New rules to liberalise restrictions on foreign investment on the Saudi Arabian stock market

Introduction Tadawul

The sole stock exchange in Saudi Arabia is the Tadawul. With significant government oversight from the Capital Market Authority (CMA), the participation of foreign firms and institutions in the Tadawul market has always been severely restricted. Only citizens of Gulf Cooperation Council memberstates  and natural foreign persons holding a highly coveted residency permit can currently buy and sell securities directly on the Tadawul. Therefore foreign firms and institutions can only invest in the market through a third party by engaging in equity swaps, mutual funds and exchange traded funds.

Liberalisation of restrictions

On 21 July 2014, the Council of Ministers issued a resolution giving the CMA the authority to promulgate rules easing the restrictions on foreign participation on Tadawul. Shortly thereafter, on 21 August, the CMA issued draft rules for public comment for a period not to exceed 90 days. Thus, official rules liberalising the current restrictions on trading by foreign firms and institutions in Saudi Arabia will not come into effect until late November 2014 at the earliest. Nonetheless, the CMA has indicated its desire to have finalised rules implemented by the end of 2014 and to officially open the market to foreign firms and institutions under the new rules by the first half of 2015.

Analysis of the draft rules

The draft rules seek to allow "Qualified Financial Institutions" (QFIs) to enter the market. In that regard, the draft rules require that a QFI:

  • be a bank, brokerage or securities firm, fund manager or insurance company;
  • have assets under management of not less than SAR 18.75 billion (US$5 billion), though the CMA has discretion to reduce this required amount to SAR 11.25 billion (US$3 billion);
  • be licensed in a jurisdiction with securities regulation standards no less vigorous than those in Saudi Arabia; and
  • have at least five years' experience in securities business.

While the draft rules liberalise restrictions on trading activity for QFIs, the rules nonetheless maintain certain restrictions on the shareholding ability of non-GCC firms:

  • a QFI may not hold more than five per cent of the shares of any one company listed on the Tadawul;
  • non-Saudi persons and firms (including QFIs, foreign residents and non-QFIs engaging in third party securities transactions) in aggregate may not own more than 49 per cent of any one company listed on the Tadawul;
  • QFIs, in aggregate, may not own more than 20 per cent of the shares of any one company listed on the Tadawul; and
  • non-Saudi ownership of all shares listed on the Tadawul is limited to 10 per cent of the overall market value.

Mandatory thermal insulation for buildings

The Ministry of Municipal and Rural Affairs announced forthcoming rules requiring all buildings in the major cities in Saudi Arabia to have thermal insulation. The Ministry did not specify when the rules would come into effect.

Arab News, 22 October 2014

Draft law on trade in petroleum

The Council of Ministers sent a draft law to the Shoura Council covering commercial activities related to trade in oil and petroleum products. The draft law prohibits the sale, transportation, storage, distribution, usage and export of oil and petroleum products in a commercial capacity without a permit.

Arab News, 18 October 2014

Illegal workers

There have been a number of crackdowns on illegal workers in Saudi Arabia recently. The Passport Department recently stated that employing illegal workers in Saudi Arabia is punishable with two years' imprisonment and a fine of SAR 100,000.

Saudi Gazette, 18 October 2014

Tourism bill; seasonal visas

The Shoura Council met recently and approved a bill providing for increased tourism activity in Saudi Arabia. As part of the meeting, the Council discussed the role of the private sector in developing the tourism sector in order to highlight the cultural, urban and social dimensions of the Kingdom, in addition to creating job opportunities for Saudis. The bill will be referred to the Council of Ministers and, if it is approved, will be issued after receiving the approval of the King.

Additionally, the Council received recommendations from the Administrative and Human Resources Committee regarding changes in the rules regulating the recruitment of temporary and seasonal workers, including limiting visas for seasonal work to a maximum of four months.

Arab News, 14 October 2014

Minimum warranty for products

The Ministry of Commerce and Industry announced a new rule requiring that all electric appliances, vehicles and electronics sold in Saudi Arabia include a minimum two-year warranty. The Ministry cited numerous reports of fires due to faulty equipment, as well as consumer complaints, as grounds for the new rule.

Saudi Gazette, 14 October 2014

Saudi government changes stance on new requirement for pharma companies

The Saudi Food & Drug Authority (SFDA) issued a new regulation on 10 June 2014 stating that a new pharmaceutical product will not be registered by the SFDA unless the pharmaceutical company selling it has appointed at least two distributors in Saudi Arabia. The new rule was to take effect on 14 October 2015. However, after receiving comments, the SFDA recently distributed an amendment ostensibly nullifying the rule. Specifically, the amendment states that the SFDA merely "encourages" that pharmaceutical products have more than one agent, "without otherwise being mandatory." Under Saudi Arabian law, commercial agents must be Saudi citizens or wholly Saudi-owned entities. Circular No. 43081/P dated 26/11/1435 H., corresponding to 21/9/2014 G.

No limit on SAGIA licences

The SAGIA Director of Information and Communication dispelled rumours that SAGIA was limited to issuing no more than 100 foreign investment licences per year. In support of his statements, the Director further stated that Saudi Arabia and SAGIA are dedicated to creating free, open markets and increasing competition in the Kingdom.

Saudi Gazette, 12 October 2014

Saudisation of bakeries

The Ministry of Labour issued new rules bringing the bakeries sector under the Nitaqat programme in Saudi Arabia. The Ministry noted the fact that the sector has historically been the least Saudised sector as grounds for the rule.

Arab News, 26 September 2014

Backlash from SMEs on two-year sponsorship transfer rule

The Ministry of Labour recently decided to revoke a law that required expatriate workers to remain under the sponsorship of their original employers for at least two years before being allowed to transfer to a new sponsor. The Ministry ostensibly decided to revoke the law after several complaints from expatriate workers who were sponsored by companies in the Red Zone of the Nitaqat programme. However, small and medium-sized enterprises claim the decision will cause unpredictability in the employment sphere.

Arab News, 23 September 2014

Sponsorship transfer rules eased

The Ministry of Labour announced new rules allowing foreign workers in Saudi Arabia to remain in the Kingdom and seek a new sponsor there without permission or any negative repercussions. Foreign workers may seek a new sponsor in the following cases:

  • the sponsor failed to secure a work permit for the worker because the sponsor was in the Red or Yellow Nitaqat category;
  • the sponsor failed to secure a work permit for the worker within three months of his/her arrival in Saudi Arabia; and
  • the work permits and/or Iqamas of other staff members of the sponsor have expired.

Arab News, 10 September 2014

Mandatory health insurance for expat families

In a new cooperative health insurance system to take effect in June 2015, families of expatriates working in Saudi Arabia will be required to have in-Kingdom health insurance. The insurance will be paid by the employer of the expatriate employee. If the employer fails to pay the insurance for its employees' families, it risks sanctions including obligation to pay the full amount plus a fine.

Arab News,  4 September 2014

New SAMA lending rules

SAMA, Saudi Arabia's central bank, has issued new rules giving SAMA the ability to limit retail lending by banks to a certain percentage of the bank's overall lending portfolio, wholly at SAMA's discretion. Additionally, the rules place a cap on the fees that banks can charge on their services to the lower of one per cent of financing amount and  SAR 5,000.

Saudi Gazette, 3 September 2014

Bounced cheques

The Council of Ministers directed the Committees of Financial Disputes of the Ministry of Commerce and Industry to take more serious action on bounced cheques. Specifically, the Council directed the Committees to look into bounced cheques cases quickly and to issue a decision and punishment within 30 days. Also, the Council directed the Committee to impose the strictest possible penalties for passing bad cheques, including imprisonment not exceeding three years and/or fines not exceeding SAR 50,000 for first-time offenders.

Saudi Gazette, 3 September 2014

Stricter Nitaqat rules

Under Saudi Arabia's Nitaqat programme, firms operating in Saudi Arabia are highly incentivised to employ Saudi Arabian nationals, and face the possibility of penalties for failing to do so. Previously, employers had to retain a Saudi Arabian national for at least three months in order for the individual to be counted as a Saudi Arabian national employee under the Nitaqat programme. The Ministry of Labour recently issued new regulations to take effect on 23 December 2014, which require employers to retain a Saudi Arabian national for at least six months in order for the individual to be counted as a Saudi Arabian national employee for purposes of the Nitaqat programme.

Arab News, 2 September 2014

Five day week for employees falls through

The Ministry of Labour dropped a plan to limit the private sector work week to 40 hours rather than the existing limit of 48 hours.

Saudi Gazette, 28 August 2014

Eight hour per day limit for surgeons

The Ministry of Health is set to implement a new law limiting the number of hours per day surgeons are permitted to work. The limit is set at eight hours and ostensibly applies to the surgeon's entire day, even the hours s/he spends at work not engaged in surgery. Penalties for non-compliance with the new law reportedly will include imposing a fine upon the hospital.

Saudi Gazette, 28 August 2014

Four-year limit rule goes into effect

The Ministry of Labour's rule limiting the stay of expatriate workers sponsored by firms in the Yellow Zone of the Nitaqat programme to four years went into effect on 25 October, amidst backlash from small and medium-sized enterprises. According to the rule, the stay will be decreased to two years in April 2015.

Saudi Gazette, 24 August 2014

Council of Ministers Resolution to ease restrictions for known foreign companies to participate in government tenders

The Council of Ministers issued a new Resolution requiring all government agencies issuing public tenders for work projects to allow "known foreign companies" specialising in certain areas to submit bids. The Resolution requires the Ministry of Municipal and Rural Affairs, SAGIA and the Ministry of Foreign Affairs to work together to develop a list of "known foreign companies" that specialise in the areas of: construction; roads; water and sewage works; implementation of works of water conveyance; desalination plants and electric power; electrical, mechanical, electronic, industrial and marine works; and communications technology.

For those companies that are "known foreign companies" the Resolution requires SAGIA to issue a temporary certificate to the company for the purpose of participating in public tenders. If the company's bid is accepted, SAGIA and the Ministry of Commerce and Industry must immediately issue the necessary documentation to register the company. Finally, the Resolution notes that "known foreign companies" doing business in Saudi Arabia under this Resolution must work directly with the agency issuing the tender, and not through a subsidiary or joint participant.

Council of Ministers Resolution No. 405 dated 22/10/1435 H., corresponding to 18/8/2014 G.