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Juan Pablo Ovalle Arana, Country Counsel, IBM Colombia

For a non-millennial, old-fashioned lawyer, as I am, technology is challenging and represents a large area to explore. At IBM, we are expected to be acquainted and familiar with technology. From an operational perspective, there is a need for lawyers to be tech savvy and understand the technology.

And, it is our responsibility, as professionals, to improve the use of technology and encourage the use of it.

The way lawyers use technology has evolved in the past years and, in my view, we have made progress, but there is still a journey ahead of us. When I joined IBM – eight years ago – you could provide a quality service to your internal clients by knowing the business and products. Now everything moves at a faster pace: regulations have changed, so the only way to catch up with new regulations is by using technology – especially when you work in the fintech environment. As in every industry, there is always room for improvement, and the only way to do it is creating a culture of continuous learning, including hard and soft skills on your learning journey.

Emergent technologies are real, and we have to live with them. Technology is not here to replace a lawyer’s work, but rather to enhance it. There is a human factor that lawyers provide – interpretations, judgement, decisions, solutions and knowledge of legal systems and a particular business situation – that needs to be part of the entire law system – that is why technology and human knowledge are complementary. On the other hand, if a lawyer keeps up with the different technological changes and embraces new technologies, the exercise of the legal profession will be improved. In fact, I believe you will become a better professional.

As with many other countries in the region and globally, Colombia is starting its journey in the use of technology in different professions. Incorporating, for example, AI within in-house legal departments is helping law firms focus in what is really important – their clients – while technology ensures documents are processed in a faster and accurate way, what translates in better services for the clients and time saving for the lawyers.

Where technology is headed is a tricky question – I certainly don’t have an answer to that. New technologies emerge all the time and they develop quickly, so it is very unpredictable. It is hard to predict what’s going to happen, and, what is actually going to come up next and what you think is going to come up next, are not the same thing.

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Marcos Jarne, General Counsel, Nubank

Nubank is a Brazilian fintech founded with the objective of fighting complexity in the financial market by offering intuitive products and services. It has grown a lot since I joined, more than four years ago, to start and build the legal team.

Today, Nubank has more than 20 million clients (it is considered the largest digital bank outside Asia) and has recently expanded beyond Brazil to explore other Latam countries. And we are still at the beginning of our journey. One of the secrets to such hyper growth is the focus on the customer. We structure ourselves in four pillars: user experience, design, technology and data science. Technology has allowed us to get where we are today, but the human factor makes the company stand out.

The legal team, like other teams in the company, uses technology to manage information and data to assist in decision making. We have created internal tools to manage certain matters we deal with and which enable us to interact with other teams more efficiently. A current focus for us is smart contract management through a combination of technology and AI.

As a company, even as we increasingly use AI in our daily work, it is worth emphasising that we don’t delegate responsibility for decisions to machines. AI enables richer insights from data and improves the quality and speed of decision making. However, at the end of the day, humans remain accountable for making decisions. We are always called upon to use our judgement in the way we use the information we obtain from AI.

That is why in-house lawyers must be what I would call architects or designers of solutions. In many negotiations and decision-making processes, the human component is essential. Understanding body language and anticipating movements based on a repertoire inaccessible to machines is not an exact science. Science can help and will, more and more, but I believe there will always be a human in the loop, at least for the foreseeable future.

Technology will indeed replace repetitive and administrative tasks. It already allows better management of documents, streamlined due diligence processes and court decisions monitoring. However, lawyers – assisted by an increasingly powerful array of technology and AI tools – will continue as key players in designing solutions.

The legal market as a whole needs to be more prepared for a technological future. Law professionals must learn to harness the power of data and AI as a natural evolution of the profession. It is auspicious the emerging trend of law schools teaching courses on data and technology, and law firms introducing tech to their daily work.

Inside a tech company it’s very enriching to have people from different areas sharing their ideas and seeing how synergies are created between lawyers, engineers, business analysts, designers or data analysts. These interactions contribute a lot to deeply understanding how technology can be a further ally in developing better products, services and solutions, including in the legal area.

All in all, technology is definitely something that is already helping in-house teams and the legal market. And it will help even further, there is no way to avoid it. The key point is understanding how technology can add value while being aware of the importance of legal ethics, data protection and accountability in such discussions.

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Speak First: Ilse van Gasteren

I became a lawyer not at all on purpose. At university in the Netherlands, I studied law as a way to fulfill the general studies requirement before moving on to my intended focus of international organizations and politics. But I liked the law and decided to stay with it.

As a junior lawyer, the idea of approaching clients, even to make small talk, was intimidating. It helped me to start thinking of clients just as people. I started building relationships at a personal level first, which made it more comfortable to discuss business and generate work. I used to think that I had to impress the most senior person, but now I encourage my junior colleagues to make contacts among their peers; they will grow with you and become the important decision-makers in due time.

Gender equality issues are very important to me. One thing I would say to women in particular is to make sure your voice is heard. It’s stereotypical, but I struggled with this for years. During meetings, I would “wait my turn” and invariably regret it because someone else would speak up first and make my point. I learned strategies during leadership training, such as how to present myself effectively, and picked up some nice tips, such as agreeing with the partner in advance of a meeting that I would take a certain slot.

I love my work, but the absolute positive in my career is the combination of being a lawyer and being part of my firm. I joined in 2001, based partly on the recommendation of a friend who was already working here. I wasn’t out as an LGBT+ lawyer at the time, and I worried that it might become a problem if, as it happened, I decided to come out later on. Then I learned that there were a number of openly gay partners in our Amsterdam office. That’s honestly the reason I chose my firm.

I have gotten a lot of support from the senior partners in my group. As a counsel, I worked part-time for about five years. By then, my wife and I were sharing the responsibility of taking care of our young children. I had to be very strict about my arrangements with the firm, which wasn’t easy, but I was also very lucky to be working with a partner who really got it. He understood that Mondays were my day off and fully supported me in pushing assignments to Tuesdays, wherever possible.

Like so many women in our profession, I struggled with the decision to leave my comfort zone and take the next step to partnership. I also remember telling my daughter, who by then was six years old, that anything is possible if you want it – that you just need to grab opportunities because it’s not a problem if you fail. It was a real eye-opener to discover that I was not following my own advice!

So here’s my advice, nothing new but very important: dare to take risks.

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Commentary | Hassan Radhi & Associates

Since its inception in 2006, the Central Bank of Bahrain (CBB) has relentlessly worked towards maintaining the monetary and financial stability in the Kingdom of Bahrain.

The CBB facilitates market innovation and encourages the use of training and technology to enhance the competitiveness in Bahrain’s financial sector.

One of the key recent developments in the financial sector has been the establishment of the Fintech & Innovation Unit by the CBB, which is dedicated to ensuring the best services to individual and corporate customers in the financial services sector by nurturing FinTech and innovation. The CBB’s FinTech & Innovation Unit is also responsible for the approval process to participate in the regulatory sandbox, supervision of authorised sandbox companies’ testing progress, monitoring technical and regulatory developments in FinTech – both regionally and internationally – in addition to taking the lead on strategic FinTech initiatives

The regulatory sandbox is a key tenet of this strategy and will allow FinTech firms and digitally focused financial institutions around the world to test and experiment with their banking ideas and solutions. The regulatory sandbox is a virtual space for both CBB-licensed financial institutions and other firms to test their technology-based solutions relevant to FinTech or the financial sector in general.

As part of the Global Financial Innovation Network, the Central Bank of Bahrain is inviting applications from firms wishing to test innovative financial products, services or business models across more than one jurisdiction.

Through initiatives like the regulatory sandbox, Bahrain has quickly become the Fintech hub of the Middle East. Bahrain FinTech Bay is the leading FinTech Hub in the Middle East and Africa. This is MENA’s most dynamic and diverse FinTech network, which provides a dedicated FinTech co-working space, with state of the art meeting rooms, innovation labs, acceleration programmes, curated activities and educational opportunities.

The CBB is continuously introducing initiatives to provide the right mix of policies and products to enhance the activity, funding, quality, and competitiveness of financial sector services. As a result of such initiatives, startup technology businesses, as well as leading-edge technology businesses are attracted to Bahrain as a domestic and regional base to pursue their FinTech strategies. This reflects positively on the availability of financial support services and thus, on the financial services sector in Bahrain.

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Commentary | Sabeti & Khatami

Iran is situated at the geographic nexus of the Middle East, Levant, Russia, Central Asia and Indian subcontinent. It connects the Caspian Sea and the Persian Gulf, and lies on the ancient and modern route from the Mediterranean to the subcontinent and China. It shares land borders with Iraq, Turkey, Armenia, Azerbaijan, Turkmenistan, Afghanistan and Pakistan; and is a maritime neighbour of Russia, Kazakhstan, Oman, UAE, Qatar, Bahrain, Saudi Arabia and Kuwait. It is the only country connecting the two large energy fields of the Caspian Sea and Persian Gulf regions, and itself ranks among the top five countries globally in both oil and gas reserves.

Iran’s area approximates Western Europe’s. Ringed by mountains and waters, it has had stable and secure borders for centuries, and benefits from internal stability in a tumultuous region. Iran’s civilisation, culture and language have long been resonant throughout the region. Persian was the language of administration and culture for the Mongols and Arabs and in India; it is spoken in over 25 countries today, about the same as Chinese and Spanish.

Iran’s population of over 85 million people is slightly larger than Germany’s, with about two-thirds under the age of 30. A quarter of the population have university degrees and nearly 60% of university-age people are enrolled in university.

Iran is a middle-income country with a nominal 2018 GDP of about USD 450 billion (IMF). It has an industrialised and relatively diversified economy. While oil, gas and petrochemicals are preponderant, there are notable manufacturing, mining, metals, agriculture, power and water sectors. In the past decade, Iran has witnessed rapid growth in the renewables, technology and e-commerce industries as well.

An otherwise attractive market, Iran’s business environment has been significantly affected by US-led economic sanctions unprecedented in their scope and harshness. The country experienced a relatively short respite from most sanctions and a modest increase in foreign investors’ participation following the 2015 Iran nuclear deal (otherwise known as the JCPOA) and prior to the US withdrawal from the JCPOA in May 2018. Current US sanctions targeting key sectors (such as oil, petrochemicals, metals, automobiles and aviation) and the Iranian banking system have constrained trade and diminished the access of almost all business sectors to capital and cross-border banking services.

ATTRACTIONS AND CHALLENGES OF DOING BUSINESS IN IRAN

The key attractions of doing business in Iran are its large consumer market, educated workforce, diverse economy, infrastructure investment needs, potential as a regional hub and new paradigms of privatisation and foreign investment. On the other hand, US primary and secondary sanctions, risk perceptions of foreign financial institutions, an inadequate domestic financial system, a weak private sector, complex and unreceptive regulatory environment, out-dated labour and corporate laws, and FX volatility constitute the key challenges of doing business in Iran.

PRIVATISATION AND THE GOVERNMENT’S ROLE

Iran’s economy has been characterised by the wide presence of state and quasi-state entities. Against this background, the government embarked on an ambitious privatisation initiative in the early 2000s, resulting in the promulgation of a major privatisation law in 2008 and its implementation thereafter. Over a decade later, the expansion of direct government ownership is tightly controlled, but containing indirect control of state and quasi-state entities over the economy remains an elusive objective. The private sector, struggling to simultaneously cope with sanctions and a cumbersome financial and regulatory environment, still plays a relatively small role in the national economy.

Article 44 of the Constitution divides the national economy into three sectors: public, private, and cooperative. Sectors such as agriculture, commerce, and services are open to the private sector, but Article 44 requires government ownership and control of, among other things, major industries, foreign trade, mining, banking, insurance, airlines, roads and railway. Yet, the Constitution also allows for possible reorganisation of the national economy and, invoking this Constitutional flexibility, several legislative changes have expanded the economic sectors open to private participation.

The first major steps were taken between 1990 and 1995 under the first five-year development plan, where private participation in foreign trade and in the service sector was explicitly permitted and actively encouraged. Privatisation efforts continued under the third five-year development plan between 2000 and 2005, during which the government established the Privatisation Organisation charged with planning and implementing privatisation initiatives. A significant development took place on 14 June 2008 when the parliament amended the fourth five-year development plan and passed the law implementing the general policies of Principle 44 of the Constitution (commonly known as the privatisation law), which was later amended several times.

The privatisation law introduces three categories of economic activities and enterprises. The first category consists of any activities that do not fall within the purview of the second and third categories. The right to invest in, own, and manage these enterprises exclusively belongs to the private sector.

The second category consist of ‘major industries’ other than those falling within the purview of the third category. Examples include banking, insurance, power, large mines, roads and railway, as well as certain large industries with sensitive know-how and production capacity exceeding 30 per cent of the country’s needs. These enterprises are generally open to private participation, but may be subject to some restrictions, especially in industries such as banking and insurance. The government must transfer 80% of its ownership in these major industries to private and cooperatives sectors.

The third category of economic activities and enterprises are those in which private investment, ownership, and management are prohibited. Here, the private sector may only participate by way of providing financial, technical/engineering, and management services.

This third category includes the following enterprises or activities:

    • primary telecommunication, electricity distribution and postal networks;

 

    • large dams and water supply networks;

 

    • oil and gas fields;

 

    • oil and gas extraction and production companies;

 

    • the National Iranian Oil Company;

 

    • the Central Bank of Iran (as well as specified other banks);

 

    • the Central Insurance of Iran;

 

    • Iran Insurance Company;

 

    • Iran Civil Aviation Organisation;

 

    • Iran Ports and Maritime Organisation;

 

    • manufacturing of specified security, military, and police equipment; and

 

    • radio and television.

FOREIGN INVESTMENT

Iranian law now allows full foreign ownership in most economic sectors, while the Foreign Investment Promotion and Protection Act 2002 (FIPPA) and its implementing regulation 2002 (the FIPPA Regulation) offer a number of incentives and protections for those who obtain a license under FIPPA. Examples include protection against nationalisation and expropriation, national treatment, guaranteed repatriation of investment proceeds and a simplified visa procedure.

FIPPA and the FIPPA Regulations set up the main legal framework for foreign investment while other, sector-specific legislation supplements this framework (e.g., Implementing Directive on Foreign Investment in Exchange Markets and Over-the-counter Markets 2010).

FIPPA allows foreign direct investment in the private sector. In the public sector, foreign investment usually takes the form of contractual arrangements such as buy-backs, BOOs and BOTs. FIPPA imposes restrictions on total foreign ownership in each sector and industry: under Article 2(d) of FIPPA, the value of goods and services produced by all foreign investments within a sector and within an industry must not exceed, respectively, 25 per cent and 35 per cent of the total value produced in such sector and such industry, respectively.

FIPPA licenses are issued by the Minister of Economic Affairs and Finance based on assessment of proposed investments by the Organisation for Investment, Economic and Technical Assistance of Iran, which is the official authority in charge of foreign investment matters. Investments by Iranian nationals which have foreign sources are also considered foreign investment under FIPPA.

Iran has entered into bilateral investment treaties with close to 60 countries, and double taxation treaties with about 45 countries

MARKET ENTRY

In most cases, those interested in doing business in Iran enter the market by:

  1. establishing or acquiring a subsidiary (including for the purpose of incorporated joint venture arrangements);
  2. opening a branch or representative office;
  3. establishing an unincorporated joint venture arrangement with local entities; or
  4. entering into a sale or distribution agreement with a local entity.

Establishing or acquiring a subsidiary allows the parent company to engage in the full range of corporate activities, but the subsidiary will be taxed like a domestic company. Setting up new subsidiaries entails going through time-consuming, and at times burdensome incorporation and registration process. In contrast, acquisition of an existing local entity may be attractive particularly where the entity holds the necessary licenses, land or other relevant assets or know-how. However, such acquisition requires careful due diligence to avoid inadvertent assumption of existing liabilities. In recent years, there has been an increase in the number of M&A transactions in Iran, resulting in an increase in the number of acquisition opportunities for potential foreign investors.

Foreign companies who wish to have a limited local presence may open a branch or representative office, which can engage in a number of activities such as conducting market research, marketing, overseeing performance of contracts, providing after-sale services or providing services in relation to transportation, insurance and inspection of sold goods. A branch does not need to take a corporate form, and is exempt from corporate income tax as long as it does not conduct any commercial activity. In conducting regular business through a branch or a representative office, the parent company must ensure compliance with labour laws and financial reporting requirements.

Entering into joint venture arrangements with local counterparts (whether or not through a joint venture company) is also a common approach but requires careful structuring to avoid legal, tax and operational hurdles. Unincorporated joint ventures are governed by contract law principles, and there is no requirement to publicly announce or register them.

Finally, sales and distribution agreements are another option allowing market presence through local representatives or agents while managing liabilities and risks. Their key advantage is the flexibility they afford the parties in determining the extent of their respective rights and obligations.

CORPORATE MATTERS

Common corporate vehicles used by foreign participants to establish an Iranian entity are private joint stock companies and limited liability companies. However, corporate registration and maintenance in Iran can be quite demanding due to a formalistic and sometimes inconsistent approach taken by the corporate registrar; it therefore requires time and involvement of senior management to avoid the onerous liabilities for a company and its directors that can follow from unintended lapses.

Private joint stock companies Limited liability companies
Minimum capital IRR 1 million IRR 1 million
Minimum number of share- or stock-holders Three Two
Liability of each share- or stock-holder Limited to the nominal value of shares held by shareholder Limited to amount of capital contribution by stockholder
Board of directors At least three members from amongst shareholders, elected for a maximum period of two years At least one member from amongst stockholders or non-stockholders

 

The Commercial Code 1932 recognises seven types of corporate vehicles: general partnership; limited partnership; limited liability company; public and private joint stock company; cooperative society for production and consumption; joint stock partnership; and proportional liability partnership. Among these, limited liability companies and private joint stock companies offer stockholders more control and better management of liabilities, hence their popularity with foreign investors. The principal features of these two are as follows:

REGULATORY ENVIRONMENT.

Iran has a complex, multi-layered, overlapping and at times ambiguous regulatory environment, and a significant number of new regulations are issued each year. In certain areas, such as import-export, foreign exchange or banking, regulation can change with dizzying speed. This constantly evolving regulatory landscape requires business owners and managers to keep abreast of new regulatory requirements and opportunities to manage their costs and risks.

Iran is a mixed civil and Islamic law jurisdiction with four branches of power: the office of the Supreme Leader, the legislative branch, the executive branch, and the Judiciary. All four are vested with some legislative authority to pass laws or make regulations.

Legislative power is primarily vested in the Parliament, which passes legislation (including annual budget and five-year development plan laws) and ratifies international treaties to which Iran ascends. Legislation passed by the Parliament does not automatically become law however. To ensure compatibility with Islamic law and the Constitution, an oversight body called the Guardian Council reviews the legislation. Once legislation passed by the Parliament is approved by the Guardian Council, the legislative process is concluded and the legislation comes into force 15 days after its publication in the Official Gazette (unless the legislation provides for a different entry-into-force date). In the event of disagreement between the Parliament and the Guardian Council over a legislation, a yet higher legislative body named the Expediency Council will make the final decision.

The office of the President as the head of the executive branch and the Council of Ministers play a significant role in development of Iran’s regulatory environment. Draft bills submitted by the executive branch to the Parliament must first be approved by the Council of Ministers. Moreover, each Minister individually, and the Council of Ministers collectively have extensive law-making powers through issuing administrative directives and implementing regulations under the laws passed by the Parliament. Such executive directives and regulations must not, however, contradict the provisions of the laws passed by the Parliament; otherwise, they will be declared void.

The legislative power of the Judiciary is administrative in nature, and is generally limited in scope to judicial processes. Once again, administrative directives by the head of the Judiciary must not contradict the provisions of the laws passed by the Parliament.

In addition, designated regulators in various sector are in charge of regulating the activities falling under their supervision. For instance, the Central Bank of Iran, the Central Insurance of Iran and the Securities and Exchange Organisation of Iran act as the regulator for, respectively, the banking system, the insurance industry and the capital markets.

BANKING

Nationalisation of the banking system following the Islamic revolution of 1979 resulted in almost two decades of government monopoly. The monopoly came to an end in 2000 when the Parliament passed the Law Authorising Establishment of Non-Governmental Banks. Currently, about two third of the major banks in Iran are privately owned although the banking system as a whole remains government owned or controlled.

Established in 1960, the Central Bank of Iran (CBI) is in charge of the national monetary policy. Its responsibilities include issuing currency, regulating Iranian rial- and foreign currency transactions, monitoring and regulating export and import of currency, and regulating banks and financial institutions. The CBI also acts as the government’s banker and has broad authorities in relation to sale and purchase of bonds (issued by the government, foreign governments or international financial institutions) and in relation to offering loans and credit to the government.

In an attempt to bring banking practices in compliance with the principles of Islamic finance, a major overhaul of the banking law took place in 1983. The defining feature of the resulting “Islamic banking” system was the official prohibition against payment of pre-determined interest. This in turn limited the framework of bank financing in Iran to profit-and-loss-sharing arrangements (sometimes called “civil participation agreements”). Nevertheless, conventional financing continued to be used by Iranian banks in their international borrowing.

Bank loans are the most important source of debt financing, although banks are undercapitalised and laden with large arrears from the government, credit is limited, financing instruments are rigid and regulations can be out-dated. The government budget has limited development funding, and most project and infrastructure funding comes from the country’s sovereign wealth fund, the National Development Fund (NDF). A number of banks act as agents and intermediaries for NDF’s Iranian rial and foreign currency loans, which support projects that meet NDF’s mandate.

While Iran has a legal framework allowing foreign banks to open a local branch or representative office, there is no longer a significant presence of international banks due to sanctions. Nonetheless, Iran has recently taken measures to bring its banking standards closer to international standards and best practices, including by attempts to implement the Basel Accords and the passage of anti-money laundering and financial crime legislation.

Capital markets. The Tehran Stock Exchange, founded in the 1960s, is the oldest in the Middle East, and its market capitalisation in July 2019 was approximately USD 90 billion (at the prevailing market exchange rates). The debt capital market is much smaller, and is dominated by government debt. All onshore debt financing, whether through banking or capital market instruments, is Sharia-compliant.

The primary law governing capital markets is the Securities Market Act (SMA), while the Exchange and Securities Supreme Council (ESSC) and the Securities and Exchange Organisation (SEO) are the principal regulators. The ESSC is in charge of introducing new financial instruments, monitoring the SEO and proposing capital market regulations to be approved by the Council of Ministers. The SEO is responsible for (i) registering and issuing IPO licenses; (ii) issuing, suspending and terminating licenses for regulated financial institution (e.g., brokers, broker-dealers, investment banks, investment advisory companies, and retirement funds); and (iii) generally taking measures aimed at protecting investors.

In the primary market, issuers must comply with strict disclosure requirements. Failure to do so may result in civil and criminal liabilities not only for the non-compliant issuer but also for those involved in preparing the prospectus, such as lawyers and accountants. Following an IPO, the issuer must comply with ongoing disclosure requirements including with respect to any material information. SMA and the SEO directives regulate the activities and the participants in the secondary market. For instance, SMA requires the exchanges to publicly disclose the number and the price of traded securities in accordance with the SEO directives.

Foreign investors, whether natural or legal, may participate in the Iranian capital markets provided that they obtain, and comply with, a trade license from the SEO. The license specifies a transaction limit, which generally reflects the investment limits set out in the Foreign Investment Promotion and Protection Act (unless the ESSC imposes other restrictions).

In the debt market, sukuk may be issued by both private and public issuers. The principal law allowing creation of new sukuk structures is the Law on Development of New Financial Instruments and Institutions for Facilitating the Implementation of the General Policies of Article 44 of the Constitution. Under the current framework, for every new sukuk financing a unique special purpose vehicle (SPV) must be established. Such SPV then acts as the proxy between the sukukholders and the issuer in accordance with the terms and conditions of the sukuk. These SPVs are in the form of limited liability companies, are regulated by the ESSC’s Directive on Operation of Special Purpose Vehicles, and are managed by the Capital Market Central Asset Management Corporation.

CURRENCY EXCHANGE

Iran has long had a multiple-rate FX regime. Currently, there is a low, official rate exclusively allocated by the Central Bank for import of “essential goods” (mostly food and medicine), a much higher open market rate, and an intermediate “NIMA” rate for imports of non-essential goods. The current FX regime, which was introduced in April 2018 following the significant devaluation of the Iranian rial, is still in flux and further transformation in the near future can be expected. Therefore, it is essential for businesses for whom foreign currency is material to closely monitor and respond to changes in the FX regulatory environment.

The NIMA platform (also known as Iran’s Forex Management Integrated System), was established in April 2018 and is designed to allow rate determination in a managed supply-and-demand environment. Exporters are under the general obligation to repatriate their export revenues, which are intended to support the currency needs of importers of non-essential goods via NIMA platform.

AML

In recent years, concerns over anti-money laundering standards and recommendations of the Financial Action Task Force (FATF) have led the legislative and executive branches of the government to take major steps to pass several AML laws and regulations. A Financial Intelligence Unit has been established within the Ministry of Economic Affairs and Finance, and AML compliance and enforcement is gradually emerging as a significant area of concern for larger business owners, financial institutions and judicial authorities. Despite these developments, Iran’s AML regime is not yet functionally comparable with international standards and best practices.

LABOUR

The Labour Law 1990 and the Social Security Law (SSL) covers many aspects of employment relations, most of which are mandatory. Failure to fulfil employee-related social security and tax obligations could in particular have significant adverse consequences for the company and its directors and principal shareholders.

At the beginning of each year, the Supreme Labour Council announces new minimum wage as well as the wage brackets above the minimum wage for the year. In its deliberation, the Council takes into account economic factors such as inflation. Wage discrimination on the basis of age, sex, race, nationality, or political and religious beliefs is prohibited.

A key responsibility of employers is to insure their employees through the Social Security Organisation, failing which may result in criminal consequences. For each insured employee, the social security insurance premium under the SSL is 30 per cent of that employee’s salary, of which 7 per cent is paid by the employee, 20 per cent by the employer and 3 per cent by the government.

An employment contract may only be terminated in the event of: (i) demise, total disability, retirement, or resignation of the employee; (ii) expiry of the term of a temporary employment unless—explicitly or implicitly—renewed; (iii) completion of the work specified in a limited employment contract; and (iv) termination circumstances agreed in the employment contract.

Where available, employee-employer disputes must be first brought before Islamic Council of Labour for reconciliation. If there is no access to the Council, the dispute may be brought before the relevant Guilds Association or, alternatively, be resolved by the representatives of the employee and the employer. If reconciliation is not achieved, the dispute may be brought before the Labour Assessment Board, whose decisions can be appealed to the Labour Dispute Settlement Board within 15 days for a final decision.

To be employed in Iran, foreign nationals need to obtain work visa and work permit. The permit is obtained from the Ministry of Labour (MoL). The MoL may issue, renew or extend work permits for no more than one year. Nevertheless, the following do not need work permit: (i) subject to the approval of the Ministry of Foreign Affairs, foreign nationals solely working on diplomatic or consular missions, and employees and experts of the United Nations and its affiliated organisations; and (ii) subject to reciprocal treatment and the approval of the Ministry of Culture and Islamic Guidance, foreign journalists. Failure to secure and maintain a work permit where required may expose the employer to financial penalties, 91-180 days of imprisonment, or both.

TAXATION

The Direct Taxation Act is the principal law governing taxation in Iran. Unlike many other jurisdictions, capital gains, excises, and interest incomes are not taxable. In general, domestic and foreign nationals are subject to similar taxation but some differences exist. Iranian National Tax Administration (INTA) is the key tax authority in the country. Iran has entered into double taxation avoidance treaties with about 45 countries.

Personal tax: Iranians, whether residing in Iran or abroad, are subject to 0 to 35 per cent income tax depending on their income bracket. The annual budget law followed by a directive of the INTA determines the salary tax brackets for each tax year. Foreign nationals’ taxable income is subject to tax rates ranging from 10 to 30 per cent, primarily based on the type of activities conducted in Iran.

Corporate tax: The Iranian tax code generally imposes a flat 25 per cent tax rate on corporate income, subject to numerous reliefs, exemptions and reduced rates based on, among other things, industry sector (e.g., manufacturing, power generation or mining) or location (e.g., special economic zones, free trade-industrial zones or designated “less developed” areas) of the enterprise. In free trade-industrial zones, for instance, there is a 20-year exemption from property and income taxes, starting from the issue date of the taxpayer’s activity license. Transfer of listed shares is subject to taxation at 0.5 per cent of trading value, while transfer of unlisted shares or equity ownership of corporate entities is subject to taxation at 4 per cent of nominal value.

Withholding tax: Employee salaries paid by employers are subject to a withholding tax of 10 to 35 per cent depending on salary amount.

Value added tax (VAT): For almost all products and services VAT is currently fixed at 9 per cent. Some products such as tobacco, diesel, and plane fuel are subject to higher VAT while others such as medical and non-processed agricultural products or banking services are exempt from VAT.

DISPUTE RESOLUTION

Most business disputes in Iran go through the court system, which is under-resourced and lacks the necessary expertise to deal with sophisticated commercial disputes. As a result, in recent years there has been a growing interest in the use of ad hoc or institutional arbitration to resolve commercial, investment and other business disputes. An arbitral award is generally final and enforceable unless it is nullified pursuant to the applicable arbitration rules or the general provisions of the Code of Civil Procedure. The two local arbitration institutions are Tehran Regional Arbitration Centre (TRAC) and the Arbitration Centre of Iran Chamber of Commerce (ACIC), although the parties may choose arbitration by a foreign institution such as the International Chamber of Commerce or the London Court of Arbitration. Government entities must obtain the approval of the Council of Ministers, and in certain cases including where there is a foreign counterparty, the approval of the Parliament, before they can submit to arbitration. Iran is a party to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.

Most small civil claims are first brought before the Dispute Resolution Councils, with possible appeal available to the courts of first instance. Other claims are brought directly before the courts of first instance, with possible appeal to the courts of appeal and the Supreme Court.

There is no statutory timeframe for hearing civil cases, and a first instance hearing may take 9 to 24 months, depending on the complexity of the matter and the court docket.

In certain circumstances, the law requires use of an alternative dispute settlement mechanism. For instance, in contractor agreements with government entities, a specialised expert panel of the Planning and Budget Organisation hears any disputes against the concerned government entity. In addition, capital markets disputes among issuers, investment advisors, investors, brokers and the regulator must be resolved by the arbitral tribunal of the Securities and Exchange Organisation.

Other forms of dispute resolution such as mediation or expert determination may be chosen by commercial parties but are not institutionally structured or statutorily regulated.

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Commentary | Qudah Law Firm

MACRO-ECONOMY

Jordan is a small-sized country that has emerged as the “business capital of the Levant”. The free market economy of Jordan has grown 7% annually since 1999.

Due to the implementation of liberal economic policies, Jordan has become one of the most competitive Middle Eastern economies. Jordan boasts a modern and developed banking system and is attracting significant foreign investment. Long-term sovereign credit ratings are positive and stable. Along with financial-sector policies that are intended to enhance competition and efficiency, banking supervision and regulation generally conform to international standards.

Over the past year, the government has worked to consolidate the country’s fiscal situation and macroeconomic environment, put under pressure also by the large influx of Syrian refugees.

Jordan is ranked 5th in the region and considered the most favorable in terms of economic risk and has less of a security risk than other regional competitors according to the Heritage Foundation.

Incentives and advantages outside the development areas and the free zones

Production inputs necessary for exercising economic-industrial or vocational activities that are exempted from the custom duties and are subject to the general sales tax in accordance with the provisions of the General Sales Tax Law in force if such activities are imported or locally purchased, provided that Income & Sales Tax Department should refund such tax paid for such activities within (30) days from date of submission of a written refund request thereof. If Income & Sales Tax Department fails to refund such tax within such period, then it shall pay (9%) interest on an annual basis.

Production requirements and fixed assets, and production requirements and the dual-use fixed assets necessary for exercise of economic-industrial or vocational activities that are exempted from the custom duties, where the general percentage provided in the General Sales Tax Law to be reduced to (zero) if such sales are imported or locally purchased, provided that the beneficiary is registered at Income & Sales Tax Department.

The services that are subject to the general sales tax in accordance with the provisions of the General Sales Tax Law in force if such services are imported or locally purchased, provided that Income & Sales Tax Department should refund such tax paid for such services within (30) days from date of submission of a written refund request thereof. If Income & Sales Tax Department fails to refund such tax within such period, then it shall pay (9%) interest on annual basis.

The goods required for the following economic activities that are exempted from the custom duties and are subject to the general sales tax by (zero) if such goods are imported or locally purchased, namely:

Agriculture and livestock; Hospitals and specialized medical centers; Hotels and tourist facilities; Entertainment and tourist recreation cities; Communication centers; Scientific research centers and scientific laboratories; Artistic and media production; Conference and exhibition centers; Transport and/or distribution and/or extraction of water, gas and oil derivatives using pipelines; Air transport, sea transport and railways

The income tax payable in the less developed regions in the Kingdom shall be reduced as to the economic-industrial & vocational activities and the economic activities to a percentage not less than (30%) , and the provisions in connection thereof shall be determined pursuant to a regulation to be issued for this purpose; which determines:

    • The regions that enjoy income tax deduction and category of each region according to their economic development level.

 

    • The economic activities that are excluded from benefiting from income tax deduction.

 

    • The deduction ratio that the economic activity enjoys according to the region in which the activity is exercised.

 

    • Foundations, standards and conditions of enjoyment of income tax deduction.

 

    • Duration of enjoyment of income tax deduction.

 

    • Foundations, standards and procedures of extension of duration of income tax deduction.

 

    • Incentives and advantages inside the development areas and the free zones.

 

The income tax shall be (5%) of the taxable income of the Registered Establishment realized from its economic activity inside the development area.

The income tax shall be (5%) of the taxable income of the Registered Establishment realized from its economic activity in the industrial sector.

The Registered Establishment shall benefit from any operative tax exemptions in the Kingdom concerning the exports of goods and services to outside of the Kingdom.

This shall not apply to the income realized by banks and telecommunications companies that have individual licenses, as well as the financial brokerage companies, and financial companies including the companies that exercise exchange, financing or financial leasing business, and consultation & financial and tax audit companies, transport companies (sea transport, railways, and road freight transport), insurance and reinsurance companies, basic mining and extraction industries, generation and distribution of electricity, and transport and/or distribution and/or extraction of water, gas, and oil derivatives using the pipelines.

The general tax provided in the General Sales Tax Law shall be reduced to (zero) as to the goods and services purchased or imported by the Registered Establishment for the purpose of exercising their economic activity inside the development areas.

The goods’ providers registered under the General Sales Tax Law in the Kingdom may demand refunding the general sales tax that has been previously paid for the goods sold to the Registered Establishments existing in the development area.

The goods and services originated in the development area and are sold to the remaining regions of the Kingdom shall be subject to the general sales tax.

(7%) sales tax shall be collected from value of sale of services to be determined pursuant to the regulation issued for this purpose when being sold for consumption in the development area.

Sales of goods that are subject to the special tax including vehicles, tobacco, and its products, alcohol and beer shall be subject to the sales tax and custom duties collected in the Kingdom when being sold for consumption in the development area.

The Registered Establishments that exercise an economic activity in the development Area – the materials, equipment, machines, supplies, and construction materials in connection with building, constructing, preparing and furnishing all types of projects established by such Registered Establishments in the development area, including the spare parts required for their permanent maintenance, and the goods imported to the development area for the exercise of the economic activity or exported by such economic activity to outside of Kingdom – shall be exempted from the custom duties, except for exports fees, service fees, and the wages payable in accordance with the legislation in force.

The goods produced or manufactured in the development areas that meet conditions of the Jordanian origin shall not be subject to the custom duties and other fees and taxes when being placed for consumption in the local market.

Incentives and advantages inside the free zones

The Registered Establishment that exercises an economic activity in the free zone shall be exempt from income tax on the profits realized from the following activities:

    1. Exporting goods services to outside of Jordan.
    2. Transit trade.
    3. Selling and transferring goods inside boundaries of the free zones.
    4. Providing and supplying services inside the free zone.

 

The will also be exempt from income tax on salaries and allowances of non-Jordanian employees working in the projects executed in the free zone.

Exempted from custom duties and all taxes and fees on the goods exported from the free zone to markets other than the local market, and on the goods imported to the free zone including materials, equipment, machines, supplies, and construction materials in connection with building, constructing, preparing and furnishing all types of projects established by such Establishments in the Fee Zone including the spare parts required for their permanent maintenance. The exemption shall not include the service fees.

Granted exemptions from the licensing fees, buildings and lands taxes, and revenues of paving, organization and improvement concerning the buildings and constructions established in the free zone.

Be permitted to transfer the foreign currencies and their profits from the free zone in accordance with provisions of the legislation in force.

Be permitted to move the machines, equipment, materials, goods, and supplies required to establish, operate or expand any project and the profits realized thereof to outside of the Kingdom in accordance with provisions of the legislation in force.

DEVELOPMENT AND FREE ZONES

The Investment Commission oversees a number of special economic zones, distributed in various locations in the Kingdom and our Investment Window provides simple and fast registration and licensing services to companies operating in development zoznes and free zones.

Free zones facilitate transit of goods, stimulate economic activity and play a significant role in contributing to strengthening Jordan’s position as a centre for trade. Foreign investment in development zones and free zones enjoy 100% foreign ownership, facilitated visa permits, and return of capital and profits to the country of origin.

Specific benefits enjoyed by development zones and free zones are listed below.

DEVELOPMENT ZONES:

    • 5% income tax for income generated from all economic activities undertaken in the zones.

 

    • 5% income tax for income generated from all economic activities undertaken in the zones.

 

    • Income tax exemptions on profits generated from certain economic activities.

 

    • 5% income tax for income generated from all manufacturing activities.

 

    • Enjoy export tax exemptions offered in the Kingdom on goods and services.

 

    • Reduction to (0%) on sales tax for goods and services used by the enterprise for business purposes within the zone with no guarantee.

 

    • 7% sales tax on specific services offered by registered establishments in the zone when offered therein.

 

    • Customs duties exemption except on certain goods.

 

FREE ZONES:

    • Income tax exemptions on profits generated from certain economic activities.

 

    • Exemptions from land and building taxes as well as service charges for street paving, planning and improvements.

 

    • 0% sales tax on services offered by registered establishments in the zone when offered therein.

 

    • 0% sales tax on goods consumed by registered establishments in the zone for business purposes.

 

    • Income tax exemption on foreign workers remunerations.

 

  • Exemptions from customs duties.

INVESTOR FRIENDLY ENVIRONMENT

The Jordanian government has focused on reforms and investment policy aimed at:

    • Liberalization of trade, investment procedures, and elimination of trade barriers.

 

    • Encouragement of foreign investment.

 

    • Encouragement of private sector investment.

 

    • Privatization of previously-owned governmental projects.

 

    • Implementation of stronger trademark and copyright laws.

 

    • Reduction of import tariffs.

 

  • Equal treatment to both Jordanian and non-Jordanian investors, non-Jordanian investors have the right to own any project in full or part, and engage in any economic activity in the Kingdom, with the exception of some trade and contracting services which require a Jordanian partner.

Foreign investments enjoy incentives and benefits offered by the Investment Law, including exemption from custom duties, general sales tax and in some cases reduction on income tax:

    • No restrictions on foreign ownership except in a limited number of economic activities where a Jordanian partner is required.

 

    • Investments in Development Zones and free zones can be wholly owned by foreign investors.

 

    • Foreign investors enjoy privileges and guarantees, including national treatment, free movement of capital, protection against expropriation and options to resort to alternative dispute settlement mechanisms.

 

    • Foreign Investments enjoy facilitated registration and licensing services provided by the Investment Window, in addition to support in obtaining visas and residency permits for investors, their families and employees as well as other services

 

    • No restrictions on capital transfers and repatriation of profit.

 

  • 117 nationalities in industrial and service sectors own companies in Jordan.

According to the investment law of 2014, Non-Jordanian investors may:

    • Remit all or some of the foreign capital in convertible currency under the legislation in force.

 

    • Transfer revenues and profits of his investment to the outside of the Kingdom.

 

    • Liquidate his investment or sell or dispose of his economic activity or his share or stocks in such activity, provided he should fulfill his obligations to any third parties or the Official Bodies in accordance with the legislation in force.

 

    • Manage his economic activity in the manner he deems appropriate and through the persons he chooses, and the concerned bodies should provide the facilities necessary for this purpose.

 

    • The non-Jordanian Investor shall be awarded the same treatment as the Jordanian Investor.

 

  • The non-Jordanian workers working in any economic activity may transfer their salaries and compensations to the outside of the Kingdom pursuant to the legislation in force.

STREAMLINED PROCEDURES AND INVESTOR FRIENDLY POLICIES

JIC’s Investment Window aims to provide a single place service to license the economic activities in the Kingdom and review and simplify the licensing procedures.

Authorized Representatives from 16 public entities have the power to issue the license and take necessary actions in that regard. Through this service window, an investor can register and license his/her project in Jordan and acquire both investor residency and facilitation of work permits for required labor.

SECURITY AND STABILITY

Despite regional turmoil, Jordan continues to be a point of attraction for foreign investors who view the country as an oasis of peace in a volatile region and continuously tries to maintain stability, moderation, and security.

According to the World Economic Forum’s Global Competitiveness Report 2017-2018; Jordan is considered a safe and stable country by both global and regional standards. Jordan boasts a high level of security and stability and is able to overcome challenges and boost its strategic and economic partnerships.Jordan is 22nd most secure country in the world and the second safest country in the Arab world according to the Gallup Law and Order Study of 2018, which was preceded only by Egypt. Based on a survey conducted in 2017, Results are based on telephone and face-to-face interviews with approximately 1,000 adults, over the age of 15 and a total of 142 countries and areas.

Pundits lauded the ranking, which, they stressed, is a remarkable achievement for Jordan and a testimony to the country’s resilience and ability to face security challenges amidst a turbulent region.

In the 2017 index of the Legatum Institute, Jordan ranked 92 out of 149 countries and in security and safety, Jordan ranked 65 and was higher than the regional competitors such as Saudi Arabia 74 Egypt 116 and Turkey 133.

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Commentary | Law Offices of Naoum Farah

Law Offices of Naoum Farah (“LONF”) was founded in 1975 and has grown dynamically. It is an independent and well-established law firm in Beirut serving a niche of clients by offering a wide range of customized legal services. LONF is reputed for its professionalism and excellence in the quality of its service topped with a timely follow-up, highest dedication, insight and expertise in addressing complex legal issues. It is considered as one of the leading multidisciplinary law firms in Lebanon.

LONF has developed worldwide distinguished relationships with key firms in all of the major jurisdictions. Its close collaboration with firms established in the Middle East enables it to provide widespread and bespoke legal services for local and international clients throughout the region.

LONF is ranked by the Legal 500 “editorial and ranking” among the first leading firms in dispute resolution and Commercial, Corporate and M&A fields.

LONF’s notable professional and long-standing relationships with prominent law firms in the Arab countries especially in Syria, Iraq, Jordan and the Gulf qualifies it significantly to represent and advise the most important international enterprises that will be shortly involved in the reconstruction venture of Syria and Iraq. Thanks to its geographical position, Lebanon has always been a gate to the hinterland. This makes of Beirut, its capital, an ideal and strategic hub through which the future reconstruction projects will start and transit. In this endeavor, Lebanon’s privileged location is solidly backed up by his advantageous taxation system and his solid and resilient banking system – and banking secrecy – which has survived all the political and security turmoil and surrounding blows.

MEMBERS

Naoum Farah, Founder and Managing Partner: He was the adviser of the late President Elect of Lebanon Mr. Bashir Gemayel and the former President Amine Gemayel; he was the former Secretary General of the Association for the Constitution and Liberty in Lebanon, and he is the President and co-founder of “Memoria” association (collects and archives documents referencing the Lebanese contemporary war). He is a member of the International Arbitration Institute (Paris)- IAI and the International Bar Association (IBA). He acted repeatedly as member of arbitral ad hoc tribunals in domestic arbitration and counseled on ad hoc arbitrations.

LONF groups (10) members, all of whom provide legal services in Arabic, English and French. They have extensive experience in dispute resolution, corporate and commercial and are well versed in drafting contracts and providing diversified legal opinions.

OVERVIEW: LEBANON

The business and economic environment in Lebanon became more challenging in 2019. Factors such as the armed conflict in Syria, continued turmoil in the region, mass influx of Syrian refugees to Lebanon, high fiscal deficit and high level of public debt have heavily affected the Lebanese economy, its infrastructure and social services. Unprecedented cross-sectarian demonstrations have gripped Lebanon since 17 October 2019, demanding a complete overhaul of a political system deemed incompetent and corrupt. The anti-government protests that have paralysed the country for more than three weeks and have led to the resignation of the cabinet, a key demand of the protesters requesting the formation of a new cabinet of technocrats, anticipated parliamentary elections and the recovery of looted state funds.

The government is more than ever facing many challenges on various levels, predominantly political, economic and social, which are urging Lebanon to implement and apply a tangible policy of dissociation from regional conflicts. Reforms have to be introduced as a pre-requisite for Lebanon to be able to benefit from the offerings of an ‘international conference in support of Lebanon Development and Reforms’ (CEDRE) hosted in Paris in 2018. Nearly 50 states and international organizations participated in CEDRE, as well as representatives from the private sector and civil society. The objective of CEDRE was to support the development and the strengthening of the Lebanese economy as part of a comprehensive plan for reform and infrastructure investments. In particular, targeting national debt is of primary concern: Lebanon is one of the world’s most indebted countries, with public debt estimated at 141% of GDP in 2018, according to credit ratings agency Moody’s.

In parallel, in October 2017, the government had requested for McKinsey to conduct a study of a future for Lebanon’s Economy under the title Lebanon Economic Vision.

In order to meet the commitments made at CEDRE and in line with the McKinsey plan to stimulate Lebanon’s stagnant economy, the House of Deputies ratified the 2019 state budget, which contains a string of austerity measures, including cuts to public spending and tax hikes designed to slash the deficit, a key demand of the international community and donors.

The Budget Law adopted a range of measures aiming to fight tax evasion by establishing a new exhaustive definition of tax evasion (article 57) which was introduced among the definitions of the Code of Tax Procedures (Law Nº 44/2008) and instituting an obligation upon Municipalities to conduct field surveys of businesses and professionals in order to compile tax information and transmit it to the Ministry of Finances.

Under international pressure and popular demands backed by academics and intellectuals, Lebanon is urged to enact radical and adequate reforms by adopting key economic, social financial, fiscal and administrative reforms to bolster its weak economy and to fight corruption. Such reforms are deemed a prerequisite to unlocking over $11bn in grants and soft loans pledged by international donors at CEDRE, including the World Bank, which pledged $4bn in soft loans to Lebanon, making it the biggest single donor at the conference.

The government is also urged to continue on working to implement the two major CEDRE commitments it has made: the fiscal and the energy sector reforms.

Lebanon has indeed promised to reduce its deficit-to-GDP ratio by at least 1 percentage point per year for five years, and to make structural reforms in the government and sectors including electricity. In this respect, the government committed to forming the National Electricity Regulatory Authority. The body mandated by Law 462/2002 was never formed.

On the other hand, the House of Deputies enacted three Laws to create an ecosystem where companies and startups can prosper, develop and attract foreign investments:

    1. Law Nº 81/2018 on electronic transactions and personal data, covering, among others, the legal requirements on electronic documents and evidence and the electronic commerce.

 

2. A legislative effort was also carried out to modernize the corporate law, which has led to the enactment of:

 

      • Law Nº 85/2018 which updated the Decree N. 46/83 on off shore companies: this law has ratified the establishment of a single shareholder off-shore company, being either an individual person or a legal entity. The single shareholder manages the company or appoints one or more directors.

 

      • Law Nº 126/2019, the main innovation that came into force on 1/7/2019, reformed and amended a large portion of the Lebanese code of commerce as follows:

 

        • Some formalities were reformed, including electronic means for the registration of a company. Such electronic formalities will be mandatory two years after the entry into force of law (1/7/2019).

 

        • Several amendments for joint stock companies (SAL) were enacted, including decreasing the minimum number of Lebanese members in the board of directors to one third instead of the majority. The law also allowed splitting the role of the chairperson and the general manager, while allowing the appointment of directors from outside the pool of shareholders.

 

        • The law adopted regulations pertaining to preferred shares and Global Depositary Receipts (GDR) in addition to detailed regulations concerning mergers and demergers.

 

      • In addition, the Law Nº 126/2019 requires the declaration to the commercial register of beneficial owners of the companies.
    • Furthermore, the Law Nº 126/2019 introduced the ability for an individual person to establish a single partner limited liability company.

5 November 2019

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Commentary | Al Busaidy, Mansoor Jamal & Co

2019 has been a year of change for those conducting business in the Sultanate of Oman, as the government continues with its plans to strengthen and diversify the country’s economy in the face of regional instability and a world moving towards a post-oil future.

Some of the key changes to the business landscape that have occurred during 2019 include the introductions of a new Commercial Companies Law, RD18/2019 (CCL); a new Privatisation Law, RD 51/2019 (Privatisation); a new Public Private Partnerships Law, RD52/2019, (PPP); the issue by the Omani Capital Markets Authority of the Takeover and Acquisition Regulations for public joint stock companies listed on the Muscat Securities Market, Decision No. 2/2019, (Takeover Code); and changes to the Omani tax system, which have seen both the temporary suspension of the application of withholding tax and the introduction of new ‘sin taxes’ on the consumption of products such as tobacco and alcohol.

In our view, the most significant of the changes has been the introduction of the new Commercial Company Law, (CCL). While this new law is not a complete departure from the old law, it has made sweeping changes to the establishment and administration of commercial entities. Some of the more interesting changes introduced include:

    • The introduction of a new commercial entity known as the single member company. This new type of entity allows for the establishment of a limited liability company with a sole shareholder;

 

    • The removal of certain restrictions concerning the issue of preference shares, previously only possible at the time of a company’s incorporation;

 

    • The requirement that holding companies be established as Joint Stock Companies, resulting in more detailed organisational and administrative structures; and

 

    • The introduction of specific provisions relating to Sukuks, recognising the growing importance of Sharia compliant finance as a source of funding for companies in Oman.

The CCL came into force on the 17 April 2019 and there is a transition period of one year for companies to make the necessary changes. As a result AMJ has been busy advising clients seeking to make their organisations compliant ahead of the 17 April 2020 deadline.

While many of the changes introduced by the CCL are seen as a welcome attempt by the government to streamline corporate structures and improve the appetite for foreign investment, specific provisions regarding the implementation of some of the changes remains uncertain. That said, the CCL provides that the Ministry of Commerce and Industry are to publish Executive Regulations by the 17 of April 2020 and the expectation is that these regulations will clarify the current uncertainties.

To further the government’s objective of diversifying the Oman economy, the new Privatisation and PPP Laws seek to improve the process for introducing private investment into public services. While the Privatisation Law refreshes the methods by which the government of Oman can sell certain of public assets to private operators, the PPP Law introduces a new framework whereby the government can invite private sector operators to provide government services – a new innovation in the Oman market and one that is likely to prove tempting to international investors with expertise in re-invigorating the provision of government services. As with the CCL, certain aspects providing for the implementation of the Privatisation and PPP Laws remain unclear, with the detail to be provided in the form of Executive Regulations over the course of next year.

With respect to capital markets, the Omani Capital Market Authority, CMA) has recently issued a Takeover Code. Under the Code, a person who intends to acquire 25% or more of the voting rights of a company listed on the Muscat Securities Market is obliged to make an offer to all the remaining shareholders of the target company. The requirement of a mandatory offer is also triggered when a person (alone or in concert) holding 25% of the voting shares or voting rights increases its stake by acquiring additional shares carrying more than 2% of the voting shares of the target company in any 6 month period from the date of first purchase. The provisions of the Code will therefore be a material consideration for any potential investor looking to take a controlling stake in a publicly listed company and brings the Oman capital market more in line with international norms on the conduct of takeovers, something that will be welcomed by international investors and shareholders alike.

Royal Decree No. 9/2017 introduced key changes to the Oman Income Tax Law (Royal Decree 18/2009) (“Tax Law”) including the introduction of new categories of payment attracting withholding taxes such as dividends, interest and the provision of services which previously were not taxable . The accompanying Executive Regulations issued by Ministerial Decision No. 14/2019 have clarified that withholding tax only applies to joint stock company dividends and investment funds. Consequently, no withholding tax is payable on profit distributions by LLCs. Furthermore, the CMA announced on the 15th of May 2019 that, pursuant to a Royal directive, withholding tax applicable to dividends distributed by the Omani joint stock companies to its foreign shareholders and interest on foreign borrowings stands suspended for a period of three years from 6th of May 2019. The Secretariat General for Taxation subsequently issued a circular on the 11th of June 2019 confirming the suspension. Also this year, Royal Decree No. 23/2019 introduced an excise tax, known as the ‘sin tax’, which taxes the consumption, on health grounds, of alcohol, tobacco and energy drinks. While the impact of these changes to the Omani tax system in 2019 are still to be fully felt, they are adding to the overheads for the tourism and hospitality sectors.

Looking towards 2020, the big change will be the introduction of the new Foreign Capital Investment Law, RD 50/2019 (FCIL). While this law was promulgated on the 1 July 2019, it will not come into effect until 1 January 2020. Importantly, the FCIL appears to remove the requirement for a minimum 30% Omani ownership in a commercial company. As such it appears that full foreign ownership may be permitted in respect of certain economic activities once those activities have been determined by the Omani Ministry of Commerce and Industry.

Lastly, over the past few years, we have noticed a more assertive CMA in its role as regulator and custodian of the Oman capital markets, as it looks to expand these markets. It will be interesting to see how it seeks to develop these over the next 12 months in the context of a number of planned, high-profile Initial Public Offers.

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Commentary | Sultan Al-Abdulla & Partners

As part of its effort to diversify its economy away from a reliance on petroleum, the State of Qatar has initiated numerous market liberalisation programmes to make foreign investment into the country more attractive. While these programmes were at various stages of implementation, the imposition of the blockade by some neighbouring countries has ultimately driven home the importance of creating more opportunities for foreign investment and put these programmes on the fast track. Additionally, with construction on the infrastructure for the FIFA World Cup 2022 continuing apace, most of the roads, metro and stadia infrastructure is nearing completion. As a result, Qatar’s economy has largely recovered from the blockade’s effects thanks to a number of recent developments.

The cornerstone of Qatar’s foreign investment legislation is Law No. 1 of 2019 (‘Foreign Investment Law’). Previously, the amount of permissible foreign shareholding was 49% of the shares in a limited liability company (unless permission for a higher shareholding has been granted by the Ministry of Commerce and Industry). The Foreign Investment Law no longer limits such higher share ownership to companies operating in a limited number of sectors. A foreign shareholder may now own more than 49% in a commercial company operating in any sector (with the exception that an LLC may not engage in banking or insurance business, and foreigners are prohibited from acting as commercial agents). However, we expect that obtaining special dispensation for a higher shareholding by foreigners will be easier under the new law. Further, participating in real estate trading is no longer prohibited to foreigners.

Another significant recent development has been the almost total abolishment of the ‘kafala’ or sponsorship system in Qatar. Prior to this development, expatriate employees were not permitted to leave the country without the permission of their employer. As of 28 October 2018, expatriate employees may travel freely in and out of the country (unless they are one of the 5% of employees designated by the employer that still require an exit permit).

In addition, as part of its drive to make Qatar a more attractive investment location, the Qatar Free Zones Authority was established to supervise several new free zones the first of which, Ras Bufontas, is expected to come online in September 2019. The free zones offer significant investment incentives, including bespoke legislation that permits 100% foreign ownership, tax-free operations for a period of 20 years, and a first-class infrastructure.

For those investors seeking a longer-term investment, Qatar has recently promulgated Law No. 13 of 2018, enabling foreign investors to obtain permanent residency status. The following types of current residents are eligible for the permanent residency permit: (i) residents who have a normal residency permit, have resided for 10 continuous years in the country, and were born in Qatar, and (ii) residents who have a normal residency permit, have resided for 20 continuous years in the country, and were born abroad (i.e. outside of Qatar). New applications for permanent residency permits will be reviewed by the Ministry of Interior, with a limit of 100 such permits being issued per year. All applicants must be fluent in Arabic.

Qatar has also enacted Law No. 3 of 2019, amending the Civil and Commercial Procedural Law (‘Amending Law’). Under the Amending Law, several amendments were introduced to speed up court rulings and other procedures related to experts. The enforcement of judgments will be conducted through a new department named the Enforcement Management Department, with enhanced procedures to ensure efficient handling of enforcement. The Amending Law also provides that the parties to a dispute will not be allowed to adjourn the proceedings for the same reason more than twice and such an extension, if granted, will not exceed two weeks, potentially decreasing the duration in reaching finality for cases.

Qatar’s construction sector has seen tremendous activity in anticipation of the FIFA World Cup in 2022. Although the World Cup construction continues unabated, the number of construction disputes before local courts and arbitral tribunals has increased exponentially, leading to increased case work for local firms.

While Qatar has been working to diversify and liberalise its economy, it has not neglected its energy sector. As the leading exporter of natural gas, Qatar’s energy sector has seen several significant developments. Late last year, Qatar announced that it was leaving the Organization of the Petroleum Exporting Countries (OPEC). Additionally, the lifting of the moratorium on development of the North Field, the world’s largest non-associated gas reservoir, and the implementation of the North Field Expansion Project by Qatar Petroleum, should boost Qatar’s liquefied natural gas output from 77 million tonnes to 110 million tonnes. The front-end engineering design contract for the project has already been awarded and Qatar Petroleum expects to issue onshore engineering, procurement and construction contracts by year end.

According to the International Monetary Fund executive board, Qatar has successfully adjusted to the economic impact of the blockade. As Qatar’s economy continues to grow, more foreign investment opportunities will become available, increasing its appeal. By continuing to pursue further market liberalisation and introduce additional incentives for foreign investors, Qatar is on track to continue its rise as a leading destination for doing business both regionally and globally.

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Commentary | Hatem Abbas Ghazzawi & Co

2018 has witnessed many developments, reforms and initiatives towards promoting growth in the private sector and attracting foreign investment into Saudi Arabia. In line with Vision 2030, the government is working towards improving the Kingdom’s rankings in the World Bank’s Doing Business report. The 2018 Doing Business report cites Saudi Arabia for its reforms in several areas, including enforcing contracts, protecting minority investors and making it easier to trade across borders.

Tayseer, a government committee consisting of over 20 government entities created with the objective of improving the business climate for the private sector, has played an important role in effecting reforms and increasing the efficiency of government services. Such reforms include the introduction of instant municipal licences for certain activities, the issuance of building permits within 15 days in certain instances, and reducing the requirements for incorporation of companies.

Another noteworthy initiative is the Small and Medium Enterprise General Authority ‘Munsha’at’, which is a government authority created for the purpose of encouraging and supporting local entrepreneurship by providing financial support, consultation services and exemption from selected incorporation requirements to small and medium-sized enterprises. As legal counsel advising both Saudi clients and foreign investors, we find ourselves updating our memos regularly with respect to incorporation requirements, as the Kingdom’s efforts towards simplifying the incorporation process for all types of companies are ever increasing.

Furthermore, many applications that were previously filed manually are now filed electronically, pursuant to the Kingdom’s efforts to achieve a ‘digital economy’. In 2018, the National Committee for Digital Transformation and subsequently the National Digital Transformation Unit were created to oversee this important pillar of the Kingdom’s Vision 2030. This digitisation initiative has proven to be efficient, but at times challenging, specifically when there is no room for adjustments when making selections from drawdown menus.

It is difficult to summarise – and sometimes even keep up with – the changes and reforms taking place in Saudi Arabia, which in addition to the above include many major developments such as the introduction of Value Added Tax (VAT) in the beginning of 2018, as well as introduction of a bankruptcy regulation. This places responsibility on legal counsel to ensure that their advice to prospective clients is up to date and to ensure that existing clients remain in compliance with applicable regulations and requirements.