International firms rush for local licences as Saudi Arabia amends Code of Law Practice
Neil HodgeTuesday 23 January 2024
Numerous foreign law firms are attempting to set up offices in Saudi Arabia following changes to the country’s Code of Law Practice, which mean that being affiliated with a local firm is no longer sufficient. Under the amended Code, firms must now establish their own offices in Saudi Arabia or form a partnership with local lawyers in order to bid for work.
The changes, which were first published in June and came into effect in December, require foreign law firms to obtain their own licence to operate as a branch office or as a joint venture with local lawyers, with the latter needing to own at least 25 per cent of the partnership.
Additionally, two partners from the law firm must live in Saudi Arabia for a minimum of 180 days a year, while 50 per cent of the firm’s lawyers in the country must be Saudi nationals. Any work at the firm that relates to Saudi law cannot be passed to foreign offices and instead must be wholly conducted in the local branch. Further, at least 70 per cent of fees generated by the office must stay within the country, and no more than 30 per cent of advisory work can be exported to lawyers working outside of Saudi Arabia. Finally, firms must renew their licence every five years.
The changes are designed to keep legal services work – and fee income – within Saudi Arabia rather than see it taken abroad. The Saudi government hopes the revisions to the Code will mean that local legal expertise will grow, which in turn will fuel the appetite to conduct more high-value deals within the country as foreign investment also increases.
[A few] locations in the Middle East have already been attractive places for international law firms to set up, but Saudi Arabia […] perhaps promises to be the most lucrative and competitive
Tom Hanlon
Executive Director, Buchanan Law
The revisions are also part of an ongoing attempt to make it easier for companies to conduct business in Saudi Arabia more generally. Over the past few years, the country has established specialised commercial courts to handle business disputes and has also created a new arbitration centre to help resolve disagreements efficiently.
In March, Latham & Watkins, Herbert Smith Freehills and Clifford Chance – who had all previously worked with Saudi firms – were among the first international law firms to be awarded their own licences. Clifford Chance and Saudi law firm Abuhimed Alsheikh Alhagbani Law Firm (AS&H), who’ve enjoyed a working relationship since 2016, announced in March that they’re entering into a fifty-fifty joint venture, to become known as AS&H Clifford Chance.
In November, Mishcon de Reya applied to open an office in Riyadh. Other firms that have been awarded licences to open offices in Saudi Arabia include CMS and Greenberg Traurig. As of December, some 15 firms had been granted approval to do so, and another 15 applications were reportedly pending.
There’s an obvious reason why international firms are keen to set up shop in the Kingdom: Saudi Arabia is the fastest growing economy in the G20 and the government has deep pockets. The goal of the country’s Vision 2030 programme is increased diversification economically, socially and culturally, with Saudi Arabia moving away from its dependence on oil and gas revenues and embracing other industries, such as new technology, green energy and tourism. For example, the country hopes to attract up to 100 million visitors per year by the end of the decade. The scheme is also underpinned by several ambitious transport and infrastructure projects. As Kent Zimmermann, an adviser to major law firms at Zeughauser Group, has said, ‘law is a “follow the money” profession […] and there is a lot of money in Saudi’.
Many major international law firms have been steadily increasing their presence in the Middle East over the past several years as they try to offer full-services legal work in the region’s established energy, oil and gas industry and in relation to ambitious infrastructure projects, as well as the burgeoning financial services, technology and renewables sectors.
Andrew Johnston, Addleshaw Goddard’s Head of Region for the Middle East and Asia, says that establishing an office in Saudi Arabia was a ‘direct response’ to existing client demand. He adds that the firm has seen Middle East and North Africa revenue more than double within a decade and has plans to further grow this by ‘at least 60 per cent’ in the next five years.
Mishcon de Reya has said its decision to open an office in Saudi represents ‘a further significant step’ in its ten-year strategy to expand internationally in new centres of economic growth. In 2020 the firm opened an office in Singapore and in 2021 it formed an association with Hong Kong firm Karas to operate in the territory.
Tom Hanlon, Executive Director at specialist legal recruitment company Buchanan Law, says transactional and regulatory support is increasing in demand as the Saudi economy becomes more diversified and sophisticated. ‘A lot of legal support is now required for multinational corporations doing business in the region,’ he explains.
He adds that ‘Dubai and one or two other locations in the Middle East have already been an attractive place for international law firms to set up, but Saudi Arabia with its Vision programme perhaps promises to be the most lucrative and competitive’, given that it has already provided a legal framework whereby ‘work can be created and engineered from within the region.’
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