Publications – Page 4 – Hammad & Al-Mehdar Law Firm

Technology and International Arbitration

Posted on February 28, 2024 - 11:40 am by perpetual-admin

International arbitration has long been the preferred method of dispute resolution for businesses engaged in cross-border transactions. It offers a neutral forum, flexibility, and the ability to select experienced arbitrators. However, the rapid advancement of technology has significantly impacted the landscape of international arbitration, raising essential questions about its role as a friend or foe in this legal process. We explore the intricate relationship between technology and international arbitration, shedding light on the legal elements businesses must consider in navigating this evolving terrain.

The Impact of Technology on International Arbitration

Online Dispute Resolution (ODR)

With the digitalization of international arbitration, ODR platforms have emerged as an alternative to traditional in-person hearings. ODR can streamline the arbitration process, making it more efficient and cost-effective. It allows parties to submit documents, present evidence, and conduct hearings via online platforms. However, businesses must consider issues related to data security, confidentiality, and the enforceability of ODR awards in different jurisdictions.

E-Discovery

The proliferation of electronic data has made e-discovery a critical component of international arbitration. Parties are often required to produce vast amounts of electronic documents. Businesses must be well-prepared to manage and disclose electronic evidence, considering privacy and data protection regulations.

AI and Predictive Analytics

Artificial intelligence (AI) and predictive analytics can revolutionize international arbitration. AI tools can assist in legal research, case analysis, and predicting outcomes. However, parties must ensure that the use of AI in arbitration complies with applicable rules and addresses questions about transparency and accountability.

Blockchain Technology

Blockchain technology is being explored for its potential to improve transparency and security in international arbitration. Smart contracts and blockchain-based record-keeping can help automate certain arbitration agreements and awards aspects. Businesses need to consider the legal recognition of blockchain-based evidence and its implications for dispute resolution.

Virtual Reality (VR) and Augmented Reality (AR)

VR and AR technologies recreate crime scenes, accident sites, and other physical environments relevant to a dispute. While these technologies can enhance the presentation of evidence, they may also introduce issues of authenticity, admissibility, and the potential for manipulation.

Legal Elements to Consider

Choice of Arbitration Rules and Procedures

When incorporating technology into international arbitration, businesses must carefully select the arbitration rules and procedures that best suit their needs. Many arbitration institutions have specific rules for ODR or technology-related disputes, and parties should ensure they choose the most appropriate ones.

Data Privacy and Security

Given the sensitivity of the data involved in international arbitration, businesses must comply with data protection laws and ensure that sensitive information is securely handled throughout the arbitration process.

Enforceability of Awards

As technology is integrated into arbitration, it’s essential to consider the enforceability of awards in different jurisdictions. Some countries may have specific requirements for recognizing and enforcing awards from technology-related disputes.

Ethical and Transparency Considerations

The use of AI, blockchain, and other technologies must align with ethical and transparency standards. Arbitrators and parties should be transparent about the use of technology and ensure that it does not compromise due process or fairness.

Expert Witnesses

Technology disputes often require expert witnesses who can testify on complex technical matters. Selecting qualified experts and preparing them for arbitration proceedings is crucial.

Costs and Efficiency

While technology can increase efficiency and reduce costs, it may also introduce new expenses, such as the need for tech-savvy professionals and custom software development. Businesses should carefully weigh the overall costs and benefits.

Saudi Arabia has been actively enhancing its legal framework and infrastructure to support international arbitration. As a result, new technology-related considerations are emerging in the context of international arbitration within the country. Here are some key details regarding technology and international arbitration considerations in Saudi Arabia:

The Saudi Center for Commercial Arbitration (SCCA): The SCCA, established in 2014, plays a central role in the administration of commercial arbitrations in Saudi Arabia. It has adopted modern technology solutions to facilitate arbitration proceedings, including online case management systems, electronic document submission, and virtual hearings.

Online Dispute Resolution (ODR): Saudi Arabia is increasingly embracing ODR methods, which allow parties to participate in arbitration proceedings without physical presence. This is particularly beneficial for international disputes where parties may be in different countries. The SCCA has introduced ODR platforms that adhere to international standards for security and confidentiality.

Data Privacy and Security: With the growing use of technology in arbitration, concerns about data privacy and security have become more pronounced. Saudi Arabia has established data protection laws and regulations, and parties to international arbitrations must ensure compliance with these rules when handling personal data and sensitive information.

E-filing and E-discovery: Electronic filing and e-discovery tools have become more prevalent in Saudi Arabian arbitration proceedings. This includes the submission of electronic evidence and the management of large volumes of digital data. Parties should have robust procedures in place to handle electronic evidence in a manner that respects the country’s privacy and data protection laws.

Blockchain and Smart Contracts: Saudi Arabia is exploring the use of blockchain technology and smart contracts in various industries, including international trade. In arbitration, blockchain can be used for secure record-keeping, and smart contracts can automate the execution of arbitration agreements and awards. The legal recognition and enforcement of blockchain-based evidence and smart contracts should be carefully considered.

AI and Predictive Analytics: The adoption of AI and predictive analytics for legal research and case analysis is on the rise in Saudi Arabia. These technologies can assist in streamlining the arbitration process and making it more efficient. However, their use should comply with relevant legal and ethical standards.

Cybersecurity and Compliance: Given the increasing reliance on technology, cybersecurity measures are of paramount importance. Parties and arbitrators should invest in robust cybersecurity measures to protect sensitive data and ensure compliance with Saudi Arabian laws and regulations.

International Arbitration Centers: In addition to the SCCA, there are other international arbitration centers in the region, such as the Dubai International Arbitration Centre (DIAC) and the Qatar International Court and Dispute Resolution Centre (QICDRC). Saudi businesses involved in cross-border transactions may have the option to choose the arbitration centre that best suits their needs, which may have varying technological capabilities and procedures.

Saudi Arabia is adapting to the integration of technology into international arbitration, and businesses need to be aware of the evolving landscape. This includes considerations related to data privacy, the use of ODR, e-discovery, blockchain, and AI, as well as the adoption of virtual hearings and cybersecurity measures. Staying informed about the latest developments in Saudi Arabian arbitration and being technologically prepared can contribute to successful international arbitration proceedings in the country.

While technology can enhance efficiency and streamline the arbitration process, it also brings new legal challenges and uncertainties. To successfully navigate this evolving landscape, businesses need to stay informed about the latest developments in technology and international arbitration, carefully consider the legal elements discussed above, and adapt their strategies accordingly. Ultimately, embracing technology while being mindful of the potential legal pitfalls can help businesses make the most of this evolving landscape of international dispute resolution, whether in Saudi Arabia or other jurisdictions around the world.

Navigating the Legal Maze: Debt Restructuring in Saudi Arabia

Posted on February 11, 2024 - 12:35 pm by perpetual-admin

Debt restructuring is a complex financial process that involves altering the terms and conditions of existing debt agreements to relieve financially distressed companies or individuals. Like many other countries in Saudi Arabia, debt restructuring plays a crucial role in stabilising the financial health of businesses and individuals facing economic challenges. However, understanding the legal aspects of debt restructuring in Saudi Arabia is paramount to ensure the process complies with local regulations. This article will explore the legal intricacies of debt restructuring in the Kingdom of Saudi Arabia, shedding light on the key regulations and processes governing this critical financial tool.

The Legal Framework

The legal framework for debt restructuring in Saudi Arabia is primarily governed by the Bankruptcy Law, enacted in 2018 as part of the kingdom’s efforts to modernise its legal system and promote economic growth. This law is a significant milestone in Saudi Arabia’s commercial legal landscape, as it provides a comprehensive framework for addressing financial distress and insolvency situations.

Key Features of the Bankruptcy Law:

Court-Supervised Proceedings: Debt restructuring in Saudi Arabia typically involves court-supervised proceedings. A debtor seeking to restructure its debt must initiate legal proceedings in a competent court.

Specialised Committees: The law establishes specialised committees within the courts to oversee debt restructuring cases. These committees comprise judges with expertise in commercial matters, which helps ensure that the restructuring process is conducted fairly and efficiently.

Protection from Creditors: Once a debtor initiates debt restructuring proceedings, an automatic stay is imposed on creditors, preventing them from taking legal actions, such as foreclosing on assets or creating lawsuits against the debtor during the restructuring process.

Rehabilitation Plans: Debtors must submit a rehabilitation plan outlining how to restructure their debts and regain financial stability. The court must approve this plan and ensure that creditors are treated fairly and equitably.

Creditor Rights: The law recognises creditors’ rights and provides mechanisms for them to participate in the restructuring process. Creditors have the right to challenge the debtor’s rehabilitation plan if they believe it is unfair or does not adequately protect their interests.

Cross-Border Insolvency: The Bankruptcy Law also addresses cross-border insolvency cases, allowing cooperation with foreign jurisdictions in cases involving entities with assets or creditors in multiple countries.

Challenges and Considerations

While the Bankruptcy Law provides a comprehensive legal framework for debt restructuring in Saudi Arabia, there are still challenges and considerations to be aware of:

Cultural Factors: Saudi Arabia’s legal system is influenced by Islamic law (Sharia), which can impact how debt restructuring is perceived and conducted. Understanding these cultural nuances is essential for successful negotiations.

Enforcement of Judgments: While the legal framework for debt restructuring is in place, the actual enforcement of court judgments can sometimes be challenging, and the process may be time-consuming.

Regulatory Changes: The legal landscape is subject to change, so staying updated on any amendments or additions to the bankruptcy and restructuring laws is crucial.

Negotiation and Mediation: Parties involved in debt restructuring are encouraged to consider negotiation and mediation as alternative methods to resolve disputes and reach mutually agreeable solutions.

Debt restructuring is vital for businesses and individuals in Saudi Arabia facing financial distress. The legal framework provided by the Bankruptcy Law offers a structured and transparent process for debtors and creditors to work together to find solutions. However, navigating the intricacies of debt restructuring in Saudi Arabia requires a deep understanding of the legal framework, cultural context, and a commitment to fair and equitable negotiations. By adhering to the legal guidelines and considering the challenges and considerations discussed in this article, stakeholders can effectively manage debt-related issues and contribute to the kingdom’s economic growth and stability.

Artificial Intelligence and Ethics: Navigating the Legal Landscape for Businesses

Posted on February 11, 2024 - 12:32 pm by perpetual-admin

Artificial Intelligence (AI) has rapidly become an integral part of our daily lives, revolutionising industries and transforming how we work, communicate, and interact with technology. With this rapid advancement comes a pressing need to consider AI’s ethical and legal implications, particularly for businesses that develop, deploy, or utilise AI technologies. This article explores the ethical dimensions of AI and the complex legal landscape that businesses must navigate to ensure they comply with existing regulations while promoting responsible AI development and deployment.

Bias and Fairness

One of the primary ethical concerns with AI is bias and fairness. AI systems are often trained on historical data, which may contain biases. These biases can lead to discriminatory outcomes, particularly in hiring, lending, and criminal justice. Businesses must be vigilant in identifying and mitigating bias within their AI algorithms to ensure fair and equitable outcomes.

Privacy and Data Security

AI systems often rely on vast amounts of data to function effectively. Collecting, storing, and processing this data raises significant privacy and security concerns. Businesses must implement robust data protection measures to safeguard user’s personal information and comply with privacy regulations such as the Personal Data Protection Law in Saudi Arabia.

Accountability and Transparency

The opacity of AI algorithms poses ethical challenges. Users, employees, and stakeholders often demand transparency in AI decisions. Businesses must provide explanations and establish mechanisms for accountability to build trust and ensure that AI decisions are justifiable and understandable.

Job Displacement and Economic Impact

The widespread adoption of AI can lead to job displacement in some sectors, raising ethical concerns about the economic impact on workers and communities. Businesses must consider workforce retraining and job displacement policies to mitigate these concerns.

Saudi Arabia’s AI Landscape:

Saudi Arabia is swiftly establishing itself as a significant player in artificial intelligence (AI), driven by the ambitious Vision 2030 plan and a growing commitment to technological innovation. Vision 2030 strongly emphasises technology, with AI considered a strategic enabler to diversify the economy and reduce oil dependency.

To support this vision, Saudi Arabia has invested in research and education, nurturing AI talent through universities and research institutions engaged in AI-related research and introducing programs dedicated to machine learning and AI. Additionally, the country has been fostering a startup ecosystem, with numerous AI startups emerging, focusing on diverse applications such as healthcare, finance, and robotics.

The healthcare sector in Saudi Arabia is increasingly turning to AI for diagnostic purposes, predictive analytics, and personalised medicine. The government recognises AI’s potential to enhance healthcare services and patient outcomes, actively promoting its adoption. In the financial sector, AI and machine learning improve customer experiences, enhance fraud detection, and automate various banking and insurance processes.

Public services also benefit from AI implementation, streamlining administrative processes, enhancing government services, and improving public safety. As AI adoption grows, Saudi Arabia is addressing the associated ethical and regulatory considerations, developing frameworks to ensure responsible AI use and data privacy protection.

Collaborations with international tech giants have driven AI innovation, encompassing research partnerships, investments, and technology transfer agreements. Furthermore, significant investments in AI infrastructure, including data centres and cloud computing resources, have been made to support AI development and deployment.

Saudi Arabia’s ambitious plans for smart cities rely on AI to optimise urban services, transportation, and energy management. Beyond civilian applications, AI is being explored for defence and security purposes, including surveillance, threat detection, and cybersecurity.

In education, AI technologies are enhancing the educational experience, offering personalised learning and online education platforms. In summary, Saudi Arabia’s embrace of AI, as part of Vision 2030, is propelling the nation into the forefront of AI innovation across diverse sectors. Saudi Arabia is poised to advance technologically and diversify its economy through investments, collaborations, and a commitment to responsible AI.

As Saudi Arabia strives to leverage AI technologies in alignment with its Vision 2030 plan, businesses in the region face immense opportunities and the responsibility to address significant ethical and legal challenges. Proactive engagement with evolving legal frameworks, implementing ethical guidelines, and cultivating a culture of transparency and accountability are essential for navigating the intricate landscape of AI and ethics while ensuring compliance with the law and building trust among stakeholders.

The Legal Landscape

When using artificial intelligence (AI) in Saudi Arabia, several legal laws and regulations must be considered and adopted to ensure compliance and responsible AI use.

Data Protection Laws: Saudi Arabia has data protection laws that regulate the collection, processing, and storage of personal data. Ensure that AI systems handling personal data comply with these laws to protect individuals’ privacy.

Intellectual Property Laws: Understand intellectual property laws to ensure that AI innovations and developments are protected through patents, copyrights, or trade secrets as appropriate.

Contractual Agreements: When using AI in business operations, it’s crucial to have clear contractual agreements that outline the roles, responsibilities, and liabilities of all parties involved, including AI service providers.

Regulatory Compliance: Depending on the industry, specific regulatory bodies may have requirements related to AI use. Ensure compliance with sector-specific regulations such as financial regulations for AI in banking.

Ethical and Fair AI Principles: Consider adopting ethical and fair AI principles, which may not be legally mandated but are essential for responsible AI use. These principles encompass issues like bias mitigation and transparency.

Consumer Protection Laws: Be aware of consumer protection laws, especially when using AI in products or services that directly impact consumers. Ensure that AI systems do not engage in deceptive practices.

Labour Laws: Address the potential impact of AI on employment and labour laws. Ensure that labour regulations manage workforce displacement or changes due to AI.

Cybersecurity Laws: Cybersecurity laws and regulations should be followed to protect AI systems from cyber threats and ensure data security.

Anti-Discrimination Laws: Prevent AI systems from engaging in discriminatory practices that could violate anti-discrimination laws, such as those related to gender, race, or religion.

Liability and Accountability: Determine liability and accountability frameworks for AI systems. This includes establishing who is responsible if an AI system mistakes or causes harm.

International Trade Laws: If AI is used in international trade, consider trade laws, tariffs, and export controls that may apply to AI-related technologies.

Government Approvals and Licensing: Depending on the application of AI, certain government approvals or licenses may be required before deployment. This can be particularly relevant in critical sectors like healthcare.

Cross-Border Data Transfer: If AI systems involve data transfer across borders, consider data localisation requirements and international data transfer regulations.

In a world increasingly shaped by artificial intelligence (AI), we find ourselves at a crossroads where the rapid evolution of technology necessitates a profound consideration of its ethical and legal implications. AI has seamlessly woven into our daily lives, transforming industries, redefining our interactions with technology, and opening doors to endless possibilities. However, with these revolutionary advancements comes a critical responsibility, especially for businesses that develop, deploy, or harness AI technologies.

As Saudi Arabia embarks on its AI journey, businesses within the region must navigate this intricate landscape with diligence, understanding that compliance with legal regulations and ethical principles is paramount. In doing so, they uphold their responsibilities and contribute to the responsible and sustainable growth of AI within the nation.

Legal Considerations for Smart Cities in Saudi Arabia

Posted on February 1, 2024 - 5:17 pm by perpetual-admin

As the world becomes increasingly interconnected and reliant on technology, the concept of smart cities has gained momentum. Smart cities leverage technology and data to enhance urban living, improve efficiency, and promote sustainability. In Saudi Arabia, the government is actively pursuing the development of smart cities, such as Neom and the King Salman Energy Park, to drive economic growth and improve quality of life. However, establishing and operating smart cities in Saudi Arabia involves a complex web of legal considerations that businesses and stakeholders must navigate. We explore the legal elements businesses need to consider when participating in developing smart cities in Saudi Arabia.

Regulatory Framework

Smart cities in Saudi Arabia are subject to a comprehensive regulatory framework, including laws, regulations, and policies set by various government agencies. Businesses should familiarise themselves with the regulations governing urban planning, land use, data privacy, intellectual property, and more. The Saudi Arabian government has established several authorities, including the Saudi Data and Artificial Intelligence Authority (SDAIA), to oversee data-related aspects of smart cities.

Data Privacy and Cybersecurity

The collection and utilisation of massive amounts of data are fundamental to the functioning of smart cities. Businesses must comply with the Kingdom’s data privacy laws, such as the Saudi Data Protection Law, which governs the collection and processing of personal data. Adequate cybersecurity measures are essential to protect sensitive data, and businesses must align with the National Cybersecurity Authority’s (NCA) guidelines to ensure digital infrastructure security.

Intellectual Property Rights

Innovation and technological advancement are critical components of smart cities. Businesses engaged in research and development activities within these cities should be aware of intellectual property laws, ensuring the protection of their inventions, patents, and copyrights. Consultation with legal experts can help businesses navigate intellectual property rights and avoid infringement issues.

Real Estate and Land Use

Real estate development and land use regulations are central to smart city projects. Businesses must work within the framework established by the Ministry of Municipal and Rural Affairs and Housing (MOMRA). They should consider issues related to land acquisition, zoning, and permits to ensure their projects comply with local regulations.

Environmental Compliance

Sustainability and environmental concerns are paramount in the development of smart cities. Businesses must adhere to environmental regulations set by the Presidency of Meteorology and Environment (PME) and ensure their projects incorporate eco-friendly practices and technologies. Compliance with these regulations is crucial to obtaining necessary permits and licenses.

Infrastructure and Utilities

Smart cities rely on advanced infrastructure and utility services. Businesses must coordinate with government agencies responsible for public services, such as the Ministry of Communications and Information Technology (MCIT) and the Ministry of Water and Electricity (MEW), to ensure the availability of essential services for residents and businesses.

Contractual Agreements

Contracts are fundamental to the relationships among stakeholders in smart city projects. Legal experts should draft comprehensive agreements that cover various aspects, including project timelines, responsibilities, financial obligations, and dispute resolution mechanisms. Contracts may involve multiple parties, including government entities, developers, and technology providers.

Dispute Resolution

In the event of disputes or legal issues, businesses must be prepared to navigate the Saudi Arabian legal system. Understanding the mechanisms for dispute resolution, including arbitration and litigation, is crucial for a swift and fair resolution.

Employment and Labour Laws: Labour laws may adapt to accommodate the changing nature of work within smart cities. These could encompass regulations for remote work, digital skills training, and the rights of employees in technology-driven environments.

It is essential for businesses, investors, and stakeholders interested in smart city projects in Saudi Arabia to stay up to date with the latest legal developments and engage with local legal experts who have a deep understanding of the evolving legal landscape. Additionally, collaborating with government authorities and regulatory bodies in the smart city domain can help ensure compliance with new and emerging regulations as the concept of smart cities continues to grow in the region.

In the rapidly evolving landscape of smart city development in Saudi Arabia, new legal considerations and regulatory changes have emerged, shaping how businesses and stakeholders navigate the intricacies of these technologically advanced urban ecosystems. The development of smart cities offers significant opportunities for businesses across various sectors, including technology, real estate, and infrastructure development. However, the legal landscape remains complex and multifaceted. To ensure the successful and sustainable operation of smart city projects, it is imperative for businesses to engage experienced legal counsel, fully grasp the evolving regulatory framework, and diligently comply with requirements related to data privacy, intellectual property, land use, environmental standards, and other pertinent legal aspects. As smart cities in Saudi Arabia continue to advance, staying informed about legal developments and actively engaging with relevant government authorities will be critical for long-term success in this exciting field.

Navigating Commercial Contracts in Saudi Arabia Key Considerations for Businesses

Posted on February 1, 2024 - 5:16 pm by perpetual-admin

With its rapidly growing economy and strategic location in the Middle East, Saudi Arabia has become an attractive destination for businesses looking to expand their global footprint. However, entering the Saudi Arabian market requires a thorough understanding of the local legal landscape, especially regarding commercial contracts. We explore the key considerations businesses need to consider when navigating commercial contracts in Saudi Arabia.

Legal Framework

Understanding the legal framework is crucial when entering any foreign market, and Saudi Arabia is no exception. Saudi Arabia follows a civil law system heavily influenced by Islamic law (Sharia). The legal system in Saudi Arabia is codified, with commercial matters governed primarily by the Saudi Arabian Commercial Code. Businesses must have a solid grasp of these legal foundations to ensure their commercial contracts comply with local regulations.

Contractual Formalities

In Saudi Arabia, written contracts are not always mandatory for an agreement to be legally binding. However, having a written contract in place is highly recommended to avoid potential disputes. Written contracts should be in Arabic, the country’s official language, but having an English translation is also advisable. The contract should clearly outline the terms and conditions of the agreement, including payment terms, delivery schedules, and dispute resolution mechanisms.

Local Partner or Agent

Many foreign businesses choose to enter the Saudi Arabian market through a local partner or agent, often a legal requirement in certain sectors. When entering into a partnership or agency agreement, conducting due diligence on your local partner is vital to ensure they have a good reputation and are financially stable. The terms of the partnership should be carefully negotiated and documented in a legally enforceable contract.

Dispute Resolution

In a dispute, businesses need to be aware of the available dispute resolution mechanisms in Saudi Arabia. The traditional court system is an option, but alternative methods like arbitration are often preferred due to their efficiency and impartiality. It’s crucial to include a dispute resolution clause in your contract specifying the chosen method and the jurisdiction where disputes will be resolved.

Intellectual Property Protection

Protecting intellectual property (IP) is crucial for businesses operating in Saudi Arabia. Ensure that your contracts include provisions for protecting your IP rights, including trademarks, patents, and copyrights. Registering your IP in Saudi Arabia can provide additional legal safeguards.

Governing Law and Jurisdiction

When drafting commercial contracts, it is common to specify the governing law and jurisdiction. In Saudi Arabia, contracts often stipulate that Saudi law will govern the agreement, with disputes subject to Saudi Arabian courts. This choice of law and jurisdiction should align with your business’s interests and risk assessment.

Tax and Customs

Understanding the tax and customs regulations in Saudi Arabia is essential for businesses engaged in international trade. Ensure that your contract addresses tax-related matters, including VAT and customs duties, to avoid unexpected financial burdens.

Cultural Sensitivity

Saudi Arabia has a unique cultural and business environment. Being culturally sensitive and respectful is paramount when negotiating and executing commercial contracts. Building strong relationships and demonstrating an understanding of local customs and etiquette can significantly impact the success of your business endeavours in the country.

Compliance with Local Regulations

Saudi Arabia has specific regulations and requirements for various industries, such as healthcare, finance, and energy. Ensuring that your commercial contracts comply with sector-specific regulations and licensing requirements is essential.

Legal Assistance

Navigating the complexities of commercial contracts in Saudi Arabia can be challenging, especially for foreign businesses. Seeking legal assistance from local experts well-versed in Saudi Arabian law is highly recommended. They can provide valuable guidance, draft contracts that comply with local regulations, and help you navigate legal challenges.

Entering the Saudi Arabian market presents significant business opportunities but also involves legal and cultural complexities. To succeed in this market, businesses must carefully consider the key factors outlined in this article, seek professional legal advice, and approach their commercial contracts with a thorough understanding of the local legal landscape and business culture. Businesses can mitigate risks, establish strong partnerships, and position themselves for success in the dynamic Saudi Arabian market.

Digital Health and Telemedicine Regulations: Navigating the Legal Landscape

Posted on January 22, 2024 - 5:23 pm by perpetual-admin

The digital health and telemedicine landscape has radically transformed in recent years, driven by cutting-edge technologies and an increasing demand for remote healthcare services. While these innovations promise to revolutionise healthcare, businesses in this field must navigate a complex web of regulations to ensure compliance. We provide an overview of the legal elements businesses must consider when venturing into the digital health and telemedicine world in Saudi Arabia.

Saudi Arabia’s National E-Health Strategy: Pioneering a Health Revolution

Saudi Arabia’s National E-Health Strategy is a visionary blueprint for transforming the country’s healthcare sector. This strategy is not merely a policy document; it represents a profound commitment to integrating digital technologies seamlessly into healthcare services, ensuring that citizens and residents receive efficient, accessible, and patient-centric care.

At the core of this transformative strategy lies the Digital Health Platform known as SEHATY. This innovative platform is designed to provide individuals with unparalleled healthcare access. Through SEHATY, users can access a broad spectrum of healthcare offerings, including telemedicine consultations, electronic health records (EHRs), e-prescriptions, and even convenient appointment scheduling—all available through an intuitive and user-friendly mobile application. SEHATY’s introduction has ushered in a new era of healthcare convenience, allowing individuals to manage their health easily.

Telemedicine Services: The Digital Lifeline

Telemedicine services have emerged as a lifeline within Saudi healthcare, particularly in remote and underserved regions. The Saudi Ministry of Health has proactively promoted telemedicine to bridge the geographical gaps in healthcare access. The ability to provide remote consultations and healthcare services has enhanced patient care and made healthcare more accessible, particularly for those who previously faced geographical barriers.

Electronic Health Records (EHRs): A Digital Revolution for Healthcare Data

Adopting Electronic Health Records (EHRs) is pivotal to Saudi Arabia’s digital health strategy. By digitising and centralising health records, the healthcare sector is on the cusp of a transformative shift. EHRs promise to enhance the accuracy and accessibility of patient information, streamline healthcare processes, and significantly improve care coordination among various healthcare providers. This technological leap is expected to enhance the overall quality of healthcare delivery in the Kingdom.

Regulatory Framework: Ensuring Compliance and Patient Safety

Regulatory compliance is essential for businesses operating in the Saudi digital health and telemedicine market. The Saudi Food and Drug Authority (SFDA) plays a central role in this regulatory landscape, overseeing digital health products, including medical devices and software applications. Businesses must navigate SFDA regulations meticulously to guarantee patient safety, data security, and the legal operation of their digital health solutions. Building trust with patients and healthcare providers through compliance is paramount to success in this burgeoning field.

Health Information Exchange: The Power of Data Interoperability

Interoperability and health information exchange are fundamental components of Saudi Arabia’s digital health ecosystem. Establishing standardised data exchange protocols is vital for seamlessly sharing patient information among healthcare providers. This interoperability improves care coordination and facilitates data-driven decision-making, leading to better patient outcomes.

Health Apps and Wearables: Empowering Health Management

Mobile health applications and wearable devices are rapidly gaining popularity among Saudi citizens, enabling individuals to take proactive control of their health and wellness. The government actively encourages the use of these tools to promote healthier lifestyles and facilitate the self-monitoring of health metrics. As these technologies evolve, they are expected to play a more significant role in preventative healthcare and remote patient monitoring.

Health Tech Startups: Pioneering Innovation

Saudi Arabia is experiencing a thriving ecosystem of health tech startups, each pioneering innovations in various domains within the digital health space. From telemedicine and health data analytics to medication delivery and remote monitoring solutions, these startups are shaping the future of healthcare in the Kingdom. Their contributions are essential in driving innovation and addressing specific healthcare challenges unique to Saudi Arabia.

International Collaborations: Tapping into Global Expertise

The Saudi government actively collaborates with international organisations, governments, and tech companies to harness global expertise and resources. These partnerships facilitate knowledge exchange and provide access to cutting-edge technologies, ensuring that Saudi Arabia remains at the forefront of digital health advancements.

Saudi Arabia’s digital health and telemedicine landscape is experiencing an unprecedented transformation fueled by visionary initiatives, robust regulatory frameworks, and innovative technologies. Businesses entering this dynamic sector must be well-prepared to navigate the regulatory landscape while seizing opportunities within the evolving healthcare ecosystem. As the Kingdom continues to embrace digital health, it positions itself as a leader in healthcare innovation and accessibility, benefiting both its citizens and residents. The journey towards a digitally empowered healthcare future is underway in Saudi Arabia, promising improved healthcare access, efficiency, and patient-centric care.

Fostering Diversity in International Arbitration: A Global Imperative with a Local Perspective

Posted on January 22, 2024 - 5:20 pm by perpetual-admin

International arbitration has long stood as the preferred method for resolving disputes in the business world, offering a private and efficient alternative to litigation in national courts. However, the field of international arbitration faces a growing concern: the lack of diversity among arbitrators and counsel. This article explores the pressing need for diversity in international arbitration, and the legal elements businesses must consider to address this issue. Moreover, it highlights Saudi Arabia’s proactive commitment to fostering diversity and inclusivity in international arbitration.

The Importance of Diversity in International Arbitration

Diversity in international arbitration refers to including individuals from various backgrounds, such as gender, race, nationality, age, and expertise, in the selection of arbitrators and legal counsel. While progress has been made in recent years, the field still lags in achieving a representative and balanced composition. Several compelling reasons underscore the importance of diversity in international arbitration:

Enhancing Legitimacy: A diverse panel of arbitrators and counsel ensures that different perspectives and experiences are considered when making decisions. This, in turn, increases the perceived fairness and legitimacy of the arbitration process.

Improving Decision-Making: Diverse teams often lead to more comprehensive and well-reasoned decisions. Different cultural and legal perspectives can uncover nuances that homogenous groups might overlook, ultimately leading to more informed outcomes.

Nurturing Inclusivity: A diverse international arbitration community fosters inclusivity, welcoming individuals from all backgrounds. This inclusivity benefits practitioners and the parties involved in disputes, promoting equal access to justice.

Addressing Unconscious Bias: Diverse panels and counsel help combat unconscious bias, which can manifest in many ways, including selecting arbitrators and treating parties. A diverse group brings a broader perspective, reducing the impact of bias.

Legal Elements to Consider

To address the issue of diversity in international arbitration, businesses need to consider several legal elements:

Arbitration Agreements: When drafting arbitration agreements, businesses can include clauses that promote diversity in the selection of arbitrators. Such clauses may specify that the arbitration institution must consider diversity when appointing arbitrators or require that at least one arbitrator be of a different gender or nationality.

Selection of Arbitrators: Parties can proactively select arbitrators by considering diversity when nominating candidates. They can also request that the arbitration institution provide a diverse list of potential arbitrators.

Arbitrator Guidelines: Arbitral institutions, law firms, and businesses can develop guidelines for arbitrator selection that emphasise diversity. These guidelines can set out specific criteria for nominating arbitrators and encourage more excellent representation of underrepresented groups.

Data Collection: Collecting data on the diversity of arbitrators and legal teams involved in arbitrations can help identify trends and areas needing improvement. This data can be used to hold institutions, law firms, and businesses accountable for their diversity efforts.

Equal Representation in Legal Teams: Businesses can encourage firms to maintain diverse legal teams for international arbitration cases. This ensures that diversity is not limited to the tribunal but extends to the legal counsel representing the parties.

Training and Education: Ongoing training and education can help raise awareness about the importance of diversity and provide tools to combat bias. Arbitral institutions and legal organisations can offer diverse training programs to practitioners.

Transparency and Reporting: Parties, institutions, and law firms should be transparent about their diversity efforts and report their progress in promoting diversity in international arbitration. Transparency can drive accountability and motivate change.

Challenges and Progress in Saudi Arabia

Challenges remain while progress has been made globally in promoting diversity in international arbitration. Some stakeholders may resist change, and unconscious biases can be deeply ingrained. However, Saudi Arabia has demonstrated a proactive commitment to addressing diversity and inclusivity in the field of international arbitration, with a particular focus on ensuring a balanced and representative composition of arbitration panels and legal practitioners.

Arbitrator Appointments: Saudi Arabia recognises the importance of diversity in international arbitration appointments. Initiatives are underway to ensure a broader and more diverse pool of arbitrators, including increased representation of Saudi women and practitioners from diverse backgrounds.

Inclusion of Women Arbitrators: Saudi Arabia has made significant progress in increasing the participation of women in various sectors, including law and arbitration. Highly qualified Saudi women now serve as arbitrators in international disputes, contributing to greater diversity.

Legal Framework: Saudi Arabia is modernising its legal framework to promote gender equality and inclusivity in international arbitration. This includes reviewing and amending existing arbitration laws and regulations.

Arbitral Institutions: Saudi arbitral institutions, such as the Saudi Center for Commercial Arbitration (SCCA), have adopted policies and guidelines to ensure equal opportunities for all arbitrators, regardless of gender or background.

Training and Awareness: Training programs and awareness initiatives in Saudi Arabia educate legal practitioners and stakeholders about the importance of diversity and inclusivity in international arbitration, including gender equality and diversity-related issues.

Reporting and Accountability: Saudi arbitration stakeholders are increasingly focused on collecting data and reporting on the composition of arbitration panels. These efforts highlight progress and underscore the commitment to achieving greater diversity.

Diversity in international arbitration is not only a moral imperative but also a legal and practical necessity. By considering the legal elements outlined in this article, businesses can significantly drive the change needed to achieve a more diverse and inclusive international arbitration community. This transformation will benefit the field and enhance the credibility and fairness of international dispute resolution processes. It is a call for change that businesses should heed and embrace for a more equitable and effective global arbitration system globally and in Saudi Arabia.

Unlocking Opportunities: Navigating Saudization for Foreign Companies in Saudi Arabia

Posted on January 17, 2024 - 3:33 pm by perpetual-admin

Saudization, officially known as the Saudi nationalisation scheme or Nitaqat, is a crucial policy initiative introduced by the Kingdom of Saudi Arabia (KSA) to promote the employment of Saudi nationals in both the public and private sectors. This ambitious program seeks to reduce unemployment rates among Saudi citizens, enhance their skill sets, and reduce the nation’s dependence on foreign labour. In this comprehensive analysis, we will delve into the various categories and quotas for employing Saudi nationals under Saudization, explore the legal implications for foreign companies, provide strategies for attracting and retaining Saudi talent, and discuss the implications of non-compliance.

Saudization Categories and Quotas

Saudization’s implementation of different categories and quotas serves as a nuanced approach to addressing the diverse needs and capacities of various businesses operating in Saudi Arabia. These categories and quotas consider each company’s size, sector, and historical Saudization performance. By tailoring requirements to specific circumstances, the program aims to balance incentivising businesses to employ Saudi nationals and acknowledging that the transition towards a more localised workforce might be gradual for some industries. In doing so, Saudization encourages companies to progressively increase their Saudi workforce, ensuring that both small and large enterprises can actively contribute to the program’s overarching goal of reducing unemployment among Saudi citizens and strengthening the nation’s labour market. The categories include:

Premium Category: This category includes companies that have achieved the highest Saudization levels. Such companies are compliant with the program’s requirements and exceed them, typically having a Saudi workforce of 50% or more.

Green Category: Companies in this category fully comply with Saudization requirements, with a Saudi workforce percentage ranging from 15% to 49%.

Yellow Category: Yellow category companies are partially compliant, with Saudization percentages ranging from 5% to 14%. They are subject to stricter monitoring and may face penalties if they do not improve their Saudization levels.

Red Category: Companies in this category have the lowest Saudization levels, with a Saudi workforce percentage below 5%. These companies face significant penalties, including fines, visa restrictions, and the suspension of services provided by the Ministry of Labor and Social Development.

Legal Implications of Saudization

The legal implications of Saudization are significant and multifaceted for foreign companies operating in Saudi Arabia. These implications primarily revolve around adherence to Saudi labour laws and regulations related to Saudization requirements. Non-compliance can result in legal consequences such as fines, penalties, and restrictions on foreign employees obtaining work visas. Ensuring employment contracts align with Saudization requirements is also crucial, as failure to do so may lead to legal disputes. Therefore, foreign companies must engage legal experts well-versed in Saudi labour laws to navigate these complexities and maintain full compliance, safeguarding their operations in the Saudi market and avoiding potential legal challenges. Businesses need to consider the following:

Labour Law Compliance: Companies must adhere to Saudi Arabia’s labour laws and regulations related to Saudization, as non-compliance can result in legal action, including fines and penalties.

Visa Regulations: Failure to comply with Saudization requirements may restrict obtaining work visas for foreign employees, affecting workforce planning and recruitment.

Contractual Obligations: Companies should review and update employment contracts to align with Saudization requirements, ensuring that Saudi nationals are adequately represented.

Benefits of Saudization for Companies

The benefits of Saudization are multifaceted and extend to Saudi society and foreign companies operating in the Kingdom. Saudization offers increased employment opportunities, reduced unemployment rates, and improved economic prospects for the Saudi population. It aims to enhance the skill sets of Saudi nationals, empowering them to contribute effectively to the workforce and the country’s economic growth. For foreign companies, Saudization provides access to a burgeoning market with a growing consumer base, helping them establish a more robust regional presence. It also fosters a positive corporate image, as local stakeholders and government entities view companies that actively support Saudization initiatives favourably. Additionally, by encouraging a balanced workforce with a higher proportion of Saudi employees, Saudization helps reduce dependency on expatriate labour, promoting long-term business stability and sustainability.

Market Access: Saudization is often a prerequisite for doing business in Saudi Arabia, granting access to a lucrative and growing market.

Improved Reputation: Companies that actively support Saudization initiatives earn a favourable reputation among local stakeholders and government entities.

Reduced Reliance on Expatriate Labor: Saudization encourages companies to develop a more balanced workforce, reducing dependence on expensive and less stable expatriate labour.

Long-Term Stability: Engaging with Saudization helps companies establish a stable and reliable local workforce, enhancing long-term business sustainability in the region.

Additional Considerations for Foreign Companies

In addition to legal compliance and reaping the benefits, foreign companies must consider various other factors:

Cultural Sensitivity: Understanding and respecting Saudi culture, customs, and values is crucial. Companies should ensure their policies and practices align with local norms and expectations.

Training and Development: Invest in training and development programs that empower Saudi employees to excel in their roles, fostering loyalty and productivity.

Government Engagement: Establish effective communication channels with government authorities responsible for Saudization to stay updated on policy changes and ensure compliance.

Local Partnerships: Collaborate with local partners or consultants who can provide insights into the Saudi market, assist with recruitment, and help navigate local regulations.

Saudization represents a significant and multifaceted initiative aimed at promoting the employment of Saudi nationals and reducing the nation’s reliance on foreign labour. By implementing a diverse range of categories and quotas, Saudization caters to the unique needs of businesses operating in Saudi Arabia, fostering a gradual transition towards a more localised workforce. However, foreign companies must navigate complex legal implications, adhere to Saudization requirements, and consider cultural sensitivities to succeed in this dynamic environment.

The benefits of Saudization are substantial, providing access to a growing market, improving corporate reputation, and promoting long-term stability. Engaging with Saudization benefits businesses and contributes to the economic prosperity of Saudi Arabia and its citizens.

In conclusion, foreign companies operating in Saudi Arabia should view Saudization as an opportunity to align with the Kingdom’s goals, contribute to its economic growth, and establish a strong and sustainable presence in the region. By embracing Saudization, businesses can navigate the challenges, reap the rewards, and thrive in this evolving landscape.

Venture Debt: Empowering Startups in the Evolving Financing Landscape

Posted on January 14, 2024 - 10:18 am by perpetual-admin

In the dynamic and ever-evolving landscape of startup financing, we have seen the emergence of venture debt as an innovative and cost-effective tool that gives startups access to funding. This article delves into venture debt, its merits, and its increasing significance in the financial market for SMEs, including those in the Middle East.

Venture debt has emerged as a valuable financing method in the Middle East’s burgeoning startup landscape, offering a range of benefits such as reduced equity dilution, financial flexibility, and faster access to capital compared to equity financing. Venture debt also stands apart from conventional banking loans, typically reserved for well-established companies with proven track records, stable cash flows, and collateral. This is where venture debt steps in, bridging the gap for startups facing obstacles in securing traditional banking loans due to their relatively short operational history and the absence of well-established financial records.

Recent years have seen venture debt gain substantial traction, filling a crucial gap in the funding spectrum and empowering startups, especially in the Middle East, to expedite their growth more efficiently.

Understanding Venture Debt

Venture debt is a specialised form of financing tailored for startups and high-growth companies. Unlike conventional bank loans, venture debt is custom-tailored to meet the unique requirements of high-growth businesses and typically offers more adaptable terms and structures.

Depending on the startup’s circumstances, goals, and risk tolerance, it can be used as an alternative to, or in conjunction with, equity financing. Startups often turn to venture debt to fund growth-related activities, such as expanding into new markets, boosting marketing and sales efforts, and strengthening their working capital. This type of financing is particularly appealing to startups operating in sectors with extended revenue generation timelines, as it offers a runway to achieve critical milestones without the immediate pressure to attain profitability.

Terms and Components of Venture Debt

The terms of venture debt arrangements can vary based on specific deals. Nevertheless, standard terms and components typically found in venture debt agreements include:

Loan Amount: The principal loan amount and its currency.
Interest Rate: The rate at which interest accrues on the principal, which can be a fixed monthly or variable rate and is typically lower than rates associated with other types of debt.
Term and Repayment Schedule: The duration of the loan, which can range from a few months to several years, and the schedule for repaying the principal and interest.
Collateral: Assets that the startup pledges as security for the loan, which may be seized in the event of default.
Warrants: Lenders often receive warrants as part of the deal, representing the right to purchase shares of the startup’s stock at a predetermined price within a specific period.
Conversion to Equity: In some cases, venture debt can be converted into equity, typically at a discounted rate to the valuation of the startup’s next equity financing round.

Additionally, venture debt agreements often include clauses governing prepayment conditions, the use of proceeds, other applicable fees, provisions addressing default and remedies, specifications for indemnification, and prescribed covenants that startups must uphold.

Benefits of Venture Debt

Venture debt offers numerous advantages that make it an attractive financing option for startups, including:

Equity Preservation: Startups can raise capital while minimising equity dilution, allowing founders to retain a higher percentage of ownership and maintain greater control.
Leveraging Capital: By combining venture debt with equity financing, startups can amplify their capital-raising efforts, enabling them to strategically deploy additional funding for capitalising on growth prospects, expanding market reach, and fostering innovation.
Flexible Repayment Terms: Venture debt loans typically come with flexible repayment terms, including interest-only periods, aligning with startups’ cash flow cycles and growth trajectories.
Speed and Efficiency: Compared to the rigorous due diligence process associated with equity financing, venture debt transactions often unfold more efficiently.
Credibility and Validation: Securing venture debt financing can enhance a startup’s credibility, signalling that the company has reached a comfortable level of maturity and risk assessment.

Considerations and Risks

While venture debt offers many advantages, startups must carefully evaluate their circumstances before pursuing this form of financing, taking into account:

Financial Responsibility: Venture debt comes with managing repayment obligations. Failing to meet repayment schedules could lead to default and ultimately harm the startup’s creditworthiness.
Interest Costs: Although venture debt commonly offers lower interest rates compared to traditional bank loans, they are still a cost that must be factored into the startup’s financial projections.
Covenant Compliance: Lenders may impose certain financial covenants on startups, such as maintaining a certain level of cash flow or adhering to debt-to-equity ratios. Non-compliance with these covenants could result in negative consequences for the startup, including potential penalties or even re-evaluation of the loan terms.
Risk of Over-Leveraging: Accumulating excessive debt, especially in the absence of a clear path to profitability, could burden the startup’s financial health and hinder its growth prospects.

Venture Debt in the Middle East

Recent years have witnessed a surge in entrepreneurial activity across the Middle East, with startups emerging in diverse sectors like technology, healthcare, e-commerce, fintech, and more. As the startup ecosystem matures, venture debt is gaining more traction as an attractive financing option for these enterprises. Several factors contribute to the growing popularity of venture debt in the Middle East:

Evolving Ecosystem: The Middle East’s startup ecosystem is rapidly evolving, attracting local and international investors. As the number of startups grows, so does the demand for diverse financing options.

Expansion and Scale: Middle East startups often seek to expand beyond their domestic markets, and venture debt can provide the necessary funds for regional and international growth.

Strategic Partnerships: As Middle Eastern startups seek strategic partnerships with established players, venture debt can help bridge the gap between equity rounds and potential partnerships.

In conclusion, Venture debt has transformed the startup funding landscape by offering a valuable financing option that empowers founders to grow their companies without sacrificing significant equity. By providing startups with additional capital, flexibility, and credibility, venture debt plays a pivotal role in fuelling innovation, expanding markets, and driving economic growth. However, it’s important for startups to approach venture debt with careful consideration of their financial capacity, growth plans, and repayment capabilities to ensure that they can harness its benefits effectively while managing its risks.

In summary, venture debt represents a promising avenue for Middle Eastern startups and SMEs, offering a balanced approach to financing that allows them to secure the capital they need while preserving their equity stakes. As this financial instrument continues to gain traction, it is expected to play an increasingly pivotal role in the growth and success of startups in the Middle East and beyond.

Reina El Ali

Senior Associate, Finance Practice Team

Reina.elali@hmco.com.sa

For more information on the matter, please feel free to each out to us.

A Guide to Establishing a Presence in KSA’s Newly Recognized Special Economic Zones

Posted on January 3, 2024 - 9:55 am by perpetual-admin

Aside from launching the Special Integrated Logistics Zone (which is overseen by the General Authority for Civil Aviation) back on 31 October 2022, Saudi Arabia announced early 2023 the launch of four additional Special Economic Zones (“SEZs”) in Saudi Arabia’s continuing efforts to break the mold in accordance with Vision 2030. On the same day, the Economic Cities and Special Zones Authority (“ECZA”) published the draft Companies Law for SEZs (“Law”) on the Kingdom’s public consultation platform Istitlaa, which garnered public attention and feedback, thereby allowing ECZA to reconsider some of the provisions in the Law.

These five SEZs span across different provinces in the Kingdom, aiming to diversify the economy by moving it away from being oil-reliant, while encouraging innovation and growth and furthering foreign direct investment throughout the Kingdom. While the Law has yet to be promulgated, this Article aims to highlight: (1) the four SEZs and their targeted sectors (2) the key incentives of incorporating in one of the four SEZs, (3) the recognized legal forms under the Law, and (4) the impact of the Law.

I. Overview of the Four SEZs:

ECZA has strategically stratified the SEZs into the following four areas: (1) King Abdullah Economic City (“KAEC”), (2) Jazan, (3) Ras Al Khair, and (4) King Abdullah City for Science and Technology (“KACST”). The location of the SEZs were tailored around the Kingdom’s air, land, and waterway routes (with the exception of KACST, which is landlocked and created to build the Kingdom’s very own Silicon Valley).

The SEZs are located within the following areas:

KAEC: located in the Red Sea, a popular and efficient port representing 13% of the global trade passing through the Red Sea. Its targeted sectors are: (a) automobile supply chain and assembly, (b) consumer goods, (c) electronic light manufacturing, (d) pharmaceuticals, (e) medtech, and (f) logistics.
Ras Al Khair: catering to the maritime industry and focusing on advancing (a) the shipbuilding and Maintenance, Repair and Overhaul (“MRO”) and (b) rig platforms.
Jazan SEZ: also strategically located in the Red Sea by focusing on fostering the growth of the industrial sector by targeting: (a) food processing, (b) metal conversion, (c) logistics, and (d) facilitating an efficient route for export of goods and import of manufacturing materials.
KACST Cloud Computing SEZ: located in Riyadh and aiming to attract tech-savvy companies to foster the development of cloud computing services, allowing companies to establish data centers and cloud computing infrastructure in the Kingdom.

II. Perks of incorporating in SEZs:

The key incentives of incorporating in SEZs are:

5% corporate income tax (in contrast to the 20% corporate income tax levied on foreign companies in the mainland) for 20 years;
0% customs duties on capital equipment and inputs inside SEZ;
0% VAT for all intra-SEZ goods exchanged within and between SEZs;
a permanent 0% withholding tax for repatriation of profits from SEZs into foreign countries;
flexible Saudization requirements and facilitation of foreign talent during first 5 years; and
expat levy ensuring fees exemption for employees and their families in the SEZs.

One of the factors that make foreign investors hesitant to incorporate in mainland KSA is the 20% income tax and the 15% on capital gains. The incentives which are mainly in respect to taxation offers foreign investors the ability to reap of the benefits locally and internationally.

However, it should be noted that foreign investors are restricted in incorporating based on the sectors that are available and recognized in the relevant SEZ. For instance, if a foreign investor wishes to set up a pharmaceutical company, it may only do so in KAEC, and cannot, for instance, set up a pharmaceutical company in Jazan SEZ, as the Jazan SEZ specifically caters to the industrial sector (as highlighted above).

III. Incorporation in SEZs

(1) Incorporation Process

The recognized legal forms available for investors are (a) Limited Liability Companies (LLCs), (b) branches (which can either be a branch of a foreign company, or a branch of a mainland KSA Entity), and (c) holding companies.

To incorporate a LLC, the investor(s) must demonstrate the following; (i) Stated capital, (ii) Trade name, (iii) Names of founders and their data, (iv) Names and nationality of management, (v) Draft bylaws, and (vi) Selected economic activities.

To incorporate a branch, the investor(s) must provide the following; (i) Resolution issued by whoever has authority to open a branch – and the name of the manager, and their national id/iqama/passport, (ii) Copy of the parent company’s Articles, (iii) Copy of CR of parent company, (iv) Desires companies the branch will engage in.

Lastly, to incorporate a holding company, the holding company must take the form of a LLC, and must ensure that its subsidiary does not directly own shares in the holding company. In the event the subsidiary does own a stake in the holding company, the subsidiary must not (i) hold voting rights in the shareholders meeting or board of directors meetings in the holding company, and (ii) the subsidiary shall dispose of its shares in the holding company within twelve months from the date of its affiliation with the holding company, and the subsidiary cannot owning additional shares except in the case of distributing dividends.

(2) Shares and Capital of the Company

Companies incorporated in SEZs do not need to have a minimum capital, and can contribute the capital that is fit to meet their objectives. The shareholders can contribute to the capital by way of cash contribution or in-kind contribution, can issue different classes of shares, can place share transfer restrictions, and can also put in place drag along and tag along rights. Further, there is statutory protection for minority shareholders representing 15% of the capital in the company entitling them to file a claim should their shares be negatively impacted by a decision of the majority shareholders.

Further, the company may purchase its own shares, so long as it does not drain the entire treasury shares, provided that the company does not have any voting rights to the shares and cannot attend general meetings.

(3) Management

The company can be managed by a single manager or by a board, and appointed managers/directors must meet the following criteria; (i) at least 18 years of age, (ii) is a natural person (with the exception of a legal person holding a position subject to approval of ECZA), (iii) Has not been convicted for any crimes related t0o fraud, corruption or dishonesty in the past 10 years, (iv) Has not been convicted of committing insider trading, (v) Has not been removed as a director pursuant to a judicial order, (vi) Satisfies any criteria set forth under management section of the bylaws; and (vii) Must not be bankrupt or insolvent.

(4) Shareholders’ Meetings

Shareholders Assembly can be convened by the auditor, its directors or shareholders representing at least 5% of the shares of the company, provided that notice is given at least 14 days before the date of the meeting. Quorum is valid provided that 50% of the shareholders representing the capital are present. Ordinary decisions must be passed by 50% of the shareholders representing the capital, while extraordinary decisions must be passed by 75% of the shareholders representing the capital of the company. Shareholders may vary profits and losses but cannot deny a shareholder from profits or exempt them from losses.

(5) Interplay of the Law with the Mainland KSA Laws and Regulations

Companies incorporated in SEZs are not subject to the laws and regulations of mainland KSA, with the exception of Capital Market Authority (“CMA”) rules and regulations, which companies incorporated in SEZs are subjected to.

IV. Impact of the Law

While incorporating in SEZs offers attractive incentives for foreign investors, specifically in respect to the tax consequences, the Law in reality is restrictive, as it only allows the incorporation of LLCs and branches and holding companies, in contrast to incorporation in mainland KSA, which allows investors to incorporate Simplified Joint Stock Companies (“SJSC”), Joint Stock Companies (public or closed) (“JSC”), and partnerships. Several public commentators have proposed introducing other legal forms to provide investors with more options to align with the legal forms recognized under the KSA Companies Law. While the legal form as described under the Law is a LLC, it introduces concepts and corporate formalities foreign to LLCs, such as the issuance of different classes of shares, which is recognized under SJSCs and JSCs. Further, the Law does not address or resolve – even after receiving feedback from the public – how companies incorporated in SEZs are subjected to the CMA laws and regulations, especially if JSCs are not recognized under the Law.

Further, the Law sets forth the permissible fines and penalties that may be enforced by ECZA upon SEZ entities, but as pointed out in the public discourse, fails to identify what actions amount to a violation under the Law. ECZA confirmed that it will be adding a schedule addressing the types of violations under the Law but have yet to circulate it for public feedback. It can be assumed that certain violations could be related to the SEZ entity’s relationship with mainland KSA’s market and entities, and whether SEZ entities will be unable to provide their products and services to the mainland KSA market.

Lastly, it is unclear whether SEZs will be able to open a bank account in mainland KSA, or, whether banks will be established in SEZs to cater to SEZ entities. When free zones were established in UAE, many companies incorporated in free zones faced difficulties in setting up bank accounts, however, as SEZs in KSA have taken lessons from free zones established in the region, it is most likely that this issue will be resolved upon the promulgation of the Law.

V. Conclusion

While the introduction of several SEZs and the Law is a welcomed incentive encouraging the growth of foreign direct investment across KSA, there is still room for improvement in respect to corporate law formalities in SEZs. Since the Law has gained public attention, one should be on the lookout for the publication of the Law and whether the public opinion has swayed the regulators in broadening the list of recognized legal forms and providing further clarity as to the relationship between companies incorporated in SEZs and the CMA regulations, especially if LLCs are the only recognized legal form in the SEZs. As the introduction of SEZs in the Kingdom is a relatively new concept, we predict further rules, directives, and circulars to be introduced to better shape SEZs in the coming years.