On 17 September 2024, the Council of Ministers of the Kingdom of Saudi Arabia (“KSA”) has approved a new Commercial Register Law. Effective 180 days after publication in the Official Gazette, the new law will replace the current Commercial Register Law (issued by Royal Decree No. M/1, dated 19 July 1995). The new law aims to foster a more attractive environment for businesses operating in the Kingdom in line with Saudi Vision 2030. All business entities operating in Saudi Arabia are required to consider the new legislation and amend existing commercial registrations and business operations, if and where necessary. This legal briefing provides an overview on some key aspects of the new law.
1. What is the reason for the adoption of the new Commercial Register Law?
In line with Saudi Vision 2030, the new Commercial Register Law aims to promote a more business-friendly environment in the Kingdom. The legislative objective is to facilitate and simplify commercial activities in the Kingdom by streamlining registration processes and ensuring the accuracy, transparency and reliability of electronically recorded data.
The new law was approved on 17 September 2024. It was subsequently published in the Saudi Official Gazette (“Umm Al-Qura”) on 4 October 2024 and will come into effect 180 days after such publication. It will replace the current Commercial Register Law (issued by Royal Decree No. M/1, dated 19 July 1995).
2. What are the key aspects of the new law?
The new Commercial Register Law introduces a single unified nationwide electronic commercial register which will allow businesses to carry out their business activities without the requirement of region-specific registrations in subsidiary registers. Following the entry into force of the new law, the regional approach where commercial registers are maintained based on administrative regions will be replaced by only one nationwide commercial register covering the entire Kingdom.
Businesses will only require one single national commercial registration for intended business activities and for all branches eliminating the previous requirement to obtain separate registrations. The aim is to reduce the financial burden on businesses.
According to the new law, businesses will be required to update the register within 15 days from the occurrence of any change or amendment to the data entered in the commercial register.
Another key feature of the new law is the elimination of an expiration of commercial registrations (i.e., a fixed validity period of registrations) and the need to renew the commercial register periodically. However, under the new law, businesses will need to annually confirm their registration data electronically by way of an annual confirmation statement to be submitted every twelve months from the date of issuance. Whilst this requirement aims to simplify commercial activities, it also ensures the accuracy and transparency of the commercial register data. Businesses need to complete the annual confirmation latest within a grace period of 90 days from the due confirmation date.
In case of non-compliance, the registration is subject to suspension, and should confirmation not be given within one year, the entity’s registration will generally be subject to automatic cancellation. Additionally, fines may be imposed.
The new Commercial Register Law provides for alternative measures to financial penalties in cases of non-compliance, including warning and corrective actions. These measures may be imposed by the competent authority instead of or alongside financial penalties.
The new law requires businesses to operate through bank accounts that are linked to their business to enhance reliability and ensure integrity of transactions.
3. What do businesses need to consider?
The new Commercial Register Law grants businesses a five-year grace period for adjusting their existing subsidiary commercial register structures, starting from the effective date. The new law also provides that all subsidiary commercial registers shall be cancelled at the end of the grace period pursuant to a mechanism to be determined by the Ministry of Commerce. For timely compliance, businesses will have to review their current registration structures and take the required measures. Depending on the individual case, this may include a transfer of rights, obligations, and assets connected to existing commercial registers. As per guidance issued by the Saudi Ministry of Commerce, companies will be required to either transfer the subsidiary register to another entity to be the main register, transfer the subsidiary register to a new company, or cancel the subsidiary commercial register and transfer its assets and activities to the main register.
4. What are the potential challenges and implications for businesses?
While the new Commercial Register Law introduces several advantages, businesses may face certain challenges during the transition. The shift to a unified nationwide commercial register will require significant administrative adjustments, particularly for large companies with extensive operations across different regions. Businesses may need to invest in systems and resources to ensure compliance with the new requirements, such as annual confirmation statements and timely updates to the register.
Moreover, the cancellation of subsidiary registers after the five-year grace period could lead to complex legal and operational implications. For instance, transferring rights, obligations, and assets linked to these registers might involve renegotiating contracts, reassessing tax structures, or addressing potential disputes with stakeholders.
Lastly, non-compliance risks – ranging from fines to suspension or cancellation of registrations – highlight the need for robust internal controls and proactive legal and regulatory monitoring. Companies should also be prepared for further clarifications and implementing regulations that may add nuances to compliance obligations.
By identifying and addressing these challenges early, businesses can navigate the transition effectively and leverage the opportunities presented by the new Commercial Register Law.
5. Conclusion & Outlook
The adoption of the new Commercial Register Law is another important step in modernizing the Kingdom’s business landscape and enhancing its attractiveness for (foreign) investors. The new law will also contribute to improving transparency and accuracy of business data and will enable interested parties to easily access relevant data. New and existing businesses with operations in Saudi Arabia are required to familiarize themselves with the new set of rules. Existing businesses will also have to review their existing primary and subsidiary registrations to ensure timely compliance with the new law and to amend their business operations, if and where necessary (for example, where contracts or assets are linked to registrations in subsidiary registers). Businesses should also check the official channels for the adoption of Implementing Regulations for the new Commercial Register Law and the publication of administrative guidance on the application of the new law.
Given the rapid transformation that the Kingdom currently witnesses under Saudi Vision 2030, businesses with operations in Saudi Arabia are generally well advised to regularly check the legal landscape and official channels for relevant reforms and legislative changes. For example, in its meeting held on 17 September 2024, the Saudi Council of Ministers also approved another significant piece of legislation to be considered by business entities operating in KSA. The newly approved Trade Names Law will replace the current Trade Names Law (issued by Royal Decree No. M/15, dated 20 November 1999). The new law aims to enhance the protection of trade names in the Kingdom and to streamline the processes for reserving and recording trade names in the commercial register.
Dr. Constantin Frank-Fahle, LL.M.
Founding Partner
DE
EN