NAVIGATING SUCCESS: THE STRATEGIC IMPERATIVE OF STAYING INFORMED ON REGULATORY CHANGES
Staying informed about regulatory changes is not merely a matter of compliance; it is a strategic imperative for businesses. Regulatory shifts can have profound effects on market dynamics, investment decisions, and overall business operations. Being aware of macro and microeconomic, as well as industry-related changes, enables companies to proactively adapt, minimize risks, capitalize on emerging opportunities, and ensure the smooth continuity of their business operations with partners and clients.
1. PAVING THE WAY FOR FOREIGN INVESTMENT AND ECONOMIC DIVERSIFICATION
In its commitment to creating an environment that not only encourages international businesses to invest and operate within the Kingdom but also recognizes the fundamental role foreign investment plays in achieving long-term sustainable development, the Saudi government has recently announced simplified procedures for international business travellers. This includes expanding the issuance of electronic business visit visa to encompass all countries and reducing barriers to entry. Investors are no longer required to visit the Saudi embassy, instead the entire process can be completed online to issue a one-year e-visa valid for multiple entries.
2. COMPANY REGISTRATION & LICENSING PROCEDURES:
The Saudi government has actively promoted the ease of business setup, introducing initiatives to streamline the application process and reduce paperwork by digitizing company registration and licensing procedures. This involves providing online platforms that facilitate faster and more efficient business services for investors throughout the company incorporation and post-incorporation processes, including company registration, licensing approvals, company amendments, tax registration, payroll processing, visa issuance, and employment permit issuance.
These recent changes, exemplified by the shift towards an e-government initiative, underscore the profound impact of staying informed about regulatory changes to enhance the overall business environment. Failure to adapt to these changes may result in operational obstructions, legal consequences, and business discontinuity. For instance, hefty fines were imposed on two Swiss companies for non-compliance with licensing procedures. They were convicted of violating the Capital Market Law and practicing securities business without obtaining the required license approval, resulting in SAR 42 million in fines.
3. IMPACT ON COMPANY FORMATION AND STRUCTURES:
On January 19, 2023, Saudi Arabia announced a new Companies Act, replacing the previous Company Law of 2015 and the Professional Companies Law of 2019. This comprehensive law governs all forms of entities in the Saudi market.
The new legislation introduces a flexible corporate form, the Simplified Joint Stock Company (SJSC), designed for start-ups and venture capital vehicles. Simultaneously, it relaxes several requirements for different forms of companies. For instance, the law eliminates the maximum number of shareholders required in a Limited Liability Company (LLC) and removes restrictions on financing. This change allows LLCs to raise capital through the issuance of sukuks, debt instruments, or financing instruments.
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.
4. ADAPTATIONS FOR EXISTING COMPANY STRUCTURES:
The amendments to the Companies Law also directly impact the structure of existing companies. Existing entities are required to adapt to these evolving regulatory changes. A grace period of two years has been granted for existing entities to implement any necessary changes to comply with the new legal framework.
This process involves a thorough review and potential amendment of corporate governance structures and internal policies where necessary. The goal is to ensure companies’ compliance and alignment with the revised law, promoting sustainability, competitiveness, and transparency, thereby enhancing investor confidence.
5. EMPLOYMENT AND LABOR LAW REVISIONS:
Regulatory changes in employment and labour legislations significantly impact businesses in Saudi Arabia. Continuous Saudization initiatives, for instance, reshape the labour market, compelling businesses to adjust their hiring strategies and workforce planning to stay compliant with local regulations. An illustrative example is the Skills Accelerator and Training Vouchers initiative introduced by the Ministry of Human Resources and Social Development (MHRSD), aiming to train over 322,000 private sector employees in 126 professions. This initiative not only enhances national skill levels but, more importantly, empowers and paves the way for localization in the private sector.
Recently, the MHRSD, through its Qiwa platform, announced several significant reforms, including reducing the probation period for employees to 90 days, compulsory authentication of employment contracts, and the launch of the Service Certificate. These reforms aim to improve work experience verification and contribute to a stable labour market.
These labour revisions not only impact businesses but also underscore the importance of employers staying educated about evolving labour regulations. Failure to comply with these changes may result in fines or legal consequences for companies that do not adhere to the new requirements.
TAKEAWAY
Recent reforms exemplify the Saudi government’s dedication to accommodating the needs of emerging industries, promoting innovation, and creating a business-friendly, attractive foreign investment environment. Staying informed about regulatory developments and changes in company structures in Saudi Arabia is not only a compliance duty but also a strategic imperative for ensuring the continuity and operational efficiency of Saudi entities.
