Welcome to the Saudi Arabia focus edition of Law Update.
One of the key markets in the Middle East and North Africa (MENA) that continues to lead from the front is the Kingdom of Saudi Arabia (KSA). As the largest country in the Middle East and the 18th largest economy in the world, the progress KSA continues to make is underpinned by its Vision 2030 that envisions developing the country as an investment powerhouse and hub that ultimately connects Asia, Europe, and Africa. Given Saudi Arabia’s significance to the regional economy, our team of experts have prepared a range of pertinent articles that provide insights into new laws, regulations, and the legal landscape in the Kingdom.
This edition will provide you with an up-to-date guide on matters such as; the framework issued by the Saudi Central Bank on IT governance, the anti-corruption landscape under Vision 2030; we also provide practical tips for dispute avoidance. This is only a snapshot; there are many more articles within the KSA focus section for you to read, which we hope you will find valuable and enjoyable.Read the edition
The Vision of Emir Sheikh Sabah Al Ahmad Al Jaber Al Sabah to modernise Kuwait into a preeminent centre for commerce and finance by the year 2035 is being achieved through a vast range of commercial and government sector developments. These developments are also supported by the promulgation of legal reforms that essentially reflect Kuwait’s ultimate objective in moving toward an investor friendly economy. Legal experts in the GCC have witnessed a discernible effort in Kuwait, particularly in reforming key aspects of its legal regime to sustain and enhance its economic and commercial objectives.
This article seeks to highlight some of the key changes to various subjects of law over the last two years.
The first overhaul of the companies law was introduced in 2012 by way of introducing Law Number 25 of 2012 (the “Companies Law”) which saw to replace the predated Law No. 15 of 1960 in Kuwait, which in its era was considered as the regulatory foundation of companies in Kuwait. The 2012 reforms provided more clarity on several issues, which were not dealt with in its predecessor, such as non-profit companies, holding companies and shareholders’ agreements. However, this inevitably led to some practical obstacles that surfaced after the law had already been promulgated. Accordingly, experts pushed for a number of amendments to some of the key provisions, resulting in additional overhauls in 2013 and more recently 2016.
The current and most recent amendment to the Companies Law was published in the Official Gazette (Kuwait Al Youm) by virtue of Law No. 15 of the 2017. The new amendments were made on grounds of practical implementation and in a bid to resolving the difficulties previously faced in enforcement of the law.
Foreign Investment and the Tenders Law
2017 also observed Kuwait ‘revamping’ of some of its restrictive laws in order to make room for foreign investment. Kuwait’s aspirations to attract foreign investors commenced with the promulgation of Law 116 of 2013 (the “Direct Investment Law and establishment of the Kuwait Direct Investment Promotion Authority which allows for the establishment of ‘wholly foreign-owned’ Kuwait entities.
This progressive trend has been sustained with the introduction of Law. No 49 of 2016 (the “New Tenders Law”) which superseded Law No. 37 of 1964 (the “Old Tenders Law”). A notable highlight of the New Tenders Law is the protection of the local population in the Kuwait market. Now, a foreign contractor is obliged to purchase no less than 30% of its contractual requirements from the local market or from local suppliers registered with the Central Agency for Public Tenders (the “CAPT”). Moreover, the CAPT, in a step towards allowing more of a Kuwaiti presence in the public procurement marketplace, shall also manage compliance of foreign contractors by awarding not less than 30% of the contracting works to local contractors. This has been strategically poised with the transformation of bidding requirements for public tenders. Prior to the New Tenders Law, foreign contractors were unable to bid on public tenders without a local agent. This restriction has been now been removed after the promulgation of the New Tenders Law to foster in a new era of easing regulations for foreign investment.
It also is worth noting that despite not needing an agent to bid, the foreign bidder may still be in need of a local agent for the execution phase of the project in order to sponsor the employees being that a foreigner can only conduct business in Kuwaiti through the establishment of an entity with a local partner, arrangement of a local agency, or establishment of ‘wholly foreign-owned’ Kuwait entity. Thus, unless a foreign contractor has established a Kuwait entity, the need for a local agent may inevitably be required at some stage.
In addition to opening doors to potential investors, the New Tenders Law has also developed more organised criteria for potential bidders to follow. As a result, any company which appears to have issues with completing existing projects will not be awarded new projects until such issues are resolved and the project as a whole is completed. Where the Old Tenders Law did not recognize or regulate the technical evaluation of the various project tenders, the New Tenders Law introduces a ‘points system’ for allocating project work of a technical nature to a selected bidder based upon successful attainment against a specified ‘points based’ criterion.
The key provisions in the New Tenders Law are as follows:
To summarise, the New Tenders Law illustrates Kuwait’s ambition to expand within the international commercial market by allowing more opportunity for foreign investors while simultaneously providing a dependable market for the local population to cultivate growth potential.
In support of the budding improvements to the business area of law and following almost four decades of enforcing the previous commercial agency law of 1964, the Kuwait Parliament considered it necessary to lay down new and more suitable regulations in order to support the rapidly developing domain of commercial agencies in Kuwait.
The highly anticipated Law No. 13 of 2016 Regulating Commercial Agencies (the “Agency Law”) was published on 13 March 2016. It supersedes the previous law and sets forth the regulatory and legal framework to be utilised in the organisation of commercial agencies. The Agency Law is intended to be read alongside Law No. 68 of 1980 (the “Commercial Law”).
The Commercial Law permits a foreign principal to carry out business activities in Kuwait by means of a distributorship contract with a local merchant under which the latter undertakes to distribute the principal’s products in Kuwait. While the Commercial Law distinguishes between agencies and distributorships and provides the basic framework for regulating commercial agencies together with compensation provisions consisting of the right to claim for early termination and/or non-renewal upon expiration. Article 286 of the Commercial Law states that if the appointed distributor is the sole distributor, then in accordance with Kuwait law, the exclusive distribution is deemed to be an agency contract.
The most salient articles in the Agency Law address anti-trust provisions, the ability to appoint more than one agent or distributor (in accordance to Article 273 (1) of the Commercial Law), and resolving disputes pursuant to an arbitration clause.
Summarising the key changes in the Agency Law are the following:
a. the agency registered previously is terminated amicably between its parties
b. the agency registered previously is revoked by an executable court judgement.
c. the agency registered previously is terminated according to its duration specified in the agency contract.
The Public Authority of Manpower has established and recently launched its new “easy service” via their web portal. This now allows the employer to carry out various application processes online i.e. issuing, renewing and cancelling an employee’s work permit. In addition to the successful inauguration on the online application process, 2017 has also seen some amendments to Law No. 6 of 2010 (the “Kuwait Labour Law”). Notably, Law No. 85 of 2017 (the “Amending Law”) amends two articles in the Kuwait Labour Law as summarized below:
In the last few years the Kuwait government has taken numerous positive steps towards sustainable development and economic growth by reducing bureaucracy, speeding up administrative processes, passing legislative amendments and generally taking steps to promote the Kuwait economy. Additionally, a number of new laws have been passed in a bid to tackling the fundamental obstacles facing investors in Kuwait and a number of proposals in line with the foreign investment objective are still in the pipeline. It is accordingly fitting to conclude that Kuwait is headed in a direction of growth which may reinstate its historic reputation as the ‘the pearl of the Gulf.’