Issue No. 02 February / March 2001

LEGAL UPDATE

Contents

1- Saudi Arabia takes lead in e-commerce initiatives

2- New Tax Regulations Coming Soon

3- Shoura Discussing Bills on Legal Regulation and Defendant’s Rights

4- Commerce Ministry Amends Anti-fraud Law

5- Law Firm News

E-commerce is sweeping the global economy, and Saudi Arabia is taking significant steps to ensure that the country is prepared for the digital age. In January, Jeddah hosted a three-day economic forum to discuss the subject of doing business over the Internet. Attracting foreign investments is one of the most important reasons the Kingdom is emphasizing the need to become familiar with the challenges and opportunities inherent in e-commerce. A recent report by the U.S. Department of Commerce observed that many jobs in software development and commercialization are likely to migrate to emerging economies in the foreseeable future, because the Internet provides a "level playing field" for well-trained computer scientists, engineers and programmers in these countries.

To help Saudi Arabia develop its commitment to e-commerce, the Kingdom has held the largest and most ambitious forum to date in the Middle East. From May 6-10 Riyadh was the center of an impressive array of e-commerce business and government leaders from around the world as it hosted ECOMMERCE SAUDI ARABIA 2001. The successful conference was organized with the Kingdom’s elite professions and decision-makers in mind. The conference had seminars and workshops designed to help visitors and participants become familiar with the latest solutions, technologies, hardware and software as well as offering a unique opportunity to select suitable alternatives and help in implementing e-commerce solutions. The conference recommended improving communication facilities and as well as the need for expediting the issuance of rules and regulations to administer electronic transactions and the safeguarding Intellectual Property Rights. More specifically adoption of the PKI (Public Key Infrastructure) system whereby a digital signature could be authenticated before a transaction could go through was a proposed solution. The use of Arabic in e-commerce, investment in the IT industry, encouragement and increasing public awareness of IT and e-commerce were themes reiterated throughout the event. The conference also put forth the idea of setting up a committee to oversee IT education in the Kingdom and create smart schools to focus on teaching the IT aspects of commerce. The concept of granting industry status to the IT sector was also raised thus entitling it to various government industry concessions. The conference was hailed as an unqualified success by all participants and the first of many actions to be taken to increase Saudi Arabia competitiveness in the global IT arena.

It is increasingly apparent that the world is becoming divided between those who have access to information technology (IT) and those who do not. Developing countries such as India and Malaysia are moving ahead into the digital age, and Middle Eastern countries must do the same to avoid being left behind. Saudi government officials are in the process of drafting e-commerce regulations that should be implemented within the next months. The regulations are based on the provisions of the United Nations Committee on International Trade Law (UNCITRAL) and will conform to the Shariah. Issues covered by the new regulations include electronic signatures, financial transaction security, confidentiality, and operation system security to protect against intrusion or "hacking". The e-commerce committee has a ten-point plan that will be introduced in stages starting with the release of these new regulations. The idea is to create a secure environment for both consumers and businesses to conduct on-line transactions.

Although critics suggest that e-commerce is expensive, conducting business on-line actually can be much more affordable, because it reduces huge inventories, large staffs, and middlemen, and it enables faster and more efficient communication between suppliers and consumers. As personal computers become more prevalent in homes and offices, e-commerce will become even more acceptable as a way of doing business.

The Kingdom now represents 60% of all spending in key economic sectors in the Middle East. Saudi Arabia expects some 400,000 new Internet users to sign on next year alone. The Kingdom’s share of global e-commerce is expected to be about seven times greater than its share of the Middle East population. This commercial potential provides ample opportunities for e-commerce activities and the businesses that develop around them to flourish.

Although 56% of the United States population now uses the Internet, less than 25% of the Arab world even has access to it. But this is changing, particularly in Saudi Arabia. In order for the e-commerce sector to thrive, proper preparations must be made to help the current commercial economy adapt to the necessary technological changes. Rapid technological changes in the digital age require the following: an educated work force; easy access to a reliable communications infrastructure; renewed emphasis upon research and development, particularly in the private sector; and an increasing degree of comfort with new technology. The Kingdom has made an excellent beginning in these crucial e-commerce support areas. For example, the Saudi telephone system is almost fully digital; a trans-Saudi Arabian fiber-optic backbone is now complete; and the country’s many private Internet Service Providers (ISPs) have more bandwidth available to offer to their customers. Although service level agreements are being proposed to ensure that ISPs have reliable service from the Saudi Telecommunications Company, consistent and dependable access to the Internet remains an issue requiring attention. Some commentators have proposed that the government form a strong regulatory body to ensure that all ISPs are treated fairly and that service problems are minimized.

One proposal is to establish an information technology ("IT") park in Jeddah. Such a facility could provide education to Saudi youth, research and development, greater access to governmental services, and marketing ideas for selling Saudi goods and services on the Internet. The Jeddah technology park would be an IT model that could then spread to Riyadh and other areas of the country. The goal would be to transform Saudi Arabia from an IT importer to an IT exporter within the next few years.

Another area of focus is the large banks and corporations based in Saudi Arabia. These are increasingly on-line, which encourages smaller concerns to follow suit. For example, Saudi ARAMCO actively encourages on-line browsing and shopping from its approved suppliers. Although it is not necessary to go on-line for ARAMCO suppliers, this positive initiative demonstrates the ease of conducting business over the Internet. As the world’s largest oil exporter, Saudi Arabia has a compelling need to process international banking transactions. Most banks now plan to launch on-line banking this year in order to remain competitive with other multinational financial institutions. The Saudi government and its central bank currently are working on regulations specifically designed to deal with Internet banking issues. The absence of e-commerce laws and a secure payment system in the Kingdom, however, continues to delay the benefits of conducting business on-line. The trend is for more "point and click" transactions, and the Saudi government is committed to facilitating this development at the dawn of the 21^st century.

Within the next twenty years, much of the world will be conducting most of its business over the Internet. Issues remain to be decided, particularly the problem of guaranteeing security and privacy while still sharing information and verifying the authenticity of documents with digital signatures. In spite of these concerns, Saudi Arabia certainly will be in the forefront of those nations engaged in the commercial information technology process known as e-commerce.

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Certain improvements have been made to Saudi tax law regulations that are designed to clarify certain procedures. Taxes on foreign companies’ profits will not exceed the 30% already set in the regulations on foreign investments. Although the Ministry of Finance and National Economy suggested that the same income tax be imposed upon Saudi investors as that levied against foreign investors, the Higher Economic Council decided to impose zakah only. Zakah is a tax on capital and not on a company’s profits.

One of the more important features of the new regulations for foreign investors is the establishment of a certain date to submit the final accounts statement of a company, conditions of its acceptance or reasons for its rejection, a list of exempted expenses, and the funds to be included in taxable income. The procedure a foreign investor must follow for settling his taxes is also clarified.

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The Shoura council has approved a bill regulating the legal profession in the Kingdom. The Article 45 bill was sent to the government council for final review. It is designed to set the guidelines for legal practice in Saudi Arabia and lay out a comprehensive set of rules and ethical responsibilities for attorneys. The Shoura council also is considering a draft bill defining the rights of defendants before the courts and police. Government officials said, "Individuals have the right to safeguard their freedom and dignity, and to be able to defend themselves when charged with an offense. But they also have to respect and apply laws and orders." The Shoura council is compiling all the rights guaranteed by the Sharia and putting them into a codified form. This codification will clear up any misunderstandings and allow attorneys to better inform clients of their rights under the Sharia.

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The Ministry of Commerce has new regulations for combating commercial fraud in Saudi Arabia. Under the new regulations, a commercial business facing penal action will have a right to obtain a copy of the verdict against it. It will also have the right of appeal in the Court of Grievances within thirty days of receiving notification if the punishment involves a jail term. If there is no imprisonment involved in the sentence, then the verdict will be considered final. The prison period is to be fixed by the Court of Grievances, which also can establish a minimum and maximum level for all fines.

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We are pleased to welcome Mr. Karl F. Frankovitch, an American national, who joined our firm recently. He obtained his Juries Doctor Degree from the University of Pittsburgh in 1999 and also holds Master of Arts Degree from the University of George Mason. He is a member of the American Bar Association (International Law Section); and the World Trade Center Association (Buffalo Niagara Region); He is specialized in International Transactions, Banking and Finance, and Commercial Law.

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The law Firm has moved to new address.

The Law Firm of Dr. Khalid Alnowaiser has moved to a new location. To accommodate its needs to better serve it’s growing client base the firm has relocated to Al-Rawdah District, Nahdat Al Nashr Street, off Thaliya Street in front of Al-Lami mosque. The firm would like to thank our clients for their patience with us during the moving and settling in process. We hope that the new location will allow us to better serve our clients in an accessible, comfortable and professional atmosphere.

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The Law Firm Of Dr. Khalid Alnowaiser
P.O. Box 50100 Jeddah 21523
Saudi Arabia
TEL: (966-2) 664 5666; FAX: (966-2) 661 1352
Email: info@lfkan.com
Copyright 2000-2001, The Law Firm of Dr. Khalid Alnowaiser.
All rights reserved.

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