Legal developments

The Kingdom continues its move towards e-government services

Ministry of Municipal and Rural Affairs considers issuing temporary licenses online for multiple activities

The Ministry of Municipal and Rural Affairs (MOMRA) is considering issuing temporary licenses that would allow one commercial shop to engage in two different activities in commercial centers. MOMRA will begin issuing online licenses for 170 investment activities in areas composing less than 150 square meters. The licenses will be printable, valid immediately, and will be investigated by MOMRA officials within a week of their issuance.

Activities related to food and medicine will not be included in the permitted activities, given the fact that such activities are subject to greater government regulation. Complaint committees will be created for each municipality and will consider each case within 10 days. MOMRA has also been working on a unified guide containing 500 investment activities that may be conducted within the Kingdom. The guide will be finalized by 16 municipalities in cooperation with the Ministry of Commerce and Investment (MOCI) and the Ministry of Labor (MOL).

Saudi Gazette – 13 February 2017

The Council of Ministers (COM) has ordered the MOL to use the online Ijar system in order to issue and renew work permits for non-Saudis. The Cabinet instructed the MOL to work alongside the Ministry of Housing (MOH) in order to establish a mechanism for carrying out the order. The MOL has urged private sector employers to use Ijar to facilitate the "borrowing" of government employees. This government employee "borrowing" will count towards the private employer's Saudization percentage.

The Cabinet also stated that rental contracts must now be registered in Ijar and that any contract that is not registered will be considered invalid. Ijar was developed by the MOH, the MOCI, and the Ministry of the Interior (MOI), in 2014, when it originally required real estate firms to register in order to regulate the housing rental market by protecting the rights of landlords and tenants, as well as controlling rents.

Saudi Gazette – 14 February 2017

E-link between Ministry of Justice and Ministry of the Interior increases pace of rulings

The speed of enforcement of rulings and transactions has increased by 86 per cent due to the new electronic link between the Ministry of Justice (MOJ) and the MOI. At the time of press, the number of transactions and orders between the two ministries stood at 91,776, compared to 49,296 for the same period of the previous year (the paper correspondence previously used between the ministries could result in delays of up to 60 days). The affected areas include the issuance of travel bans, suspension of services, notifications, arrest warrants, as well as the removal of the same.

The MOJ has also ordered the institution of electronic correspondence between criminal and family affairs courts, as well as the appellate courts.

Arab News – 23 February 2017

In accordance with the aims of the National Transformation Program (2020), the MOJ has elected to privatize its system of electronic authentication in order to enhance efficiency when obtaining official documents for individuals and corporations. Powers of attorney and company documents will soon be issued and legalized through a system developed by the MOJ's private partner: the Thiqah Business Services Company. The MOJ has stated that all such documents will be accepted by it, as well as all other government agencies.

The new system will be rolled out in phases. In the first phase, 279 offices will be licensed to operate the service, though the MOJ's notaries will remain available to authenticate documents. This phase will also expand the privatization of judicial services in order to keep up with the Kingdom's Vision 2030. In the second stage, new capabilities will be added to the system in order to facilitate additional services to citizens and residents. The MOJ has asked that potential users visit the online portal located at https://mwathiq.sa.

Article 77 of the 2015 update of the Saudi Labor Law allows employment contracts for Saudi nationals to be terminated at any time by providing the fired employees with compensation. That compensation is the equivalent of 15 days’ wages for each year of the worker’s service, but in no case less than the equivalent of two months' wages. The Shoura Council has received over 800 petitions expressing dissatisfaction with Article 77, with some claiming that it has resulted in a number of arbitrary terminations that have affected numerous low-income Saudi employees who find it difficult to secure work. One Shoura member suggested that labor violations committees should be established and that the compensation amount be increased in order to deter the firing of Saudis (for example, for fixed-term contracts, which generally apply to foreign workers, Article 77 requires an indemnity to be paid to the fired employee that is either equal to the remainder of his contract or the equivalent of two months' wages, whichever is greater).

While the previous law was seen to protect Saudi employees' job security regardless of performance, the new law is viewed as productivity-based. Supporters of the law have stated that a productivity-based criterion encourages Saudi employees to perform more effectively while on the job. Detractors claim that the article's arbitrary nature essentially nullifies the purpose behind the concept of having an employment contract to begin with.

Due to the public backlash against Article 77, the Shoura Council has stated that it will take the provision under review.

Saudi Gazette – 9 February 2017; 16 February 2017

Council of Ministers approves several new tax and international cooperation measures

The COM authorized the Minister of Finance to set the date for the imposition of a selective tax. The COM had previously approved a decision of the GCC Supreme Council, in December 2016, regarding a uniform selective tax. The COM also approved the uniform agreement on a 5 per cent value added tax (VAT) beginning in 2018. Other Gulf states are expected to implement a similar VAT in early 2018 as well.

Further, the COM authorized numerous ministries to negotiate a memorandum of cooperation between the Saudi and Japanese governments in order to implement Saudi-Japanese Vision 2030. In another decision, the COM authorized the MOCI to negotiate a trade cooperation program with the governments of Indonesia, China, Japan, and the Maldives. Numerous ministries were also empowered by the COM to negotiate memorandums of understanding with Malaysia regarding commerce, investment, industry, labor, and human resources.

Saudi Gazette – 21 February 2017

Financial rewards announced for public corruption whistle-blowers

The Administrative Investigation Directorate (AID) has instituted a program whereby individuals who report cases of bribery will be awarded 50 per cent of the amount of the bribe. Bribery may be reported by dialling 980 or by reporting directly to the AID's office. All reports and ensuing investigations will remain confidential and the identity of the source will never be revealed. Further, a campaign against administrative corruption was recently launched on the MOI's Absher mobile application (which provides citizens and residents with access to their personal governmental information).

Government sources have stated that, since the campaign's launch, there has been a notable increase in reports of administrative corruption. At the time of press, the AID had already dealt with 1,700 cases of financial and administrative corruption and arrested numerous employees.

Saudi Gazette – 26 February 2017

Zakat implementing regulations issued

Under a Ministerial Resolution issued by the Minister of Finance, the new Zakat Collection Implementing Regulations (the Zakat Regulations) have been issued with immediate effect. (The practice of Zakat, the third pillar of Islam, mandates the giving of a set proportion of one's wealth to charity.) The Zakat Regulations include the principles and procedures governing the collection of Zakat and consolidate the practices of the General Authority of Zakat and Tax (GAZT). Further, the Zakat Regulations will supersede all previous resolutions, instructions, and circulars issued by GAZT (and that of its previous incarnation, "The Department of Zakat and Income Tax" or "DZIT") with regard to the collection of Zakat.

Capital Market Developments

The Capital Market Authority (CMA) has approved new Corporate Governance Regulations (the Regulations). The new Regulations further protect shareholders' rights and their relationship with the board of directors, as well as the relationship between the board and executive management. The MOCI has stated that it took into account best international practices while promulgating the new Regulations and that draft regulations had been prepared before the release of their final version in order to solicit and take into account opinions from the investment community, as well as from government entities. Approximately 700 comments were received from more than 50 entities. Workshops were also conducted.

The new Regulations will come into effect on 22 April 2017, with the exception of the provisions set forth in the CMA announcement of the Corporate Governance Regulations, which will enter into force on 31 December 2017. Listed companies are being encouraged to take this time to enact remedial measures in order to come into compliance with the latter.

Saudi Gazette – 11 February 2017

Since its inception, the Saudi Nomu Parallel Market (Nomu) has seen a surge in listings, owing to its less stringent requirements than the main market, the Saudi Stock Exchange (or Tadawul). Nomu was created in order to increase the role that small and medium-sized businesses play in the national economy. The MOCI has stated that Nomu will open up new investment possibilities by diversifying funding sources in order to increase the businesses' growth. Nomu is part of the Kingdom's Vision 2030 plan to diversify Saudi Arabia's oil-dependent economy, which saw small and medium-sized businesses' contributions to GDP increase from 20 to 30 per cent.

Saudi Gazette – 27 February 2017