THE STRATEGIC IMPERATIVE OF STAYING INFORMED ON REGULATORY CHANGES
Understanding regulatory shifts is more than a question of compliance; it’s a strategic opportunity for business. Regulatory shifts may have deep consequences on market forces, investment decisions and business operations overall. When companies are aware of macro and microeconomic and industry shifts, they are able to react and adapt as they happen, mitigate risks, act on opportunities from changes in the regulatory environment and maintain stability as they conduct their business with partners and/or clients.
1. PAVING THE WAY FOR FOREIGN INVESTMENT AND ECONOMIC DIVERSIFICATION
In its desire to foster an environment that would allow International businesses to invest and operate in the Kingdom; and in recognition of the crucial importance that foreign investment has for achieving long term sustainable developmental goals, the Saudi government recently announced faster processes for international business travellers, including expanding the issuance of electronic business visit visas, now to all countries, and reducing other barriers to entry. Foreign investors no longer need to visit the Saudi embassy; all is done online until you get the e-visa that can be issued for one year with unlimited entries.
2. COMPANY REGISTRATION & LICENSING PROCEDURES
The Saudi government has demonstrated its commitment to easing the process of setting up a business by implementing initiatives that improve the application process and have made paperwork easier through the transformation of company registration and licensing processes into a digital process. The government and its agencies have made available an online method of ensuring investor services are done more quickly and efficiently during the start and post-start process of incorporation of operations, engaging in the processes for company registration, licensing approval, company amendments, registration of taxes, payroll, visa approvals and employment permit approvals.
These recent changes, such as the e-government initiative, clearly highlight the importance of being aware of and adapting to changes in regulation for improving the business environment. A lack of adaptation may lead to operational blockages, penalty fines and ultimately inability to continue to operate legally. For instance, two Swiss companies received massive fines for non-compliance with licensing procedures in trade – they were charged with violations of the Capital Market Law, without the needed license approval, and they were convicted of conducting securities business that led to SAR 42 million in fines.
3. IMPACT ON COMPANY FORMATION AND STRUCTURES:
On 19 January, the Saudi Arabian government indicated that the new Companies Act was coming into effect with a total rethink and replacement of the previous Company Law in 2015 and the Professional Companies Law in 2019, which represents the unified law governing all forms of entities in the Saudi market.
Understanding these updated regulations is crucial for investors, enabling them to comprehend the complexities of company formation in the Kingdom of Saudi Arabia. It also facilitates foreign investment, making it easier for investors to establish startup-friendly legal structures with simplified compliance requirements.
With it, the legislation creates a more flexible form of corporations, the Simplified Joint Stock Company (SJSC), primarily aimed at new startups and venture capital vehicles, whilst relaxing requirements for various forms of companies. The law will remove the maximum shareholder count in a Limited Liability Company (LLC) and lift the restrictions on financing if an LLC seeks to raise funds by way of securities issuance of sukuks or any debt instruments or financing instruments.
It is paramount that investors understand the new regulations so that they can consider the nuances involved in the company formation in the Kingdom of Saudi Arabia. It is also important in absorbing foreign investment as it will help foreign investments develop legal structures and compliance that are more conducive and friendly for start-ups.
4. ADAPTATIONS FOR EXISTING COMPANY STRUCTURES:
The updates to the Companies Law will also directly affect the structures of existing companies. Current entities must adapt to the regulatory changes. Existing entities have all been given a grace period of 2 years to comply with the new legal requirements – i.e. to account for all changes required by the new laws (e.g. adapt, develop and/or amend your internal procedures and documents to comply with the new laws).
This will involve a full review, amending where possible, of corporate governance structures and internal policies wherever applicable. The goal is to ensure each company conforms and aligns itself with the revised law. The law is aimed at creating sustainable, competitive, and transparent companies, thereby enhancing investor confidence.
5. EMPLOYMENT AND LABOR LAW REVISIONS:
Regulatory shifts in employment and labour laws will continue to tweak the business environment in the Kingdom of Saudi Arabia. As a testimony to this constant change, continuous Saudization initiatives will be reshaping labour market changes and forcing companies to reorient their workforce planning towards the newly promulgated legislation. Recently, the Ministry of Human Resources and Social Development (MHRSD) initiated the Skills Accelerator and Training Vouchers initiative. The Ministry intends to train over 322,000 employees across 126 occupations in the private sector. If implemented properly, this will boost skills at the national level; more importantly, it will empower the private sector and foster localisation.
Recently, the MHRSD has approved a score of new labour reforms through the Qiwa platform – reducing the employee probation period to 90 days, compulsory verification of employment contracts, and following the auspicious of the launch of the Service Certificate. These reforms will support the extension of verifying work experience and maintaining a stable labour society.
These labour revisions impact not only businesses but remind us as employers of how important it is to stay educated on the new evolving labour regulations. Failure to stay statutory compliant in the wake of these changes can lead to fines or punitive measures, and potential litigation for companies not compliant.
TAKEAWAY
Regulatory changes highlight the willingness of the Saudi government to address the needs of new industries, encourage innovation, and a desire to provide a business-friendly, attractive foreign investment environment. Being aware of regulatory changes and developments in company structures and regulatory structures in Saudi Arabia is not only a compliance duty but more so a strategy to satisfy the requirements of Saudi entities in regard to compliance and continuing business operations.
