Introduction
As part of our Explore Investment in Saudi Arabia series, in this article we focus on a number of recent legal updates which are relevant to companies doing business in the Kingdom of Saudi Arabia (“KSA”), specifically:
- the updated Law of Commercial Register (the “Law of Commercial Register”)[1] which was published in the Official Gazette on 4 October 2024;
- the updated Law of Tradenames (the “Law of Tradenames”)[2], which was published in the Official Gazette on 4 October 2024; and
- the draft ultimate beneficial owner guidelines which was published by the Ministry of Commerce on 8 July 2024 (the “UBO Guidelines”).[3]
In line with Vision 2030 and the regulatory transformation taking place in the KSA, we consider that the updated Law of Commercial Register, the updated Law of Tradenames and the draft UBO Guidelines (if approved and published) will reduce bureaucracy, streamline corporate structuring, enhance efficiencies and protections for corporate entities in the KSA, as well as increase transparency and public access to information, to further bolster the KSA’s position as a leading country in which to do business.
The Law of Commercial Register and Law of Tradenames are expected to come into force around 4 April 2025 (being 180 days after their publication in the Official Gazette) and will replace the current Law of Commercial Register[4] and current Law of Tradenames[5]. Implementing Regulations for each of the Law of Commercial Register and Law of Tradenames that will set out further details relating to these two laws are expected to be published within 180 days after the publication of the updated laws (together the “Implementing Regulations”). No date has yet been announced for the publication of the final version of the UBO Guidelines. The information set out in this article is subject to any further provisions as may be set out in the Implementing Regulations and the final version of the UBO Guidelines.
1. Law of Commercial Register
Objectives of the updated Law of Commercial Register and the central database
The updated Law of Commercial Register is intended to improve the process for obtaining and renewing commercial registrations in the KSA to :
- Reduce bureaucracy: through creating a single unified national commercial registration system that will operate across the KSA;
- Increase transparency: through ensuring that the information registered in the commercial registry is accessible to the public and easily obtained; and
- Increase reliability: through ensuring that information registered in the commercial registry is correct, accurate and regularly updated.
Information required to be included in the CR
The Law of Commercial Register requires the following information to be included in the application for a commercial registration (“CR“) for a legal entity[6]:
- Name, address, and ID of applicant;
- Tradename;
- Legal entity form;
- Share capital;
- Name of manager, managers, or board members and their powers;
- Address of the headquarter/registered office in the KSA; and
- Any other information as determined by the Implementing Regulations.
Requirement to update information contained in the CR within 15 days of any change and to also submit an annual confirmation update
The Law of Commercial Register has abolished expiry dates for CRs as well as the requirement to renew CRs, and instead has introduced:
- a requirement to update the information set out in the CR within 15 days of any change to such information; and
- an annual confirmation procedure under which legal entities are required to submit to the registrar a confirmation of the information registered in the CR in accordance with the requirements to be specified in the Implementing Regulations.[7]
The CR shall be suspended if an entity fails to submit its annual confirmation within 90 days from the annual confirmation due date.[8] Except for CRs of foreign-owned entities, the suspended CR shall be automatically written-off if the entity does not submit a request to retrieve the suspended CR during the one year suspension period (the “Suspension Period”).[9]
If a foreign-owned entity does not retrieve its CR during the Suspension Period, the Ministry of Commerce is entitled to request the shareholders or the competent court to liquidate the entity.[10]
Allowing the registration of multiple activities under a single CR
One of the key developments in the Law of Commercial Register Law is that it allows for the registration of different activities under the same CR, without prejudice to the provisions of other relevant regulations which may still require the separation of certain activities.[11]
With respect to foreign-owned legal entities, this is a significant development, as the current system for licensing foreign investment requires that:
- foreign-owned legal entities must hold a sector specific foreign investment license (e.g. industrial, services, trading, etc); and
- it is not possible for one legal entity to hold more than one foreign investment license, so to the extent possible, the foreign-owned legal entity will need branches/subsidiaries in the KSA for each additional foreign investment license that it needs for its intended business activities in the KSA, and each one of these branches/subsidiaries will have its own CR.
Please note however that the new Investment Law[12] (which is expected to come into force around 16 February 2025) will make significant changes to the current licensing of investment in the KSA and will abolish the requirement for foreign investors to obtain foreign investment licenses and replace it with a single registration process that will apply equally to local and foreign investors (please see our article on the new Investment Law for further information). We await the publication of the implementing regulations of each of the Investment Law and the updated Law of Commercial Register to see how the registration of different activities under the same CR will work in practice.
Abolishing the requirement for branch CRs
The updated Law of Commercial Register has abolished the requirement for setting-up branch CRs in every location that a legal entity operates from in the KSA. Going forwards legal entities will be required to have only one CR to operate all over the KSA. This major change aims to reduce the cost of registering and maintaining CRs in the KSA, which will serve to reduce bureaucracy and make it easier to conduct business in the KSA.
Requirement for bank accounts
The updated Commercial Register Law expressly provides that entities are required to set-up a bank account that is linked with each CR[13], which aims to enhance the reliability and integrity of business transactions.
Penalties and corrective measures
The Law of Commercial Register has introduced additional measures besides penalties for non-compliance, including warnings and requiring the correction of violations, in lieu of or in addition to the penalties prescribed by law.[14]
Five-year grace period
Legal entities will be allowed a grace period of five years following the effective date of the Law of Commercial Register in order to comply with the updated Law of Commercial Register by transferring/cancelling any branch CRs.[15]
2. Law of Tradenames
Key changes in the Law of Tradenames
The updated Law of Tradenames aims to strengthen the trust in the business environment, enhance the value of tradenames and protect the legal rights pertaining to tradenames through regulating the reservation and registration of tradenames in the CR. The most notable changes being introduced by the Law of Tradenames include:
- Allowing the use of Arabic numbers and letters as tradenames as well as non-Arabic words, numbers, letters, or a combination of the same[16];
- Prohibiting the use of any tradename which resembles any other reserved or registered tradename, even if the activities being undertaken by the entities with different tradenames are different, and the Implementing Regulations shall provide more details on the criteria of resemblance and distinction of tradenames[17];
- Prohibiting the reservation and registration of any tradename which resembles a world famous tradename or trademark even if such trademark is not registered in the KSA[18];
- Allowing the assignment and transfer of title to a registered tradename, recognising that a tradename may be transferred separately from the legal entity which owns it[19]; and
- Encouraging the use of Arabic tradenames by creating a platform for Arabic language experts which aims to enrich the database of Arabic tradenames in the business environment.[20]
3. UBO Guidelines
The Ministry of Commerce has published draft UBO Guidelines, which, if published in its current form, would require any KSA corporate entity with a valid CR to notify the Ministry of Commerce of any change of ownership at any level of its ownership structure within 15 days of such change. It is not yet known if/when the guidelines may be enacted however, we consider it timely to flag the UBO Guidelines at this time, as in practice the Ministry of Commerce and the Saudi Business Center have started to ask for the corporate documents (certificates of incorporation and articles of association) of up to two tiers of ownership KSA corporate entities (i.e. the direct shareholder(s) of a KSA entity and the shareholder(s) of the direct shareholder(s) of a KSA entity) every time any filing is made in respect of the KSA corporate entity.
Next Steps
If you would like discuss the updated Law of Commercial Register, the updated Law of Tradenames and the draft UBO Guidelines and/or their potential implications for your business going forward, we would be delighted to receive your enquiry. Please reach out directly to our team on the ground Rizwan Osman (Partner, Head of Corporate (Saudi Arabia)), Reem Alsmail (Associate) and Harry Taylor (Associate) via their contact details set out in this article.
[1] Issued by Royal Decree No. (M/83) dated 19/03/1446H corresponding to 22 September 2024 (which was published in the Official Gazette on 16/04/1446H corresponding to on 4 October 2024).
[2] Issued by Royal Decree No. (M/83) dated 19/03/1446H corresponding to 22 September 2024 (which was published in the Official Gazette on 16/04/1446H corresponding to on 4 October 2024).
[3] Published by the Ministry of Commerce for public consultation at the Public Consultation Platform on 8 July 2024.
[4] Issued by Royal Decree No. (M/1) dated 21/02/1416H corresponding to 19 July 1995.
[5] Issued by Royal Decree No. (M/15) 12/08/1420H corresponding to 17 April 1999.
[6] Article 6.1 of the updated Law of Commercial Register.
[7] Article 11 of the updated Law of Commercial Register.
[8] Article 15.1 of the updated Law of Commercial Register.
[9] Article 15.4 and 15.5 of the updated Law of Commercial Register.
[10] Article 15.6 of the updated Law of Commercial Register.
[11] Article 9 of the updated Law of Commercial Register.
[13] Article 6.1 of the updated Law of Commercial Register.
[14] Article 24 of the updated Law of Commercial Register.
[15] Paragraph (3) of the Council of Ministers Resolution No. (237) dated 14/03/1446H.
[16] Article 4.1 and 4.2 of the updated Law of Tradenames.
[17] Article 7.1.a of the updated Law of Tradenames.
[18] Article 7.1.b of the updated Law of Tradenames.
[19] Article 10 of the updated Law of Tradenames.
[20] Article 20 of the updated Law of Tradenames.
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