October 10, 2019

New developments for companies operating in Saudi Arabia

SAGIA and the Saudi Ministry of Commerce and Investment have recently implemented new regulations that will affect the processing of many government services offered to companies. This article outlines the newly adopted regulations requiring compliance with ISIC and looks at how they will impact business operations of companies operating in Saudi Arabia going forward.

Based on our recent dealings and communications with SAGIA and MoCI, we understand that all of the Management Consulting Activities have been shifted to MoCI under the professional sector and directly licensed by MoCI

Business activities & ISIC compliance

The grace period granted by the Saudi Arabian General Investment Authority (SAGIA) and the Ministry of Commerce and Investment (MoCI) to update business activities of all companies established in Saudi Arabia has elapsed and such companies must now, as a matter of priority, amend their business activities to comply with the International Standard Industrial Classification of All Economic Activities (ISIC). The following considerations should also be noted:

  1. The normal course of operations shall not be affected or jeopardized since companies should be able to provide the same scope of licensed activities in Saudi Arabia after complying with the ISIC.
  2. The licensing officials will only apply the equivalent ISIC codes against the relevant currently approved business activities in respect of each company as may be deemed necessary to ensure the continued performance of the same licensed business activities in Saudi Arabia.
  3. SAGIA does not currently charge any regulatory fees for the ISIC amendments of the Foreign Investment Licenses (FIL), noting that the expenses usually incurred are of two thousand Saudi Arabian Riyals (SAR 2,000) for each respective FIL.

In addition, one of the major recent developments under the ISIC is the licensing of the management consulting activities (the Management Consulting Activities). Based on our recent dealings and communications with SAGIA and MoCI, we understand that all of the Management Consulting Activities have been shifted to MoCI under the professional sector and directly licensed by MoCI.

At this stage, SAGIA will only be licensing "high management consulting services" which shall fall under SAGIA's Services sector (the High Management Consulting Activities). The High Management Consulting Activities should mostly allow the performance of general consultancy services that are not classified under MoCI's professional sector and without specializing in specific services, which include the accounting, taxation, management, economical, educational, translation and/or security sectors.

Scope of application and implications

These recent requirements by SAGIA and MoCI will apply to all companies registered in Saudi and significant implications include the following:

  1. Established companies in Saudi, to the extent required, must amend their FILs, Articles of Association and/or Bylaws (as the case may be) and Commercial Registration Certificates (the Constitutional Documents) in accordance with the ISIC.
  2. Companies previously licensed by SAGIA to undertake any Management Consulting Activities must amend their Constitutional Documents to either reflect the approved High Management Consulting Activities or discuss with their respective Saudi legal advisors the available structuring options under the professional sector (if applicable).
  3. Based on our recent interaction with SAGIA and MoCI, the substantive regulatory services, which include the renewal and/or amendment of the Constitutional Documents and appointment/dismissal of managers, will not be provided to companies that are not compliant with the ISIC. The officials will first request the respective company to amend its business activities in accordance with the ISIC (including the Management Consulting Activities) prior to processing any applications submitted to either SAGIA or MoCI.

Required action

The Constitutional Documents of companies must be reviewed and amended to reflect the ISIC requirements applied by SAGIA and MoCI. The Clyde & Co team is on-hand to provide legal and professional advisory services to ensure Saudi companies are compliant from a regulatory perspective.  For further details, please do not hesitate to contact Alain Sfeir.