SAGIA Issues New Rules for Contracting and Construction Activities

    5 June 2013

    The Saudi Arabian General Investment Authority (“SAGIA”) has recently issued new rules for companies contemplating investment in the Saudi Arabian market to conduct contracting and construction activities. The new rules will be in addition to the existing rules which are already in place, and although not confirmed, will most 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 are either limited liability or joint-stock companies.
    2. Classifications issued by the Ministry of Municipal and Rural Affairs shall be adopted as the standard for the description of the activities related to building, construction, management, maintenance, operation and cleaning, in accordance to the Kingdom’s international commitments.
    3. Submitting a detailed business plan that explains accurately the ability of the project to achieve the goals of investment, including the contribution of the project to increasing the income inside of the Kingdom; the jobs that the project will provide for Saudis; the contribution of the project to increasing competition, enhancing services and providing alternatives to consumers; the strategic dimensions of the project on investment in the Kingdom; the benefits to the city in which the project will be located.
    4. Proving the financial capability to invest in comparison to the capital of the project and the share of each partner, and in comparison to the abovementioned business plan. The applicant company must have executed in the past a project in its home country or another country with a value that exceeds the value limits of a third 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. The financial statements shall demonstrate the good standing of the financial situation of the entity and such entity shall be profitable in all years. The financial statements shall be prepared by an approved accounting firm, legalized by the relevant authority having jurisdiction over trade and tax in the home country, and attested by the Saudi embassy in the home country of the applicant.
    6. Not exceeding 25 percent of employment of foreigners and only when necessary. The 25 percent foreign employees shall include executive managers, executives, and specialists who have experience no less than three years in the same activity 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 one license. 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 renewed annually, against the issuance of the license. The value of the bank guarantee shall be two percent of the financial limits for the third class classification adopted by the Ministry of Municipal and Rural Affairs, or its equivalent for the same activity that the applicant contemplates conducting. The bank guarantee shall be unconditional and irrevocable and 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 or after renewal of the same.
    10. A commitment by the licensed (whether newly licensed or renewed) company to submit an annual report for all projects 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 other activities and industries. SAGIA has been going through a restructuring exercise which was initiated by the introduction of an additional layer of review before issuing the investment license. Our law office will be conducting meetings with SAGIA officials soon to have a clear understanding of the above requirements, and we will be updating our clients with how such requirements will affect their applications.