SAUDI ARABIA Trends and Developments Contributed by: Zain Satardien, Chadi Hourani and Hayel Hourani, Hourani & Partners
Arabia’s legal framework governing contracts, obli - gations, and property rights. The CTL is already seem - ing to shape current commercial disputes, with courts seeming to consistently apply principles of good faith, intention over form, and proportional liability. Judicial publication of decisions and consolidation of legal principles will increase predictability and improve the operating environment for foreign investors. The CTL governs every stage of the life cycle of a civil transaction, clarifying aspects such as capac - ity to enter into contracts, initiation and validation of contracts, setting expectations for fulfilling con - tractual obligations in good faith and setting out the mechanisms for terminating, concluding or voiding a contract. The CTL applies retroactively to transactions concluded before and after December 2023, unless conflicting with pre-existing statutes, with the aim of harmonising past agreements with the existing legal framework. It is based on Sharia, incorporating 41 Sharia princi - ples, which serve as default rules in the absence of specific statutory provisions. Where the CTL does not apply, these broader Sharia principles are applied to ensure consistency with Islamic jurisprudence. Saudi Arabia’s regional headquarters programme Saudi Arabia’s regional headquarters (RHQ) pro - gramme aims to attract global companies to establish their regional headquarters in Saudi Arabia, position - ing the country as a leading hub for multinational cor - porations present in the MENA region. The programme offers a suite of incentives, including tax exemptions, streamlined regulatory procedures, and relaxed labour requirements. Importantly, the RHQ provisions also restrict government agencies or entities from contracting with companies that do not have Saudi regional headquarters. Government entities are also restricted from contracting with any “related party” of a company that does not have an RHQ in Saudi Arabia (including, for example, agents, distributors, suppliers, and service providers). There are two exceptions to this restriction. First, the restric - tion does not apply where the multinational company makes a technically superior offer to the government agency, which is at least 25% less than the next best
offer. Second, the restriction does not apply where the product or service is exclusively available with that specific company. There is no specific share capital amount applicable to the RHQ by statute or rule. However, a designated share capital sufficient to cover the costs of the first year of operations would be recommended. Recent refinements to RHQ guidelines clarify sub - stance requirements, qualifying operational activities, and minimum staffing expectations. Authorities have also reinforced enforcement measures by confirm - ing that government entities may not contract with non-RHQ multinational companies unless statutory exemptions apply. Saudi Arabia’s Anti-Concealment Law Saudi Arabia’s Anti-Concealment Law aims to prevent practices that circumvent foreign investment laws by targeting arrangements where a business is formally owned by Saudi nationals, but the actual economic beneficiary is a foreign party. The Anti-Concealment Law establishes strict prohibitions to uphold trans - parency and integrity in the Saudi Arabian market. Examples of prohibited activities under the law include granting non-Saudis absolute control over a Saudi- owned establishment, allowing non-Saudis to unlaw - fully assume authority to operate or benefit from such establishments, and the use of a bank account by an establishment that is not its rightful owner. These measures are aimed at eliminating economic conceal - ment practices and ensuring compliance with Saudi Arabia’s investment regulations. Changes in the Registered Commercial Agency Law A pivotal change is Saudi Arabia’s recent announce - ment to relax the eligibility criteria for agency activities, permitting foreign entities outside the Gulf Coopera - tion Council (GCC) to operate as commercial agents or distributors in Saudi Arabia. Currently, commercial agency roles are exclusive to Saudi Arabian nationals and GCC citizens. Under the new provisions, inter - national businesses can establish or invest in local agencies and distributorships, provided they obtain the requisite licences from MISA and the Ministry of Commerce and Industry.
534 CHAMBERS.COM
Powered by FlippingBook