The ADGM Financial Services Regulatory Authority (“FSRA”) introduced a new framework to regulate ADGM Authorised Persons offering over-the-counter leveraged products (“OTC Leveraged Products”) to Retail Clients, following a period of public consultation (read more…). The changes streamline the current Financial Services Permissions conditions for such activity and set out several new conditions. The changes are set out in amendments made to the FSRA Rulebook (Conduct of Business Rules (COBS), the Prudential – Investment, Insurance Intermediation and Banking Rules (PRU) and fees (FEES)). Authorised Persons currently offering such products have a grace period for compliance.

New ADGM Guiding Principles on Whistleblowing published in December 2022 focus on six key aspects of whistleblowing as guidance for all ADGM entities, encompassing:

1. A guiding definition of whistleblowing.
2. Non-retaliation: ensuring that whistleblowers are given adequate opportunities to speak up and are fairly treated when they do so.
3. Confidentiality and due process: restricting access to whistleblowing reports and following due process in managing them.
4. Reporting in good faith: focusing the protections of any whistleblowing framework to honestly held beliefs reported in good faith.
5. Components of a whistleblowing framework: including appropriate resources to support it, which will vary depending on the nature of the relevant entity’s business.
6. Culture: supporting a whistleblowing program with an organisational culture of trust and transparency.

The new Guiding Principles are intended to align with global movements in favour of transparency, accountability and integrity. The Guiding Principles are not legally binding, but ADGM entities should consider conducting their activities in line with them.

New ADGM Foreign Account Tax Compliance Regulations (“FATCA Regulations”) regulate the exchange of information in relation to taxation-related matters, in order to align ADGM regulations with Federal Cabinet Resolution No.63 of 2022 and the intergovernmental agreement between the UAE and the United States addressing the implementation of the US tax rules known as FATCA (the Foreign Account Tax Compliance provisions of the US Hiring Incentives to Restore Employment Act of 2010 (“FATCA”)). The FATCA Regulations govern the due diligence and reporting requirements on in-scope financial institutions and penalties, which are intended to be consistent across the UAE. Amendments to the ADGM’s Common Reporting Standard Regulations 2017 align the existing regulations with the FATCA Regulations. 

The ADGM Arbitration Centre’s new “mediation in the metaverse” service will enable parties to conduct a virtual mediation with an impartial mediator in a 3D office space. Using technology to create an immersive experience, with video imaging of participants integrated into the virtual surroundings, is intended to result in a greater connection between the participants and so support the consensual settlement of disputes. This is the first service of its kind to address the delivery of mediation across the globe and its use could have a transformative role in dispute resolution.

The ADGM is proposing to introduce a comprehensive Sustainable Finance Regulatory Framework, covering rules on sustainability-orientated investment funds, managed portfolios and bonds as well as a framework on environmental disclosures by ADGM companies. The proposed framework envisaged by Consultation Paper No.6 of 2022 includes:

• the region’s first comprehensive regulatory framework for “green” investment funds, for public funds that invest in verifiably green assets. The ADGM also proposes the creation of an “ADGM Green Fund Designation” for funds that choose voluntarily opt-in to meet ADGM’s minimum requirements for a Green Fund;
• an innovative framework for “climate transition” investment funds, for funds that invest in “greening” assets (i.e., assets that have the potential to become green); 
• a regulatory framework for green and climate transition discretionary portfolio management services;
• a more comprehensive environmental, social and governance (“ESG”) disclosures framework, which would require disclosure by listed companies, regulated financial services firms and large private commercial entities.

Amendments are proposed to the Companies Regulations 2020, the Financial Services and Markets Regulations and the FSRA Rulebook. Supplementary guidance is expected be issued.

You can read more about global ESG developments in our Sustainable Futures blog. Find out more about COP27 in our dedicated COP27 microsite. 

You can find out more about ESG in the Middle East by listening to our new podcast series – #LetsTalkESG – which shares insights from a range of industry experts as they discuss the transition, governance, and sustainability of ESG principles in the region. Please click here to explore our podcast.

A proposed new regime would regulate “Private Credit Funds” in the ADGM, which are collective investment funds that originate loans to borrowers, purchase existing loans from third party lenders or invest in a combination of these. Key proposals set out in Consultation Paper No.8 of 2022 include:

• the FSRA proposes that Private Credit Funds are offered only to “Professional Clients” (either “Qualified Investor Funds” or “Exempt Funds”);
• the manager of the Private Credit Fund would require a Financial Services Permission that limits it to undertaking fund management, and enable fund managers, and the Private Credit Funds they manage to arrange and originate loans; 
• the manager of the Private Credit Fund and the Private Credit Fund will not be engaging in Arranging Credit or Providing Credit; and
• the FSRA also proposes mandating specific investment and operating requirements concerning conflicts of interest, concentration risk, stress testing, gearing, permitted and prohibited investments, reporting and disclosure requirements. 

If enacted, the rules would be set out within the FSRA’s current collective investment funds regulatory regime.

In a recent case before it, the DIFC Court has held that it has jurisdiction to grant an interlocutory injunction freezing assets in the hands of a defendant in support of proceedings taking place abroad or in the Dubai Court,  in relation to both assets within and outside the jurisdiction of the DIFC Court ((1) William Allan Jones (2) Coffee Planet LLC (3) Coffee Planet Roastery FZE v Robert Anthony Jones [2022] DIFC CFI 043).

Despite the fact that freezing injunctions are typically sought in support of ongoing litigation within the same court (or arbitration occurring in the court’s jurisdiction), the claimant applied for a freezing injunction from the DIFC Court in connection with a dispute over the ownership of certain assets most of which were located onshore in Dubai, and only one asset was located in the DIFC. The defendant’s primary argument in support of his application to set aside the ex parte freezing order was that the DIFC Courts had no authority to issue interim injunctions in support of proceedings elsewhere where there were no assets within the DIFC.

The DIFC Court noted that it is settled law that the DIFC Court could hear claims to ratify and enforce foreign judgments and judgments of the Dubai Court, and there was no need for the presence of any assets in the DIFC for any such foreign judgment to be ratified. DIFC law is sufficiently wide to permit interim injunctions even where there is no underlying reason to issue a claim before the DIFC Courts. The Judge concluded that the use of the power by the DIFC Courts did not “seek to usurp the powers of the Dubai Court, nor to compete with it, but to assist it by freezing assets against which its judgments might be enforced and which might otherwise be dissipated with the result of rendering the judgment ineffective”.

Amendments to the Real Property Law (DIFC Law No.10 of 2018) enacted in November 2022 clarify mortgagor’s rights and enhance the mortgagee’s powers and remedies in circumstances where a mortgagor grants a security interest over real property in order to secure a debt owed to the mortgagee.

The amendments remove the mortgagee’s right of foreclosure, which may be inequitable to the mortgagor where the property is worth more than the debt secured at the time of the default. If a mortgagee is successful in a foreclosure action, then it becomes the owner of the property and has no obligation to return to the mortgagor any excess it makes from the sale of the same after recouping its debt and the payment of any other debts secured against the property by way of registration.

The amendments also clarify the rights and obligations of a mortgagee with regard to the exercise of its statutory power of sale in the event of a default by a mortgagor.

Key changes to the Prescribed Company Regulations introduced in November 2022 include:

• extending corporate structuring options and introducing several new structures, including a DIFC holding structure, a maritime structure, an innovation holding structure and an intellectual property structure; and 
• minor clarificatory amendments and change to align the regime with the standards of Organisation for Economic Co-operation and Development (OECD).

A new Commercial Transactions Law regulates commercial contractual arrangements in the UAE, with effect from 2 January 2023. Federal Decree by Law No.50 of 2022 repeals the previous Commercial Transactions Law, Federal Law No.18 of 1993. 

In line with other civil law systems, the UAE relies on codified laws which apply according to the category or type of contract. The Commercial Transactions Law regulates “commercial” transactions conducted in the course of business, as opposed to “civil” transactions which are generally regarded as referring to private, personal transactions. It applies to “traders” (which includes companies carrying out commercial activities) and any person carrying on a commercial business, including a virtual business carried out using technological means. It sets out general rules for commercial contracts, and specific rules for specified types of contracts. Broadly, these rules apply, subject to the terms of the commercial contract agreed by the parties (provided it does not breach public order or morals).

While many provisions in the new Commercial Transactions Law remain substantially the same, certain notable changes include:

• “virtual”, technology-based businesses are expressly regulated for the first time;
• references to virtual commercial business includes virtual asset activities. Regulations are expected to be published by the Cabinet regulating virtual assets and their service providers;
• in the absence of an agreed interest rate in a facility agreement, a simple interest rate will be calculated at the current market rate, subject to a maximum of 9 per cent per annum (reduced from 12 per cent under the previous law). (Recent case law indicates that the maximum interest rate that may be awarded by the UAE Courts may be less (read more…)).
• a new express prohibition on compound interest;
• contractual notices can be served through a notary public, or by registered letter or any electronic method or equivalent means of modern technology determined by the decision of the Minister of Justice, or any means agreed by the parties. This is a broader range of means than under the previous regime, and now includes express provision for electronic notices; and
• there are specific regulations for a broader range of types of contracts, including sales contracts, commercial paper, securities-based lending, commercial agency, bills of exchange, banking operations and Islamic finance transactions.

The new Federal Decree-Law No.47 Of 2022 On The Taxation Of Corporations And Businesses (“Corporation Tax Law”) has now been issued, bringing in a new obligation on businesses in the UAE to pay Federal corporation tax for the first time (subject to certain exemptions) for tax periods commencing on or after 1 June 2023. 

The requirement to pay corporation tax applies to all “Taxable Persons” including:

• entities which are considered “resident” in the UAE, such as legal entities that are incorporated, established or recognised in the UAE (including free zones), foreign legal entities that are effectively managed and controlled in the UAE and those conducting a business activity in the UAE to be specified in a Cabinet decision; or 
• entities that are considered “non-resident” in the UAE, but which have either a permanent establishment in the UAE or UAE-sourced income (meaning income derived from the UAE, such as from a UAE-resident entity or a non-resident entity with a permanent establishment in the UAE, or otherwise accrued in or derived from activities performed, assets located or capital invested in the UAE, 

unless an exemption applies. There are exemptions (subject to conditions) for, among others, Federal and Emirate Governments and Government-related entities (unless they conduct certain business activities under a licence issued by a UAE licensing authority, and this is treated as an independent business), businesses engaged in natural resources activities (extractive and non-extractive activities), charities and investment funds. 
Corporation tax is payable at the rate of 9 per cent on the income that exceeds the threshold to be set by the Cabinet. Resident companies will be taxed on taxable income derived from the UAE or outside the UAE, while non-resident companies will be taxed on taxable income from a permanent establishment in the UAE, UAE-sourced income or other income attributable to the nexus of the person in the UAE (to be determined by the Cabinet). Tax must be paid within 9 months from the end of the relevant tax period.

There are certain deductions and reliefs available. There are also special provisions for tax groups. Implementing regulations are expected to be published soon. 

The new Federal corporation tax regime fundamentally changes the historically low tax environment in the UAE. The move aligns the UAE regime more closely with aspects of global best practice, by adopting the global minimum effective tax rate under the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) 2.0 project, agreed in October 2021. Businesses need to assess the financial impact of corporation tax on their profits, to consider tax efficiencies and to ensure their internal processes are ready to meet the requirements to register for corporation tax and file annual corporation tax returns.

A new Civil Procedures Law (Federal Decree-Law No.42 of 2022) (the “Civil Procedures Law”) came into force on 2 January 2023, repealing and replacing the previous regime set out in the previous Civil Procedures Law (Federal Law No.11 of 1992) and UAE Cabinet Resolution No.57 of 2018. Proceedings in the UAE Courts are subject to the rules of civil procedure set out in the Civil Procedures Law.

Some of the key provisions of the Civil Procedures Law are substantially similar to the previous regime, including the scope of the UAE Courts’ jurisdiction, the rules regarding the enforcement of foreign court judgments and foreign arbitral awards and the rules regarding the enforcement of court judgments between Emirates. In relation to the enforcement of foreign court judgments and foreign arbitral awards, the enforcement judge must now issue an order within five days of the submission of the claim, instead of three days under the previous regime. 

Key procedural changes include:

• as an exemption to the general rule that the UAE Courts operate in the Arabic language, the President of the Federal Judicial Council or the President of the Local Judiciary has the discretion to decide that the language of a trial, the procedures, the judgments, and the decisions shall be in the English language (in relation to cases being heard before certain judicial circuits, or specific cases); and
• the use of telecommunication technology and remote attendance at proceedings is expressly permitted; and
• electronic signatures and electronic documents are permitted provided that the requirements of Federal Law on Electronic Transactions and Trust Services (Federal Decree-Law No. 46/2021) are met.

Other new laws in force with effect from 2 January 2023 include the new Law of Evidence in Civil and Commercial Transactions (Federal Decree-Law No. 35 of 2022) and a new Criminal Procedures Law (Federal Decree-Law No. 38 of 2022), which repeal and replace the relevant previous laws.

From 1 January 2023, amendments to the Value Added Tax (VAT) Law  passed on 26 September 2022 took effect (Federal Decree-Law No.18 2022 amending some provisions of Federal Decree-Law No. 8 2017). Key changes include:

• other supplies that are expressly considered outside the scope of VAT may be stipulated in implementing regulations;
• additional categories of goods (relating to transportation) are now subject to the zero-rate of VAT;
• new provisions regarding the recovery of input VAT which specify the requirements for the taxable person to recover VAT paid or declared on the import of goods or services;
• a mandatory requirement for the taxable person to pay the VAT to the Federal Tax Authority (FTA) in cases where that person issues a tax invoice stating VAT on it or receives an amount as VAT;
• provisions on FTA audit procedures (which may take place after the standard limitation period of five years where the FTA has notified the taxpayer of an audit prior to the expiration of the five-year window and completes the audit within four years of such notification); and
• other technical or clarificatory amendments.

New Federal virtual asset regulations (set out in UAE Cabinet Decision No.111 of 2022 On the Regulation of Virtual Assets and Their Service Providers) (“Virtual Asset Regulations”) govern the licensing and regulation of virtual asset sector in the UAE, including in the free zones. Virtual asset activities regulated by the UAE Central Bank (including stored value facilities) are outside the scope of the regulations. “Virtual Assets” are defined as a digital representation of value that can be digitally traded or transferred and can be used for investment purposes, but excludes the digital representation of fiat currency, securities or other assets.

In order to carry out specified virtual asset activities in the UAE, an entity must obtain a licence from the SCA or the relevant local licensing authority and it must be based in the UAE to conduct its business. The specified virtual asset activities for which a licence is required include providing:

• services for the operation and management of Virtual Asset Platforms.
• services for the exchange between one or more forms of Virtual Assets.
• services for the transfer of Virtual Assets.
• brokerage services in Virtual Asset trading.
• services for the custody and management of Virtual Assets and enabling control over them.
• financial services in connection with the Issuer's offer and/or sale of Virtual Assets or participating in the provision of such services. 

In order to obtain a licence, Virtual Asset Service Providers must meet certain minimum requirements as to, among other things, ant-money laundering and terrorist financing, data protection and cybersecurity (including notification to SCA of security risks and cybercrime), and SCA requirements as to capital, credit guarantees, securities and compliance management systems and controls. 

According to the regulations, the SCA has ultimate oversight of Virtual Asset Activities and Virtual Asset Service Providers across the UAE, including free zones. Coordination between the SCA, the local licensing authorities and the UAE Central Bank will be required. 

It remains to be seen how such coordination will work in practice, and the interplay between the Federal regime (set out in the Virtual Asset Regulations and regulations on crypto assets introduced in 2020 by the SCA (SCA Board of Directors’ Decision No.23 of 2020 concerning Crypto Assets Activities Regulation) (read more…) and the existing regulations relating to virtual assets introduced in the ADGM, DIFC and the Emirate of Dubai. 

The ADGM and the DIFC each have their own regimes for the regulation of virtual assets. The ADGM regime regulating virtual assets was introduced in 2018 and is incorporated in the Financial Services Markets Regulations 2015 (FSMR) and FSRA Rulebook modules. In the DIFC, the DFSA introduced the digital assets regime in two phases: an Investment Token regime was introduced in October 2021 (read more… ) and a Crypto Token regime (read more…) was introduced in November 2022. 

In the Emirate of Dubai, the Dubai Law No.4 of 2022 regulating Virtual Assets in Dubai was issued in March 2022 and regulates virtual assets activities in Dubai. The Dubai Virtual Assets Regulatory Authority (“VARA”) is the central authority for the virtual asset industry in Dubai, affiliated with The Dubai World Trade Centre (“DWTC”) Authority. Among VARA’s regulatory objectives is to develop the regulations, rules and standards required for regulating, supervising and overseeing virtual assets activities (including Virtual Asset Platforms, Virtual Asset Service Providers and all other matters related to Virtual Assets) (read more here and here…). The DWTCA and the SCA signed an agreement in September 2021 which establishes a framework enabling the former to issue the approvals and licences for the conduct of financial activities relating to cryptoassets within DWTCA free zones. Further, the Dubai Multi Commodities Authority (“DMCC”) announced the launch of their Crypto Centre as a new cryptocurrency and blockchain hub in May 2021. 

You can also read about developments in the fintech sector in our blog, FintechLinks.

Companies in the UAE are subject to a modernised regime relating to registration in the Commercial Register maintained by the competent authority in the relevant Emirate (the relevant Economic Departments). The framework set out in Federal Decree-Law No.37 of 2021 On the Commercial Register (read more… ) has now been supplemented by implementing regulations published by the Cabinet in Cabinet Decision No. 107 of 2022. The Implementing Regulations came into force on 16 November 2022,  the day after publication in the Official Gazette. 

Companies operating in the UAE, including those regulated by the Commercial Companies Law 2021, government-owned companies which carry out economic activity, decree companies, professional companies and branches, offices and agencies of foreign companies are required to register basic information in the Commercial Register. The Implementing Regulations set out the detail of the information to be registered with the Commercial Register, ranging from information about the company (such as licence details, address, activities, share capital, but not including constitutional documents) and its management, to information about the shareholders (including nationality). The Implementing Regulations are silent on any requirement to register security granted by a company over its assets in the Commercial Register.

The Implementing Regulations also clarify the information required to be included on the Economic Register, which includes information relating to intellectual property (such as trademarks and patents), commercial agencies. 

Some of the information on the Commercial Register or Economic Register may be published by the Ministry of Economy and the competent authority in the relevant Emirate on their websites, and an extract of such information on the relevant register may be provided to “any party having any interest or any person with the relevant capacity” who submits a request to the Ministry of Economy or the relevant competent authority. It is not clear from the Implementing Regulations who may be considered eligible to submit a request for an extract of a register.  

Draft regulations proposed by the Securities and Commodities Authority (“SCA”) would introduce a new regime for asset-backed securities, if enacted following a public consultation. 

The regulations govern securitisation transactions, under which assets are sold and transferred to a Special Purpose Vehicle (“SPV”) for the issuance of tradeable asset-backed securities (which may be backed by assets having a yield, revenue or receivables and which meet certain requirements). There is an exemption for securitisation transactions carried out by the Government.

SCA approval is required for an “originator” to incorporate the SPV. Certain conditions must be met as to form, constitutional documents, shareholding level of the originator, management and the ring-fencing of funds owed to the SPV from other funds owed to the originator.

SCA approval is also required for the securitisation transaction, and the SCA is expected to publish a template application form. The SCA will issue its decision to approve or reject the transaction within 30 business days of the application, which may come with conditions or restrictions. The draft regulations also set out requirements as to the securitisation transaction, including disclosure requirements for a private offering of asset-backed securities. Asset-backed securities may be listed and traded in accordance with applicable market rules and regulations. 

The timescale for implementation is not yet known.

New regulations in the Emirate of Abu Dhabi are expected to support Abu Dhabi’s clean and renewable energy targets for 60 per cent of the Emirate’s electricity being generated from clean and renewable sources by 2035, and up to 75 per cent reduction in carbon emissions per MWh produced by the electricity sector. The new regulations were announced in November 2022 at COP27, the United Nations climate summit in Egypt, by the Abu Dhabi Environment Agency and the Abu Dhabi Department of Energy. The Department of Energy’s “Clean Energy Strategic Target 2035 for Electricity Production in Abu Dhabi” regulatory framework is the first legally binding clean and renewable energy target in the Middle East for the electricity sector. It forms part of an ongoing energy transition to accelerate the UAE’s decarbonisation and green growth efforts. 

You can read more about global ESG developments in our Sustainable Futures blog. Find out more about COP27 in our dedicated COP27 microsite. 

You can find out more about ESG in the Middle East by listening to our podcast series – #LetsTalkESG – which shares insights from a range of industry experts as they discuss the transition, governance, and sustainability of ESG principles in the region. Please click here to explore our podcast.

In Abu Dhabi Court of Cassation judgment (1001-2021), the Court was asked to determine whether a debtor should be paid the balance of proceeds of sale of secured property, in circumstances where the court had determined the value of the properties to be AED 300m but where the properties were sold for AED 700m in the foreclosure proceedings.

Under UAE civil procedure, a creditor may file a case – called “an action to determine facts” – before the UAE courts requesting the appointment of an expert to investigate and opine on the amount of the debt in question. There is no requirement to file a substantive case in parallel to an action to determine facts.

In an action to determine the facts to establish the actual debt amount brought by the claimant debtor in the Abu Dhabi Court of First Instance, an expert opined that the debtor owed the amount of approximately AED 300m to the bank. The Bank sold the properties for a total value of approximately AED 700m in the foreclosure proceedings. The debtor then filed a new case before the Abu Dhabi Court of First Instance in which it claimed the difference between the amount recovered from the sale of two properties and the amount of the debt as established in the action to determine facts.

The Court of First Instance and Court of Appeal awarded the balance of the sale proceeds to the debtor, which amounted to approximately AED 400m. However, the Court of Cassation overturned the Court of Appeal judgment, on the basis that the court had no authority to address the substantive challenges the parties may raise against the expert report, as the decision in the action to determine facts does not extend to authority to determine the merits.

The new Companies’ Law, which was approved by Royal Decree No. M/132 dated 1/12/1443H (corresponding to 30 June 2022) is in force with effect from 19 January 2023, repealing and replacing the Companies’ Law of 2015 and the Professional Companies Law of 2019.

The following implementing regulations made under the Companies Law also came into force with effect from 19 January 2023:

• implementing regulations of the Companies Law issued by the Ministry of Commerce (Saudi Arabia Ministerial Decision No. 284/1444 On the issuance of the Implementing Regulation of the Companies Law dated 23/06/1444 H. Corresponding to 16 January 2023) (“MoC Implementing Regulations”); and
• amended Implementing Regulations for Listed Joint Stock Companies under the new Companies Law issued by the Capital Market Authority (“CMA”) are in force with effect from 19 January 2023 (CMA Board Resolution Number 8-127-2016 Dated 16/1/1438H Corresponding to 17/10/2016G) (“CMA Implementing Regulations”).

These regulations, to an extent, address similar topics for the different types of companies. 

The MoC Implementing Regulations regulate certain matters for companies, including:

• company incorporation;
• the appointment and term of the company's auditors
• the distribution of dividends (including interim dividends);
• company management, including guidance on the manner in which the new codified duties of care and loyalty and the rules on conflicts of interest set out in the Companies Law should be fulfilled. Again, while some provisions replicate the Companies Law, key provisions build on the Companies Law provisions by requiring managers and directors to:
  • work in good faith to achieve the interests of the company, and enhance the success and development of the company and maximise its value for the long-term benefit of partners or shareholders;
  • exercise their duties objectively and independently; and
  • carry out their duties and responsibilities with the reasonable skill of a diligent person, subject to their personal knowledge and experience, and the knowledge and experience expected of a person assuming such a position;
• conversion, merger (including mandatory offer, squeeze-out and sell-out provisions) and demerger; and
• liquidation.

The MoC Implementing Regulations also set out specific rules applicable to unlisted (referred to as “closed”) joint stock companies (“JSCs”), limited liability companies (“LLCs”) and professional companies, including:

• specific rules for unlisted JSCs on a range of matters, including in relation to appointment and resignation of directors, directors’ remuneration, the use of modern technology in calling and holding shareholder meetings, share buy-backs, share pledges, the issuance of different classes of shares (including preference shares and redeemable shares), the conversion of shares into another class or type of share, the sale of shares by public auction and the sale of pre-emption rights on the issuance of new shares. 
• specific rules for LLCs on a range of matters, including directors’ conflicts of interest and competing businesses, share pledges, pre-emption rights on the issuance of new shares; and
• specific rules for professional companies, including as to licensing requirements, a 25 per cent minimum national shareholding requirement where a professional company has a foreign professional company shareholder, management, rules relating to the ownership of financial and real estate assets and oversight by the relevant professional body.  

Key provisions of the CMA Regulations regulate the following matters for listed (referred to as “public”) JSCs:

• the appointment and term of the company’s auditors;
• the appointment and resignation of directors, directors’ remuneration; 
• guidance on the manner in which the new codified duties of care and loyalty the rules on conflicts of interest set out in the Companies Law should be fulfilled. While some provisions replicate the Companies Law, key provisions building on the Companies Law provisions by requiring that directors must:
  • work in good faith in the best interests of the company and all its shareholders, and promote the success and growth of the company and maximise its value for the long-term benefit of its shareholders;
  • exercise their duties objectively and independently; and
  • carry out their duties and responsibilities with the reasonable skill of a diligent person, with the general knowledge, skill and experience of that director, and that expected of a person assuming such a position;
• the authorisation (or refusal to authorise) business interests or contracts in which a director is interested; 
• the use of modern technology in calling and holding shareholder meetings, proxy voting, share buy-backs, share pledges, a share split or merger (referred to as a “Forward or Reverse Split”), dividend distribution (including interim dividends) and the sale of pre-emption rights on the issuance of new shares; and
• demergers.

Listed JSCs have a two year grace period from 19 January 2023 to comply with the new regulations (according to CMA Resolution Number 8-5-2023 Dated 25/6/1444H Corresponding to 18/1/2023G).

Saudi Arabian companies should consider the impact of the new Companies Law and related regulations on their businesses. Directors and managers must be familiar with, and ensure they comply with, their duties and obligations under the new regime. 

Saudi Arabia Cabinet Decision No. 377/1444 on the Approval of the Controls of Contracting between Government Agencies and Companies that Do Not Have a Regional Headquarters in the Kingdom, issued on 27 December 2022, imposes new restrictions which prevent government agencies (including government bodies, authorities and public institutions) from contracting with companies with no regional headquarters in the Kingdom (or any related party) in the course of carrying out their business and making purchases, except in accordance new “controls” (subject to certain exceptions). Compliance is required with effect from 1 January 2024 (corresponding to 19/6/1445 AH).

The controls are mandatory for government agencies, whether they are subject to the provisions of the Government Tenders and Procurement Law or to any other laws or regulations. It is possible for government agencies to request an exemption from the restriction on contracting with companies with no regional headquarters in the Kingdom either for a specific project or period of time. The request must be made to a new Committee which will have responsibility for considering requests for exemptions from the controls, provided that the request is made before the tender is held or the direct contracting procedures are initiated, and that the request includes the specified information set out in the law. 

The Committee may accept or reject the request, depending on whether it deems an exemption to be in the public interest. The decision may include any requirements or restrictions that the Committee deems appropriate. 

The new regime is designed to encourage international companies seeking Government contracts to have their regional headquarters based in Saudi Arabia, and so promote Saudi Arabia as a regional business hub, as well as facilitate greater investment and employment and training opportunities for Saudi nationals in line with Vision 2030.

This is likely to encourage new multinationals entering the regional market choosing Saudi Arabia as their headquarters in MENA, and companies which already have a presence in MENA relocating their headquarters from elsewhere in the region to the Kingdom. The Government of Saudi Arabia is also incentivising multinationals in relocating their regional headquarters to Saudi Arabia, under the Regional Headquarters in the Kingdom of Saudi Arabia (RHQ) programme, which was established as a joint initiative between MISA and Royal Commission for Riyadh City (RCRC).

New rules regulating cross-border bankruptcy procedures were issued in December 2022, according to reports. Saudi Arabia’s Bankruptcy Law and related regulations provide a modernised framework for resolving corporate distress or failure and came into force in 2018 (Royal Decree No. M/05 dated 28/05/1439H (13/02/2018G) corresponding to 14/02/2018G and implementing regulations (Cabinet Resolution No.(622) dated 24/12/1439 AH). 

The rules are intended to regulate the recognition and enforcement of foreign bankruptcy procedures in Saudi Arabia, including matters such as assistance by the Saudi Arabian Courts or trustee in connection with foreign bankruptcy proceedings to foreign officeholders involved in such procedures. Rules on cross-border co-operation have been anticipated for some time, given detailed provisions on such matters are not set out in the Bankruptcy Law and regulations.

Changes to the Personal Data Protection Law (Royal Decree M/19 of 9/2/1443H ) (“PDPL”) were the subject of public consultation by the Saudi Data and Artificial Intelligence Authority (“SDAIA”) in December 2022. 

The PDPL is not yet in force. It is due to come into force in March 2023, and it is possible that if the proposed amends are enacted and come into force 180 days after it is published in the Official Gazette, the March 2023 compliance deadline may be postponed. 

The PDPL is the first comprehensive data protection law in Saudi Arabia, addressing issues such as the privacy of personal data, data sharing, controller obligations, including registration and maintenance of data processing records, data subject rights, and penalties for breach of provisions. 

The proposed amendments address the following key issues:

• relaxations on the restrictions on the transfer of personal data outside of Saudi Arabia or the disclosure of such data to a party outside the country, provided the transfer will not adversely affect the national security or vital interests of the nation;
• a further legal basis on which organisations can rely on for the processing of personal data on the basis of their lawful interests, provided that the personal data concerned is not sensitive and the data subject’s rights and interests are not prejudiced; 
• clarification of the statutory threshold that must be met to trigger the need to notify a data breach to the regulator (including where this is capable of causing harm to the data subject or to their rights or interests);
• stricter conditions on data processing for marketing purposes; and
• greater powers for the regulator, including around cross-border co-operation with other regulators and enforcement action.

A new Law of Trade Remedies in International Trade was approved by the Council of Ministers to regulate the conduct of anti-dumping, countervailing (anti-subsidy) and safeguard investigations and the imposition of trade remedies on imports into the Kingdom. In addition, it provides authority to the General Authority for Foreign Trade (GAFT) to conduct anti-dumping, countervailing and safeguard investigations and impose measures on imports into Saudi Arabia.

The Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents (also known as the Apostille Convention) came into force in December 2022, pursuant to Royal Decree No. M40/1443 (corresponding to 27 December 2021). 

This development makes the process of certifying documents signed in a foreign jurisdiction for use in Saudi Arabia or vice versa quicker and simpler, as documents can be legalised by apostille, rather than a lengthier and more expensive process of legalisation through consular offices. 

The Apostille is an official government-issued certificate added to documents so they will be recognised and accepted in another country that is a member of the Apostille Convention. Where a Saudi Arabian document is to be used in a foreign jurisdiction, it can now be legalised with an apostille by the Saudi Ministry of Foreign Affairs. Consistent market practice may take time to develop as the adoption of the Apostille Convention is new law. 

The Saudi Arabian Capital Markets Authority recently published Draft Rules for Foreign Investment in Securities for public consultation. The proposed rules would regulate the requirements for foreign investment in listed securities, debt instruments and investment funds, under the Capital Market Law regime (Decree No. (M/30) dated 2/6/1424H).

Currently, investment in Saudi Arabian joint stock companies that are listed on the Saudi Exchange’s Main Market is restricted to those foreign investors who are: 

• “Foreign Strategic Investors” (“FSIs”), according to the Instructions for the Foreign Strategic Investors’ Ownership in Listed Companies, which allows the foreign investor to invest in listed companies shares; or
• “Qualified Foreign Investors” (“QFIs”), according to the Rules for Qualified Foreign Financial Institutions Investment in Listed Securities, which allows the foreign investor to invest in all listed securities, 

in each case, subject to certain conditions.  

Under the proposed new rules, investments made by non-resident foreign investors in shares listed on the Main Market would be restricted to: 

• FSIs;
• QFIs;
• the ultimate beneficiary in a swap agreement with a capital market institution; or 
• a foreign investor which is a client of a capital market institution licensed by the CMA to conduct “managing activity” (provided it can make all investment decisions on behalf of the client).  

Conditions must be met in order to invest, many of which mirror the current regime. For example, a foreign investor may not own 10 per cent or more of the shares or convertible debt instruments of any Saudi Arabia issuer and the maximum proportion of the shares or convertible debt of any Saudi Arabia issuer owned by all foreign investors should not exceed 49 per cent in aggregate. QFIs must manage a minimum amount of SAR 1.875bn (approximately USD 500m) in assets. FSIs are restricted from selling their shares for a two-year period after it acquired the shares.

The rules set out various conditions and requirements for capital market institutions to be able to enter into swap agreements with non-resident foreign investors for the purpose of transferring the economic benefits of securities listed on the Saudi Exchange to these investors, including that the capital market institution must be authorised to conduct “dealing activity”, the foreign counterparty/ultimate beneficiary must have no voting rights in the shares. 

The timescale for implementation is not yet known.

The Ministry of Energy, Industry and Mineral Resources recently consulted on a draft law on Petrol and Petrochemical Materials. If enacted, it will replace the current Law on Trading Petroleum Products enacted by Royal Decree M/ 18 dated 28/ 01/ 1439 H (corresponding to 18 October 2017).
The draft law aims to regulate commercial activity related to trade in petrol and petrochemical operations, including:

• petrol operations, including using, purchasing, transporting, storing, importing, exporting, filling, treating petroleum products, or establishing or operating a refinery, terminal or distribution station; and
• petrochemical operations, including producing, processing, selling, purchasing, distributing, transporting, storing, importing or exporting petrochemical materials, or operating a petrochemical plant.

Any person who carries out any such activity without a licence may face penalties, including licence suspension for up to three years, a ban on licence renewal for up to five years, licence revocation, imprisonment and/or fine up to a maximum of SAR 30m.

The Qatar Central Securities Depository has launched the Security Register, which is an electronic register of security interests over movable assets granted in favour of the relevant entities or individuals pursuant to Qatari Law No.16 of 2021 on the Mortgage of Movable Assets and Decision No.1 of the QCB Governor on the procedures for regulating the moveable assets security register. The development follows the establishment of similar security registers under modernised movable assets security regimes in other GCC states, including the UAE and Saudi Arabia.

Qatar’s regime for public procurement and government contracts, as set out in Executive Bylaws of the Law on the Organization of Tenders and Auctions No.16 of 2019, has been amended pursuant to the Council of Ministers Resolution No.11 of 2022. Some of the most important changes streamline and accelerate the procurement process, with the introduction of timelines by which various bid processes must be completed, and introduce the concept of ratios to measure bidders local investment which is to be taken into consideration in the procurement process.

There is renewed focus on the Middle East to show leadership and initiative on tackling issues of climate change, particularly in the lead up to the 2023 United Nations Climate Change Conference, also known as COP28, which will be held in the UAE. 

In 2023, we anticipate that ESG-led initiatives may more solid legislative form, with a focus on sustainable finance (for example in the ADGM, with the proposed Sustainable Finance Regulatory Framework), clean and renewable energy initiatives (as set out in new regulations in Abu Dhabi) and continued embedding of corporate social responsibility in corporate governance (for example, in Saudi Arabia, the Companies Law 2022 anticipates future regulations on corporate social responsibility in the Kingdom). The DIFC and the Global Ethical Finance Initiative’s partnership (announced in October 2022) has the potential to lead to future changes, as it intends to bring the global finance community together to advance thinking and action relating to climate and ESG principles in the year leading up to COP28. 

Investment activity is expected to focus on renewable energy in 2023, as regional economies transition from their historical reliance on hydrocarbons to becoming more balanced and sustainable economies focused on a greener future. You can read more about some of the latest announcements made by GCC states at COP27 Energy Day in our recent blog post. You can read more about global ESG developments in our Sustainable Futures blog.

2022 saw the introduction of new regulatory regimes for digital assets in the UAE, Dubai and the DIFC, and new guidance on the approach to regulation in the ADGM (which adopted the first digital asset regulatory regime in the MENA region in 2018). The local courts are starting to grapple with the complexities of adjudicating crypto-related disputes, as evidenced by recent proceedings in the Dubai Courts. 

The global regulation of digital assets is entering a new phase, as regulators move towards more comprehensive regulatory regimes for issuers and service providers. As international regulators start to regulate wider forms of digital asset activity and impose higher compliance standards, in 2023 we may see greater focus by regional regulators on overseeing digital asset activities and markets and the evolution to more comprehensive regimes. Payment systems are expected to be a particular focus as consumer preference for digital payments grows, accelerated by the Covid-19 pandemic, and government support for tech-focused solutions continues. UAE regulators may issue guidelines for banks and financial institutions regarding the use of new technologies to offer innovative products and services, such as application programming interfaces (APIs), artificial intelligence and distributed ledger technology (DLTs). Joint consultation efforts between the UAE Central Bank and financial services regulators in the UAE, the DIFC and the ADGM (launched in June 2021) may yield tangible results. In 2023, the UAE Central Bank may take further steps towards the introduction of its Central Bank Digital Currency (CBDC) and related governance framework, following a pilot test conducted in late 2022. The Saudi Central Bank is expected to consult with market participants on a new regulatory framework for open banking and the use of enabling technologies.

Further changes to legal and regulatory frameworks in the region, predominantly in line with regional and global developments, are expected to continue in 2023. 

In recent years, an extensive programme of modernisation has woven aspects of international best practice into the commercial legal landscape, with many GCC states adopting new companies law regimes, relaxing foreign investment rules and introducing new frameworks for electronic transactions, data protection, taking security over moveable assets and bankruptcy, among other things. These changes evidence a clear recognition that compliance with international business standards will help inbound and outbound investment succeed and so enable the non-oil economy to flourish.

We expect that the adoption of legislative measures in the course of 2023 will continue to drive activity in the region and build confidence in a predictable legal environment for companies and investors in the GCC.