The Saudi Central Bank (SAMA) has announced the issuance of the governing rules for electronic issuance and authenticity verification of banking documents. This comes as part of its continuous efforts to improve the quality and effectiveness of electronic services provided to banking sector customers. The aim is to ensure easy financial transactions, save time and effort in obtaining bank documents and certificates, and boost confidence in the authenticity of electronically issued documents.
SAMA stated that the rules include the requirements banks must observe before issuing bank documents. Additionally, banks are required to provide an E-document Verification service, a service to electronically verify the authenticity of electronic and paper documents they issue. Moreover, the document must also state any available method to verify its authenticity electronically.
SAMA pointed out that the rules set out the minimum bank documents required to be issued electronically, most requested by customers, such as bank certificates, debt certificates, and no liability letters. SAMA stressed that banks must comply with the processing times specified under relevant instructions as well as set procedures and measures that ensure compliance with these rules. In this regard, SAMA stated that the rules should be effective starting from April 1st, 2022.
Please visit SAMA’s website (link) to view the governing rules for electronic issuance and authenticity verification of banking documents. Please visit SAMA’s website (link).
Nitaqat is an initiative launched by the Saudi Ministry of Human Recourses and Social Development(“HRSD”) to encourage the private sector to hire Saudi nationals, thus, decreasing Saudi unemployment and increasing the share of their participation in the labour market.
The initiative restricts certain positions in the private sector to be occupied only by Saudi nationals. Currently, there are five Zones; Red, Low Green, Medium Green, High Green, and Platinum. Nitaqat applies to all entities that have 6 employees and above.
HRSD would apply Nitaqat to place the Saudi entity into a zone based on the percentage of Saudization it holds. Each range has its privileges and limitations.
Since its application in 2011, Nitaqat has been subject to different changes and updates, the latest of which was in December 2021( the “Advanced Nitaqat”).
Nitaqat classifies entities by their sector, activities and number of employees using the International Classification Standard (“ISIC4”) over three years. By applying a specific equation using the Saudization percentage and number of employees, the entity will be able to know in which zone it falls for the first, second and third year onward.
While there is no specific minimum wage for a Saudi national generally under the Saudi Labour Law, the MHRSD would only count an employed Saudi national towards Nitaqat if his/her basic monthly salary is at least SAR 4,000, which was SAR 3000. However, those whose salaries are SAR 3000 and less than SAR 4000, including part-time workers shall be counted as ½ of the Saudi worker. In addition, flexible-hours workers shall be counted as 1/3 of the Saudi worker, provided the worker has completed not less than 168 hours in service. Handicapped worker will be considered as 4 workers, provided that his/her salary is not less than SAR 4,000.
The previous Nitaqt classified organizations under 85 categories, which have been condensed to 33 activities and placed them in the same category with common characteristics.
| 1 | Agricultural production, animal production, its services and equestrian clubs | 2 | Mines, Energy and Services
|
| 3 | Industries | 4 | Contracting, construction, building and cleaning |
| 5 | Operation and maintenance | 6 | Wholesale and Retail |
| 7 | Health Services | 8 | Accommodation, Recreation and Tourism |
| 9 | Ground transportation and storage | 10 | Sea and Air transport |
| 11 | Financial Institutions | 12 | Business Services |
| 13 | Social Services | 14 | Recruitment services and security guards services. |
| 15 | Personal Services | 16 | Combined Entities. |
| 17 | Higher Education | 18 | Girls’ schools, Kindergartens and Nurseries |
| 19 | Boys’ Schools and boys’ and girls’ complexes | 20 | International Schools |
| 21 | Selling Fuel
|
22 | Women’s goods Sale and maintenance of mobile phones |
| 23 | Restaurants with services that do not include fast food | 24 | Fast food and Ice-cream Shops |
| 25 | Cafés | 26 | Catering |
| 27 | Communication solutions | 28 | IT Solutions |
| 29 | postal activities | 30 | IT Infrastructure |
| 31 | telecommunications infrastructure | 32 | Operation and maintenance of communications |
| 33 | Operation and maintenance of information technology |
To explain how the equation works, the table below shows the values that need to be used to generate the minimum classification for each zone, then the Saudizatin percentage will be compared to the result to allocate the entity in the relevant zone.
| Activity | Zone | Curve Fixed Value | Absolute Fixed Value for the 1st year | Absolute Fixed Value for the 2nd year | Absolute Fixed value for the 3rd year |
| Industries | Low Green | 1.68 | 14.08 | 20.08 | 25.08 |
| Medium Green | 1.87 | 16.87 | 22.87 | 27.87 | |
| High Green | 2.08 | 20.47 | 26.47 | 29.47 | |
| Platinum | 2.08 | 23.87 | 28.37 | 32.87 |
Below is an example of an activity and the Nitaqat zones for the first year on the assumption that the entity has 19 employees (7 Saudis and 12 non-Saudis):
7%19× 100 = 36.84
Curve Fixed Value * log(total number of employees) + absolute fixed value for the relevant year
Nitaqat Low Green Value: 1.68× log(19)+14.08= 16.22
Nitagate Medium Green Value: 1.87× log(19)+16.87= 19.26
Nitaqat High Green Value: 2.08× log(19)+20.47= 23.12
Nitaqat Platinium Value: 2.08× log(19)+23.87= 26.52
Accordingly, the entity will be placed by comparing the Saudization percentage with the results we reached above:
From 0% – 16.21 falls in Red Zone.
From 16.22 – 19.25 falls in Low Green Zone.
From 19.26 – 23.11 falls in Medium Green Zone.
From 23.12 up to 26.51 falls in High Green Zone.
From 26.52 up to 100 falls in the Platinium Zone.
As the Saudization percentage is: 36.84%, which exceed the minimum range of the Platinium Range (26.52), then the entity shall be placed in the Platinium Zone.
Premium Range Companies:
High Green Range Companies:
Mid Green Range Companies
Low Green Range Companies:
Red Range Companies:
Arbitration is becoming an increasingly popular way to resolve disputes in Saudi Arabia. The government has taken significant steps to encourage the use of arbitration, and recent developments in the law have made the process even more efficient and cost-effective. As a result, more businesses are turning to arbitration to resolve their disputes.
In 2014, the Saudi Center for Commercial Arbitration (SCCA) was founded as the Kingdom’s first independent arbitration institution. They are a not-for-profit organization that administers Alternative Dispute Resolution (ADR) procedures guided by Shariah principles.
Arbitration is used as a means to resolve disputes outside the courtroom. It’s a process in which two or more parties agree to have a neutral third party, called an arbitrator, preside over their case, and make a decision.
Arbitration is often seen as a faster and more cost-effective option than going to court. It allows both parties to agree upon an adjudicator of their own choosing, rather than a court-appointed judge. The arbitrator is often a highly accomplished legal professional or former business leader, who gives both parties the opportunity to present their case.
Although previously an uncommon choice in Saudi Arabia, the government has sought to increase the use of arbitration as a means to resolve disputes. In 2012, a royal decree was issued which set forth the legal framework for arbitration in Saudi Arabia. This new Law of Arbitration is based on the UNCITRAL Model Law, which is the international standard for best practice in arbitration law.
The Law of Arbitration sets out the rules and procedures that must be followed in order to initiate and conclude an arbitration proceeding. It also establishes the legal rights and obligations of the parties involved in the arbitration process.
Arbitration in Saudi Arabia is a private process, meaning that the proceedings and the award remain confidential unless there is written consent from both parties to publish the details of the award granted.
In 2013, the Enforcement Law came into effect, which provides for the enforcement of arbitration awards in Saudi Arabia. This means that if one party does not comply with the award, the other party can take legal action to have it enforced.
Arbitration in Saudi Arabia is considerably cheaper than taking a case through the court and the SCCA has taken recent steps to make it even more affordable. In September 2021, they reduced arbitrator fees by 30% and the initial cost of starting proceedings by 50%.
Filing fees have now been eliminated entirely, and parties are simply required to pay a flat registration fee of SAR 5,000, which is later credited towards the administration fee. The SCCA has also introduced three arbitrator pricing tiers: minimum, maximum, and average. Fees are fixed on a case-by-case basis, depending on the complexity of the case and the time required by the arbitrators to hear and determine the case.
The Online Dispute Resolution (ODR) service also experienced a price reduction of 40%. This allows smaller businesses and entrepreneurs to have access to affordable arbitration, without the need to take their dispute to the courts.
Arbitration in Saudi Arabia is a relatively fast process in comparison to court proceedings. The time it takes to resolve a dispute through arbitration will depend on a number of factors, including the complexity of the case and the availability of the arbitrator.
Generally, arbitration proceedings will take between 6 and 12 months to complete. Once the arbitrator has made a decision, the award will be binding on the parties with a requirement to comply.
According to a recent statistical report by the SCCA, arbitration continues to be supported by the judiciary and is experiencing fast growth as an alternative to court litigation. Saudi courts are increasingly reluctant to set aside arbitration awards, demonstrating their strong support for the arbitration process. Between 2017 and 2020, 107 motions were initiated to set aside awards. Out of those 107, only 6% were accepted.
In light of this continued success, it is likely that arbitration will continue to grow in popularity in Saudi Arabia. Parties who are looking to resolve disputes quickly and cost-effectively should consider arbitration as an option.
Saudi Arabia’s Vision 2030, which was launched by Saudi Crown Prince Mohammed bin Salman in 2016, is the major driver for current investment opportunities presented in the country. In the second quarter of 2021, Foreign Direct Investment in Saudi Arabia reached an impressive $1.4 billion. Through many incentivization programs and regulatory transformations, the government hopes to increase this to an annual figure of $100 billion by 2030.
With Saudi Arabia’s rapid economic recovery in the wake of the global pandemic, French companies and investors have an opportunity to leverage the array of new business and investment opportunities on offer within the Kingdom. However, to engage in business with the Saudi market, French companies will first need to familiarize themselves with the legal and regulatory factors that may affect their business operations in this rapidly transforming nation.
The aim of Vision 2030 is to create a more diversified economy that is less reliant on oil revenue. As part of this process, the National Transformation Program seeks to increase non-oil government revenue from SR163 billion to SR1 trillion by 2030.
The government hopes to achieve this goal by the development of public-private partnerships (PPP), encouraging foreign investment in the country, introducing value-added tax (VAT), and privatizing several sectors including transport, education, and healthcare. The vision also includes plans to invest heavily in renewable energy and to develop the nation as a hub of technology and entrepreneurship in the MENA region.
So far, Vision 2030 has already seen significant success, with a string of major international companies, including Siemens and Google, committing to multi-billion dollar investments in the country. Since the program was first launched, the government has pledged over $1 trillion in development schemes. This has led to the creation of over 550,000 new jobs for local Saudis, with a further 1 million expected to materialize before 2030. In addition, foreign investment licenses nearly doubled from 700 in 2018 to 1300 in 2020, demonstrating that there is a keen interest from within the international venture capitalist community to make moves towards Saudi Arabia.
In 2001, the Saudi-French Business Council was set up by the Saudi Arabian Chambers of Commerce & Industry with the aim to further develop business ties between both nations. French investment in Saudi Arabia now stands at $4.37 billion and trade between the two countries has nearly doubled over the past 10 years. French business leaders can build on this positive relationship history and take advantage of the plethora of new opportunities in the Kingdom created by Vision 2030.
The planned expansion of investments in infrastructure, healthcare, education, renewable energy, and tourism throughout the country will undoubtedly create a great number of prospects for French companies and investors across a broad range of sectors. Saudi Arabia has recently unveiled plans to invest over $100 billion to develop its renewable energy infrastructure and solar power capacity. France’s longstanding push towards increasing its use of renewable energy sources makes it a perfect partner for Saudi Arabia’s new infrastructure plans.
In addition to this, Saudi Arabia is positioning itself within the Gulf region as a hub of technological progress and development. However, achieving this status will be no easy feat without the assistance of foreign expertise and investment. French companies and technical experts may find themselves ideally positioned to enter this market given France’s highly developed digital sector.
Off the back of the National Transformation Program, there has been a significant lifting of red tape. Local business regulations have been streamlined and simplified, to create a more transparent and agile process. But as with any new business venture, French companies need to be aware of the laws regulating Saudi Arabia’s commercial sector before commencing activities in the region.
Expatriates can now have full ownership of their company based in Saudi Arabia without requiring the involvement of a local business partner. However, they will still need to obtain a MISA Entrepreneurial Licence issued by the Saudi Arabian General Investment Authority before commencing business within the Kingdom. Additionally, they will be required to apply for Commercial Registration and get a certificate from the Chamber of Commerce. For businesses operating in certain sectors, additional licensing may also be required. With these documents, you will be able to open a bank account and start operating your business within Saudi Arabia.
As a result of the government’s Saudization program, all companies operating within Saudi Arabia are required to employ a certain number of Saudis to maintain their business license. Employers are required to meet these quotas to ensure that the labor market continues to develop within Saudi Arabia rather than simply relying on imported foreign workers. This is particularly pertinent for companies operating in certain sectors such as marketing, where the percentage of Saudi employees must be at least 30% of the total workforce.
Other sectors, such as secretarial, translation, storekeeping, and data entry jobs, are prohibited from employing any non-Saudis. These new regulations will come into place in April of 2022. Any business operating in the Kingdom must adhere strictly to Saudization rules, or they may face penalties.
In addition to employment quotas, Saudi workers are also entitled to a minimum wage appropriate to their industry. This starts at 4000 SAR per month, but it increases to 7000 SAR for certain professionals, such as qualified dental professionals. If your company employs a Saudi national on a part-time basis, then they will only partially count towards your Saudization figures.
Saudi nationals and GCC residents in Saudi Arabia are not subject to any form of personal income tax. Businesses owned wholly by Saudis are subject to Zakat, which is a form of Islamic taxation set at a flat rate of 2.5%. However, businesses owned wholly by non-Saudi/GCC nationals will be subject to income tax.
If business ownership is a combination of Saudi and non-Saudi/GCC nationals, then Zakat and income tax will be paid in proportion to ownership. Income tax is set at a flat rate of 20%, but this increases to between 50% and 85% if the income is derived from oil and hydrocarbon production revenue.
In 2018, Saudi Arabia introduced VAT at a standard rate of 5%. However, it has now increased to 15% with an exception for the financial sector.
Vision 2030 has eased investment restrictions and streamlined registration processes for foreigners. This means that there has never been a better time for French investors to start doing business with the Kingdom.
France has always been a world leader in terms of innovation, so they are well-placed to accommodate the needs of Saudi Arabia’s growing technology sector. In the long term, this will be a mutually beneficial relationship for both French businesses and the people of Saudi Arabia.
French companies will have greater access to a market of almost 35 million consumers, where there is a growing middle class seeking innovative and high-quality products and services. As a rapidly developing and youthful nation, Saudi Arabia will benefit from more foreign investment and expertise, while they achieve their national transformation goals.
Hammad & Al-Mehdar is a new-age law firm bridging traditional and emerging business sectors for private sector companies, family offices and SMEs entering or operating in the Middle East. We help navigate essential legal and regulatory requirements to grow and succeed in the Middle East, with specialty in the Kingdom of Saudi Arabia given our 40-year track record. Our firm is forward thinking and has depth of knowledge in business of the past, present and future, and therefore well qualified to support French companies as they evolve their presence into Saudi Arabia and the wider MENA region. To discuss your business presence and expansion in Saudi Arabia contact Senior Associate, Samy Elsheikh.