August 9, 2018

Update on roll out of new ISIC classification in Saudi Arabia

On 15 April we wrote about how the government authorities in the Kingdom of Saudi Arabia are collectively working on improving the investment environment by applying international commercial standards, in particular the adoption of International Standard Industrial Classification (ISIC) of all economic activities for the issuance of Foreign Investment Licenses (see Related Content below). This article provides an update on the progress of the new standards and what it means for organisations operating in the Kingdom.

Foreign entities with one FIL including different types of services/activities will be urged to consider restructuring their presence in KSA

Since it was published in January, the ISIC means foreign entities wishing to invest in KSA have to comply with the ISIC classification when applying for new Foreign Investment Licences (FIL). Recently the Saudi Arabian General Investment Authority (SAGIA) has started applying the ISIC on the existing FIL which has resulted in it requesting that existing foreign investors amend FILs and ultimately, amend their activities in their Articles of Association/ Bylaws to reflect an ISIC collimated equivalent activity.

We understand this step will progress the alignment of the economic licensed activities together with the international corporate world (unifying the international commercial standards), and will likely familiarise foreign investors with the activities conducted in KSA.

Foreign companies operating in the Saudi market with existing FILs are now required to update their activities in accordance with the adopted classification when applying for or requiring any SAGIA service (i.e. license renewals, amendments, etc.) and compliance with the ISIC classification becomes a must for all foreign companies.  

In addition, given the implementation of the subject classification, existing foreign entities in KSA with one FIL including different types of services/activities (i.e. consulting and trading activities or industrial and contracting activities) will be urged to consider restructuring their presence in KSA, as they may face a request from SAGIA to separate their activities into several FILs to be in line with the ISIC classification, and consequently, they will be required to establish branches under their main entity and to issue a separate FIL and commercial registration certificate for each branch under a separate activity. 

For further details regarding the implication of the new ISIC classification update on your current or potential investments in the KSA, please do not hesitate to contact us.