SAGIA Issues New Rules for Contracting and Construction Activities


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SAGIA Issues New Rules for Contracting and Construction Activities

  1. 1. General Corporate Client Alert 1JUNE 4, 2013This Alert provides only generalinformation and should not berelied upon as legal advice. ThisAlert may be considered attorneyadvertising under court and barrules in certain jurisdictions.For more information, contact yourPatton Boggs LLP attorney or theauthors listed below.JIHAD TURKISATNIjturkistani@pattonboggs.comABU DHABIANCHORAGEDALLASDENVERDOHADUBAINEW JERSEYNEW YORKRIYADHWASHINGTON DCGENERAL CORPORATE CLIENT ALERTSAGIA ISSUES NEW RULES FORCONTRACTING AND CONSTRUCTIONACTIVITIESThe Saudi Arabian General Investment Authority (“SAGIA”) has recently issuednew rules for companies contemplating investment in the Saudi Arabian market toconduct contracting and construction activities. The new rules will be in additionto the existing rules which are already in place, and although not confirmed, willmost likely apply to all current and pending applications.The main additions to the requirements for the construction activity are:1. Qualified applicants for contracting licenses shall be juristic persons that areeither limited liability or joint-stock companies.2. Classifications issued by the Ministry of Municipal and Rural Affairs shall beadopted as the standard for the description of the activities related to building,construction, management, maintenance, operation and cleaning, in accordance tothe Kingdom’s international commitments.3. Submitting a detailed business plan that explains accurately the ability of theproject to achieve the goals of investment, including the contribution of theproject to increasing the income inside of the Kingdom; the jobs that the projectwill provide for Saudis; the contribution of the project to increasing competition,enhancing services and providing alternatives to consumers; the strategicdimensions of the project on investment in the Kingdom; the benefits to the cityin which the project will be located.4. Proving the financial capability to invest in comparison to the capital of theproject and the share of each partner, and in comparison to the abovementionedbusiness plan. The applicant company must have executed in the past a project inits home country or another country with a value that exceeds the value limits of a
  2. 2. General Corporate Client Alert 2third class classification adopted by the Ministry of Municipal and Rural Affairs, or its equivalent.5. Submitting financial statements of the foreign entity not less than three years and not exceeding 10 years. Thefinancial statements shall demonstrate the good standing of the financial situation of the entity and such entity shall beprofitable in all years. The financial statements shall be prepared by an approved accounting firm, legalized by therelevant authority having jurisdiction over trade and tax in the home country, and attested by the Saudi embassy in thehome country of the applicant.6. Not exceeding 25 percent of employment of foreigners and only when necessary. The 25 percent foreign employeesshall include executive managers, executives, and specialists who have experience no less than three years in the sameactivity that the company contemplates conducting after obtaining a license from the authority.7. The activity of construction and building shall not be joined with the activity of operation and maintenance in onelicense. Companies that have more than 300 employees in their home countries are exempted from this condition.8. The applicant company must submit a bank guarantee to the benefit of the authority, which shall be renewedannually, against the issuance of the license. The value of the bank guarantee shall be two percent of the financiallimits for the third class classification adopted by the Ministry of Municipal and Rural Affairs, or its equivalent for thesame activity that the applicant contemplates conducting. The bank guarantee shall be unconditional and irrevocableand shall be valid until the deletion of the commercial registration.9. Obtaining insurance against any wrongdoing by the company when executing any project after issuing the license orafter renewal of the same.10. A commitment by the licensed (whether newly licensed or renewed) company to submit an annual report for allprojects that have been awarded to it, and executed by the same, including the value of each project.11. A commitment by the licensed company (whether newly licensed or renewed) to submit all financial information,lists and accounts to any financial auditor identified by the authority to review the accounts of the licensed company.SAGIA is a self-regulated governmental body, and we anticipate further requirements to be imposed on otheractivities and industries. SAGIA has been going through a restructuring exercise which was initiated by theintroduction of an additional layer of review before issuing the investment license. Our law office will be conductingmeetings with SAGIA officials soon to have a clear understanding of the above requirements, and we will be updatingour clients with how such requirements will affect their applications.