases will ultimately be
heard by the proposed commercial disputes court when it is established.
The Board of Grievances has first instance administrative courts/circuits,
appellate administrative courts and a High Administrative Court.
The Law of the Judiciary provides for appeals from the Board of
Grievance to courts of appeal (known as courts of cassation) and from
37
Dispute Resolution
there to the High Administrative Court.
Quasi-Judicial Committees
Quasi-judicial committees have jurisdiction in specialist areas. The most
important of these include:
• The Committee for Banking Disputes, administered by the Saudi
Arabian Monetary Agency.
• The Commission for the Settlement of Labour Disputes,
administered by the Ministry of Labour.
• The Committee for Resolution of Securities Disputes, established
pursuant to the Capital Market Law.
• The Committee for Adjudication of Insurance-Related Disputes,
administered by the Saudi Arabian Monetary Agency.
Some of the committees have a separate appellate committee. In other
cases appeals against decisions of the Committee are made to the Board
of Grievances.
Judicial Reforms
In 2007 King Abdullah bin Abdulaziz Al Saud issued royal decrees
with the aim of reforming the court system. Some of the changes
foreshadowed by the reforms have already been implemented.
Arbitration
The decision whether to arbitrate or litigate through the court system
will depend upon the circumstances of the particular case. Where the
dispute is set in an international context, arbitration tends to be the
formal dispute resolution mechanism of choice.
Arbitration is not permitted where one of the parties is a Saudi
government entity unless permitted by the Council of Ministers.
The parties to the dispute usually choose the arbitrator or the majority
of them.
38
Dispute Resolution
Saudi Arabia’s Arbitration Law
Saudi Arabia issued a new Arbitration Law in 2012. This sets out
requirements in relation to the arbitration agreement including the
appointment of arbitrators.
Arbitration proceedings can proceed in accordance with the rules
of internationally recognised arbitration forums. They can also be
conducted in a language other than Arabic.
Once the arbitration award is final, there is only limited scope to
challenge it. Also, the decision to challenge it does not of itself preclude
the enforcement of the award.
How is a judgment or arbitration award enforced in Saudi Arabia?
Execution Law
In 2012 a new Execution Law was issued. This sets out procedures for
the enforcement of judgments and arbitration awards in Saudi Arabia.
This Law sets out the framework for the enforcement of judgments
and arbitration awards. The Law applies to both domestic and foreign
judgments and awards.
Arab League and GCC State court judgments
A judgment of a court in a country that is a signatory to the Arab League
Treaty on the Reciprocal Enforcement of Judgments or the Agreement
on Enforcement of Judgments, Delegations and Judicial Summonses
in the States of the GCC for the Arab States will be enforceable in
Saudi Arabia provided the judgment is not inconsistent with Islamic
law, public policy or the laws and regulations of Saudi Arabia.
Non-Arab state arbitration court judgments and awards
Saudi Arabia is a party to the New York Convention relating to the
recognition and enforcement of foreign arbitral awards. As a practical
matter, Saudi courts have rarely enforced a non-Arab State arbitration
award or court judgment.
39
Government
Contracting
40
Government Contracting
Government Contracting
Supplies of goods and services to all government agencies and most
government owned companies are regulated by the Government Bids
and Procurement Law, issued in 2006 and its associated Regulations.
The more important features of the Procurement Law are summarised
below:
Tenders
All government tenders are announced and publicised.
Bidders
Bidders must be appropriately licensed in the particular activity. The
bidder must generally have a registered legal presence in Saudi Arabia,
though in the case of construction contracts the bidder may lodge a
qualifying bid if it does not have a commercial registration when the bid
is lodged. It will, however, have to establish such a presence following
an award of the government contract.
Priority is given to bidders with nationally manufactured goods and
services (to be disclosed by the bidder in the bid).
Bids
Bids must generally include a preliminary bank guarantee of 1-2% of
the contract value.
41
Government Contracting
Bids must be valid for 90 days from the date specified for the opening
of bids. If a bidder withdraws a bid during this period, the preliminary
bank guarantee is forfeited.
Contract phase with successful bidder
The prevailing language of all contracts is Arabic. The contract forms
are prepared by Ministry of Finance and can be bilingual, although the
Arabic version prevails.
Government Authorities must submit contracts with an execution
period of more than one year and a value exceeding SAR 5 million to
the Ministry of Finance for review prior to entering into the contract.
The period of continuing service contracts may not exceed 5 years
without the approval of the Ministry of Finance.
The successful bidder must submit a final bank guarantee of 5% of the
contract value, usually within 10 days of being awarded the tender. If
it doesn’t, then the preliminary guarantee is forfeited and negotiations
commence with the next bidder.
Government Authorities may increase the obligations of a contract
within the scope of the contract by up to 10% of the value or decrease
those obligations by up to 20%.
Contract payment entitlements, termination, penalties and extensions
of contract are all regulated in the Procurement Law.
If a government authority defaults:
• The contractor may lodge a claim for compensation with the
Compensation Committee but may not file a legal claim in the
courts in the initial stages.
• The contractor cannot refuse to perform its contractual obligations
on the basis that the government authority is in default.
42
Employment Law
43
Employment Law
Banking &
Taxation
44
Banking & Finance
Banking & Finance
The Saudi Arabian Monetary Agency
The Saudi Arabian Monetary Agency (“SAMA”) is the central bank of
Saudi Arabia and is the regulator of the banking sector.
Licences
SAMA is primarily responsible for issuing licences to start up a banking
business.
Commercial Banks
Commercial banking operations are undertaken by both Saudi financial
institutions and branches of foreign banks.
Banks are required to separate their investment and securities business
from their banking business and hold separate licences for asset
management, advisory and securities services.
Recent banking industry reforms
The Saudi Government issued a package of laws in 2012 to reform key
areas of the banking sector.
Real Estate Mortgage Law
This Law provides for the registration of mortgages. It also facilitates
a secondary mortgage market by allowing mortgages to be transferred
by the mortgagee and thereby gain access to the capital markets for
45
Banking & Finance
refinancing. It is hoped that the Law will pave the way for the private
sector to assume a greater role in housing finance leading to reduced
borrowing costs.
Real Estate Financing Law
This Law requires real estate finance companies to be licensed by
SAMA.
Law on Supervision of Financing Companies
This Law provides for SAMA to be the regulator of licensed finance
companies operating in Saudi Arabia. Finance companies must be joint
stock companies.
Finance Lease Law
This Law provides for the leasing of assets. The lessee has an obligation
to use the leased asset for the agreed purpose and be responsible for the
operational maintenance of the asset.
Registering a Security Interest
Historically it has been difficult for holders of a security interest to
register their claim over assets located in Saudi Arabia other than in
respect of specific categories of property like marine vessels, aircraft,
automobiles, land, certain types of company shares and intellectual
property.
The Commercial Mortgage Law 2004 originally contemplated the
establishment of a Unified Centre for Lien Registration (“UCLR”).
However, the UCLR has only recently become operational making it
possible to register security interests over moveable assets.
Taxation
Corporate Income Tax
A foreign partner or shareholder in a resident KSA company and a non46
Taxation
resident who does business in KSA through a permanent establishment
are subject to corporate tax income rate on income and realised capital
gains.
Registration of a company or branch with the Department of Zakat and
Income Tax is mandatory.
The rate of tax is generally 20% on net profits except for some specified
businesses. Saudi and GCC nationals in corporate structures are subject
to a religious levy (Zakat) of 2.5% which is derived from what is known
as the “Zakatable Base”, a rather complex formula linked to the number
of shares of the company and other values.
Saudi Arabian Tax Law does not distinguish between different categories
of income. Capital gains are treated as ordinary income.
Customs Duty
Rates of duty vary depending on the type and quantity of the commodity.
Most basic consumer products are duty free.
47
Employment Law
Real Estate
48
Real Estate
Real Estate
Who can own land?
Ownership of land in Saudi Arabia is generally restricted to Saudi
citizens, but this is subject to certain qualifications:
• A GCC company (with shareholders who are all GCC nationals)
or an individual (who is a GCC national):
»» may lease or purchase land to use it to conduct any licensed
business activity from the land.
»» may own residential properties in KSA, subject to a number of
restrictions and conditions.
»» This concession does not apply to properties within the vicinity
of Mecca and Medina.
• Even the smallest equity interest held by a non-GCC entity will
make a corporate entity “foreign”, triggering the requirement for
a foreign investment licence including conditions stipulating the
amount of capital that must be invested and the timeframe for the
investment by the foreign entity.
• A non GCC entity may own Saudi real estate which is required
for:
49
Real Estate
»» the conduct of its professional, technical or economic activities;
»» private residences for housing employees of a licensed project;
or residential use by individuals with normal legal residency
status.
New Land Title System
In an effort to modernise the land transfer and registration process,
the Saudi government has initiated the massive and ambitious task of
identifying all Saudi and (and all property interests in particular parcels
of land) and including that information on a real estate register for each
designated realty area.
The main benefit of the new system is that it will provide an investment
friendly environment with technically accurate land identities to
facilitate property dealings.
Strata/fractional Ownership
The System of Ownership of Units, a law issued in 2002, provides for
fractional or “strata” ownership of buildings, that is, buildings which are
subdivided into individual ownership units.
Off the Plan Sales
In recent years KSA has taken a number of significant steps to regulate
the sale and marketing of lots off-the-plan through in order to:
• protect the rights of buyers and developers;
• raise the level of transparency;
• discourage property speculation (and prevent real estate bubbles);
• reduce the cost of ownership of real estate units; and
• increase the supply of developed real estate throughout Saudi
Arabia.
50
Real Estate
Mining
Saudi Arabia has extensive deposits of phosphate and bauxite and
commercially viable deposits which include gold, silver, lead, zinc and
copper, iron ore and rare earths. Saudi Arabia also has large deposits of
many of the key minerals used in the construction industry.
The Ministry of Petroleum and Mineral Resources has an extensive data
base of geological data, maps and reports.
A new Mining Code was adopted in 2004 to facilitate investment in the
mining sector. There are no mineral royalties.
Non-exploitation and exploitation licences are available to companies
and individuals.
Non-exploitation licences include reconnaissance and material
collection licences, valid for 2 years, and exploration licences, which are
valid for 3 years. Exploration areas are limited to 100 square kilometres.
Exploitation licences include mining and quarry licences, both valid
for 30 years. Small mine licences are valid for 20 years and building
materials quarry licences for 5 years.
Exploration and exploitation licences may be transferred with the
approval of the Ministry of Petroleum and Mineral Resources.
51
Employment Law
Intellectual
Property &
Competition Law
52
Intellectual Property
Intellectual Property
Patents Law
The Patents Law provides the means by which legal protection can be
obtained for:
• Patentable inventions
• Layout designs of integrated circuits
• Plant varieties
• Industrial designs.
The Patents Law is administered by King Abdul-Aziz City of Science
and Technology. Its General Directorate of Patents (Directorate)
operates as the “Patent Office” in Saudi Arabia, receives applications
and has the authority to grant patents in the country.
Applications may be made by both Saudi citizens and foreign persons.
The protection periods are:
• Patents: 20 years from the date of filing the application.
• Layout Designs: 10 years from the date of filing the application or
10 years from the start date of its commercial exploitation anywhere
in the world but subject to a maximum protection period of 15
years from the date of creation of the design.
53
Intellectual Property
• Plant patents: 20 years from the date of filing the application but
the protection period for trees is 25 years.
• Industrial designs: 10 years from the date of filing the application.
Saudi Arabia acceded to the Patents Cooperation Treaty (PCT) in
2013. Any international application filed on or after that date will
automatically include the designation of Saudi Arabia. In addition,
nationals and residents of Saudi Arabia are entitled to file international
applications under the PCT.
Trademarks
The Trademarks Law of 2002 sets out procedures for the registration
of trademarks (including service marks). Applications may be made by
both Saudi nationals and foreign persons.
The registration process is handled by the Ministry of Commerce and
Industry and the Ministry maintains a register of trademarks which is
available for public inspection.
The infringement of trademarks may attract heavy fines and criminal
penalties. Claims for compensation may be made by anyone who has
suffered loss as a result of the infringer’s actions. There is also provision
for the owner of the trademark to apply for “precautionary measures”
such as the seizure of goods and papers (including imported items) prior
to the commencement of any civil or criminal lawsuit which infringe
the owner’s rights.
Copyright
The Copyright Law of 2003 protects works created in the fields of
literature, art and science, irrespective of their type, means of expression,
importance or purpose of authorship.
The Law also protects derivative works such as translations, compilations
and databases.
The copyright work must be attributed to the author, for example, by
mentioning his name on the work.
The period of copyright protection is the life of the author and the
54
Intellectual Property
period of 50 years after his death. A lesser period of 20 years applies to
broadcasters from the date of first transmission.
The Law prescribes the penalties applicable to infringement, which
may include fines, confiscation of infringing materials, closure of the
business establishment and imprisonment.
Saudi Arabia is a member of the Universal Copyright Convention
and the Berne Convention for the Protection of Literary and Artistic
Works.
Competition Law
Saudi Arabia adopted a Competition Law in 2004 and the Law came
into effect in January 2005. The Competition Law and the associated
Regulations and Competition Rules make up Saudi Arabia’s competition
law regime and they are enforced by a Competition Council.
Who does the Competition Law apply to?
It applies to all firms, i.e. any corporation or company and business
doing business in Saudi Arabia. A non-Saudi entity can be a firm. The
Competition Law does not apply to public (i.e. government) corporations
and fully–owned state enterprises.
What does the Competition Law do?
The broad aim of the Competition Law is to protect and encourage fair
competition and combat monopolistic practices that affect competition.
It seeks to achieve this by:
• Prohibiting agreements and arrangements between firms if their
objective or effect is to restrict commerce or competition.
• Restricting the ability of a firm to acquire a dominant position in
the market.
• Making abuses of dominant market position by a firm illegal.
55
Competition Law
What sort of practices and agreements are prohibited?
• Article 4 of the Competition Law says that practices, agreements or
contracts among current or potential competing firms, whether the
contracts are written or verbal, expressed or implied are prohibited,
if the objective of such practices, agreements or contracts or their
effect is the restriction of commerce or the violation of competition
between firms.
• Any practice, alliance or agreement, explicit or implicit, between
competing entities which violate, restrict or prevent competition is
prohibited.
• The Competition Council may decide not to apply the prohibitions
contained in Article 4 of the Competition Law to practices and
agreements in violation of the Competition Law which are deemed
to improve efficiency and realise benefits to consumers which
outweigh their anti-competitive effect.
What sort of practices and agreements are prohibited?
• Article 4 of the Competition Law says that practices, agreements or
contracts among current or potential competing firms, whether the
contracts are written or verbal, expressed or implied are prohibited,
if the objective of such practices, agreements or contracts or their
effect is the restriction of commerce or the violation of competition
between firms.
• Any practice, alliance or agreement, explicit or implicit, between
competing entities which violate, restrict or prevent competition is
prohibited.
• The Competition Council may decide not to apply the prohibitions
contained in Article 4 of the Competition Law to practices and
agreements in violation of the Competition Law which are deemed
to improve efficiency and realise benefits to consumers which
outweigh their anti-competitive effect.
Abuse of Dominating Position
The existence of a dominating position in the Saudi market is not of
itself prohibited. The abuse of that dominating position is.
56
Competition Law
“Abuse” of a dominating position requires an act of the kind described in
Article 4 of the Competition Law or Article 6 of the Competition Law
Regulations. Broadly speaking those provisions target any practice which
restricts competition between firms, in particular:
• Price control.
• Restricting the free flow of goods and services.
• Barriers to entering and leaving markets
• Forcing out competitors.
• Partitioning markets.
• Customer Discrimination.
• Compelling or agreeing with a client to refrain from dealing with a
competing entity (third line forcing).
• Making the sale of a commodity or offer of service contingent on
the purchase of another commodity or service (first line forcing).
Economic Concentration
The Dominating Position provisions of the Competition Law are
reinforced by other provisions which focus upon the acquisition of
ownership which is referred to in the Regulations as “Economic
Concentration”.
Economic Concentration happens where an entity acquires a position of
domination of an entity or group of entities through merger, takeover,
acquisition or the combination of managements.
An entity intending to achieve Economic Concentration in order to
dominate 40% of a commodity’s total supply in the market is required
to make written application to the Competition Council and provide
prescribed information including a report detailing the consequences
of the proposed Economic Concentration, in particular its positive
effect on the market. The entity can proceed to complete the Economic
Concentration if the Council notifies its approval or if the Council
doesn’t notify its refusal within 60 days of the application date.
57
Competition Law
Complaints
A party claiming to be affected by conduct which it believes breaches
the Competition Law or its Regulations may request the Competition
Council to conduct an investigation to determine whether breaches of
the Competitions Law have occurred. The Competition Council may
also initiate investigations without any prior complaint.
Penalties
The Competition Council may require prohibited conduct to stop,
dispose of assets and take other action to remove the effects of the
violation. Violators may also become subject to financial penalties.
Compensation
Anyone suffering harm caused by conduct prohibited under the
Competition Law may apply to the court for compensation.
58
59
Anti-Corruption
Law
60
Anti-Corruption Law
Anti-Corruption Laws
In recent times Saudi Arabia has made significant efforts to identify and
prosecute corrupt officials from within the public sector.
The principal laws dealing with corruption among public officials are the
Civil Service Law 1977 and more recently the Anti-Bribery Law 1992.
Under the Civil Service Law, public officials are not permitted to accept
gifts of any nature. The Anti-Bribery Law also applies to public officials
as well as to those persons or companies that are involved in offering
bribes to public officials or using force or threats against them in order
to obtain a benefit.
Public Officials
Under the Anti-Bribery Law, the following positions are regarded as
that of a public official (“Public Officials”):
• temporary or permanent employees of the government or a
governmental body;
• an arbitrator or expert appointed by the government or judicial body;
• a commissioner of a government authority or administrator given
specific tasks;
• employees, chairmen and board directors who work for companies:
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Anti-Corruption Law
»» providing public utility services;
»» that are joint stock companies in which the government holds
capital;
»» sole companies and corporations that carry out banking activities.
What must be received to constitute a bribe?
Under the prohibited circumstances contained in the Anti-Bribery Law,
receipt of any benefit or advantage (financial or non-financial) would
be considered a bribe and includes a promise, gift, bounty, favor or
recommendation.
Principal Crimes
Public Officials who demand a bribe for themselves or another person
for performing their normal duties (or abstaining from performing such
duties) are deemed to be a bribe taker. This applies even if the Public
Official had no intention to fulfill the promise given to the other party or
even when such a demand was made after the performance or abstaining
of the duties without pre-agreement.
It is also a crime for a Public Official to demand or receive a bribe for
themselves or another person for using an actual or pretended power
so that any public authority will give preferential treatment in relation
to any action, order, decision, commitment, license, supply agreement,
post or service. The crime also includes attempts to use the actual or
pretended power.
Penalties for Principal Crimes
Under the Anti-Bribery Law the principal penalties vary according to
the severity of the circumstances. The most severe penalties are 10 years
imprisonment and/or SAR 1,000,000 fine. The lesser crimes still carry
imprisonment penalties of up to 3 years and/or a fine of up to SAR
100,000.
In additional to the principal penalties that apply in particular cases, the
Public Official may also:
62
Anti-Corruption Law
• be discharged from official duties and prevented from holding office
as a Public Official (although this may be revised by the Council of
Ministers 5 years after the principal penalty has ended) and/or
• have money or any other advantage or benefit obtained from the
offending behavior confiscated.
Other Crimes
Every Public Official who demands for themselves or another person
or accepts or receives a bribe because of their position to follow up a
transaction at a government authority (and not otherwise covered by
the Anti-Bribery Law) is liable, along with the other parties involved, to
imprisonment of 2 years and/or a fine up to SAR50,000.
Use of force and threats
Persons who use force or threats against a Public Official in order to get
an illegal action performed are liable to the principal penalties under the
Anti-Bribery Law.
Bribes made but not Accepted
A person who offers a Public Official a bribe that has not been accepted
can face a penalty of up to 10 years imprisonment and/or a fine of up to
SAR1,000,000.
Parties to the Bribe
Under the Anti-Bribery Law the briber and whoever contributed to the
crime is punishable by the applicable penalty. In addition, those who
knowingly assist or collaborate in the commitment of, or after the actual
crime has been committed, are also liable. This includes people who
have been appointed by the principal offenders to take the bribe when
knowing the reason for it.
Whistleblowers
Where a person provides information of a crime against the Anti-
Bribery Law and such information leads to the proof of crime (and
provided that person is not a party to the crime) then a reward of not
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Anti-Corruption Law
less than SAR5,000 is payable and also up to one half of the value of
any confiscated money. In addition, a discretionary reward of a greater
amount may be dispensed by the Ministry of Interior once approved by
the Council of Ministers.
The Anti-Bribery Law allows for the briber (or other party not being
the Public Official) to be excused from the applicable Anti-Bribery Law
penalties if that person informs the Ministry of Interior of the crime
before it is discovered.
Recidivist Offenders
A Public Official is deemed to be recidivist offender if that same person
commits another crime against the Anti-Bribery Law within five years
from the date of his previous penalty expiring. In such cases recidivist
offenders may be punished with up to twice the prescribed penalty.
Consequences for Companies
Companies involved in bribing Public Officials risk penalties of either
a fine up to ten times the bribe or being prohibited from entering into
contracts with government ministries and government departments.
This provision applies to any KSA or foreign company.
The Council of Ministers may reconsider the prohibition on entering
into the above contracts after 5 years have elapsed from the date the
previous judgment was issued.
Public Announcements of Bribery
The Ministry of Interior publishes and announces judgments issued on
breaches of the Anti-Bribery Law.
64
65
Saudi Stock
Market
66
Saudi Stock Market
Saudi Stock Market Now Open For Foreign
Investment
With a market valuation in the region of USD575 Billion, the
government of Saudi Arabia has for quite some time explored methods
of improving stability in the Gulf ’s largest listed share market - Tadawul.
Volatility in listed share values regularly highlights perceived weaknesses
in the Saudi capital market when the Tadawul All Shares Index
(“TASI”) nose dived following 2015 plummeting oil prices. Many
market commentators remarked that extent of the dive was, to a large
extent, unjustified.
The vast majority of significant investors in Tadawul are local retail
investors having short term goals underpinning their investment strategy.
In 2008 the Capital Market Authority (“CMA”) introduced equity swap
arrangements where foreign investors could purchase only the economic
benefit of listed shares for a defined period of time. Swaps never attracted
the level of investment the CMA hoped for mainly because they were
cumbersome to implement and gave no underlying shareholder rights.
In 2014 the CMA issued draft rules enabling certain qualified foreign
institutions to directly access share trading on Tadawul for themselves
and on behalf of their clients. The rationale behind opening up the
Tadawul for direct foreign investment is largely the following:
67
Saudi Stock Market
• improvement in market stability and a reduction in pricing volatility;
• an increase in local expertise of financial markets;
• encourage listed entities to raise their overall performance;
• improved corporate governance and transparency for listed entities;
and
• lift the international rating of Tadawul.
The last point above is very important because it is envisaged that by
mid-2017 Tadawul will be classified as an emerging market under
global indices. Should Tadawul achieve this status then many believe
the resultant direct foreign investment will be in the region of USD50
Billion.
In 2015 the CMA formally released the “Rules for Qualified Foreign
Financial Institutions Investment in Listed Shares”, pursuant to
Resolution Number 1-42-2015 (“Rules”). The objectives of the Rules
are the following:
1. to set out the procedures, requirements and conditions for the
registration of a qualified foreign investor (“QFI”) – (defined as a
foreign investor registered with the CMA in accordance with these
Rules to invest in listed shares);
2. to set out the procedures, requirements and conditions for the
approval of QFI clients to invest in listed shares; and
3. to specify the obligations of KSA registered securities businesses in
their dealings with a QFI.
Under the Rules, investors will be able to exercise shareholder rights
that include voting, participation in appointing board members and
trading in rights issues. These rights were not present in equity swap
arrangements.
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Saudi Stock Market
Eligibility for Registration as a QFI
Broadly speaking, in order to qualify as a QFI, an applicant must satisfy
each of the following criteria:
1. be a bank (including a central bank), brokerage/securities firm,
fund manager or insurance company and must be duly licensed
or otherwise subject to regulatory oversight and incorporated in
a jurisdiction that applies regulatory and monitoring standards
equivalent to those of the CMA;
2. have assets under management of at least USD5 Billion, subject to
discretionary reduction by the CMA to USD3 Billion; and
3. have been engaged in securities and investment related activities for
at least five (5) years.
The Rules do not apply to nationals and companies of States that are
members of the Cooperation Council of the Arab States of the Gulf as
these persons may invest directly in KSA listed shares.
Other Criteria Apply
The Rules also set out criteria and procedure relating to:
• the Authorised Assessing Person;
• the approval of QFI’s clients
• when trading may actually commence by a QFI;
• QFI investment limits;
• continuing obligations of the QFI and QFI clients; and
• the forum for resolving disputes.