Questions for tariffs quarterly bulletin: UAE and KSA

United Arab Emirates (UAE)

Describe the taxes and duties regimes in your location's standard form contracts

What are your standard form contracts?

The most common standard form contracts in the UAE are the International Federation of Consulting Engineers (FIDIC) contracts, particularly the 1999 editions. These are however often very heavily amended to align with Civil law principles. Other standard form contracts, such as NEC, are rare in the region.

The FIDIC contracts most commonly used are the following:

• Red Book (Conditions of Contract for Construction)
• Yellow Book (Conditions of Contract for Plant and Design-Build)
• Silver Book (Conditions of Contract for EPC/Turnkey Projects)

Which party bears the risk of taxes and duties?

• Before the contract is entered into: 
  Before a contract is entered into, each party bears its own risk for taxes and duties (such as but not limited to corporate income tax, import duties, and VAT).
  
  
• After the contract is entered into: 
  After a contract is entered into, the allocation of tax and duties risks is governed by the contract, subject to UAE law.
  Under the UAE VAT law, for instance, the supplier (usually the contractor) is responsible for charging and remitting VAT.
  Generally, under the 1999 FIDIC contracts, contractors bear the risk of taxes and duties (see Clauses 1.13, 14.1 of the Red Book by way of example).

 

If taxes and duties change after the contract is entered into, what relief, if any, is available under your location's?

Standard form contracts? eg change in law provisions, force majeure.

If a change in law results in an increased cost, under the FIDIC contracts, a contractor is generally entitled to an adjustment of the contract price or an extension of time (see Clause 13.7 of the 1999 FIDIC Red Book by way of example). A contractor must notify the Employer promptly and submit a claim time (see Clause 20 of the 1999 FIDIC Red Book).

The 1999 FIDIC Red Book also includes a provision for force majeure events in Clause 19, however, this is reserved for matters that are so drastic that performance is impossible or severely hindered. It is unlikely that a change in taxes and duties qualify as force majeure events.

Laws – statutes, case law

The key provisions under UAE law, are Articles 277 and 249 of the UAE Civil Code.

Under Article 273, if a force majeure event makes performance impossible, the contract is automatically terminated. If performance is partially or temporarily impossible, the affected obligation is entirely extinguished and the obligor may cancel the contract. The threshold for such relief is high however – a simple increase in costs does not qualify the obligor's performance as impossible. It is therefore unlikely that a change in laws concerning a change in taxes or duties qualifies for the relief contained in Article 273 of the UAE Civil Code.

Under Article 249, if an unforeseen event makes performance excessively onerous, the UAE courts may reduce the obligation to a reasonable level and override contractual clauses that prevent such relief. This clause would be applicable in case of sudden tax hikes or duties that would otherwise impose an excessive burden on a contractor, though, given the volatile nature of duties and tariffs applicable to goods and materials, as well as the length of many projects, it is likely that a contractor would be required to make provision for increases in such tariffs or duties.

 

For particular market segments in your location, what changes, if any, have employers or contractors made recently to the usual risk allocation?

Inflation and material cost risk: Contractors have increasingly pushed back against fixed-price contracts due to the potential of increased inflation and material cost risks. Employers have become more open to price escalation clauses or cost-plus arrangements for long term and/or large-scale projects.

Change in law and taxation risk: With the introduction of new taxes and ESG regulations, contractors are often seeking protection in the contract. We have seen parties expanding the scope of the Change in Law clauses to allow contractors to claim additional costs or time if new taxes or duties are imposed after the contract has been signed.

Design and decennial liability: The UAE Civil Code imposes strict decennial liability on both contractors and designers. Employers are increasingly retaining design responsibility or engaging design-and-build contractors with clear indemnity clauses to manage this risk.

Force majeure and exceptional risks: Following the COVID-19 pandemic, contracts often include broader definitions of force majeure, covering pandemics, supply-chain disruptions and geopolitical events.

 

Kingdom of Saudi Arabia (KSA)

Describe the taxes and duties regimes in your location's standard form contracts

What are your standard form contracts?

The most common standard form contracts in the KSA are the International Federation of Consulting Engineers (FIDIC) contracts, particularly the 1999 editions. These are however often very heavily amended to align with the local laws and practices. In addition, some major entities adopt their own standard contract forms. For example, Saudi Aramco, the largest oil company in Saudi Arabia, has its own set of standard contract conditions that are extensively used in projects related to oil, gas, and petrochemicals.

The FIDIC contracts most commonly used are the following:

• Red Book (Conditions of Contract for Construction)
• Yellow Book (Conditions of Contract for Plant and Design-Build)
• Silver Book (Conditions of Contract for EPC/Turnkey Projects)

Which party bears the risk of taxes and duties?

• Before the contract is entered into: 
  Each party bears the risks of its own taxes and duties before the contract is entered into.
  
  
• After the contract is entered into: 
  After the contract is entered into, a contractor bears the risks of taxes and duties under the FIDIC contracts.

 

If taxes and duties change after the contract is entered into, what relief, if any, is available under your location's?

Standard form contracts? eg change in law provisions, force majeure.

Under Clause 13.7 of the 1999 FIDIC Red Book, if a change in law (such as an increase in taxes in duties) occurs after the date of signing of the contract, a contractor is entitled to claim an adjustment of the contract price or an extension of time from the Employer.

Under Clause 19 of the 1999 FIDIC Red Book, if there is an exceptional event beyond the parties' control that impacts performance, the party whose performance would be impacted could be excused from performance of such obligations for as long as the force majeure event prevents the party from performing its obligations. It is however unlikely that a tax or duty change would classify as a force majeure event based on the high threshold set in the FIDIC contracts.

Laws – statutes, case law

Contracts in KSA must comply with Sharia law principles. Sharia law emphasises the following: Good faith in performance, fairness and balance in obligations, and avoidance of unjust enrichment. If a tax or duty imposes excessive hardship, a contractor may be able to argue for an equitable adjustment. Additionally, the new Civil Transactions Law introduces a concept that allows a contractor to seek a renegotiation of the contract price if exceptional and unforeseen circumstances arise that disrupt the contractual balance to the extent that they significantly undermine the financial basis of the contract. The KSA courts have wide discretion in this regard.

Government contracts in KSA are governed by the Government Tenders and Procurement Law and its Executive Regulations (Saudi Arabia Cabinet Decision No. 649/1440 On Government Tenders and Procurement Law). The Executive Regulations provide for a price adjustment mechanism under Article 68 where there is a change in the applicable laws or regulations after the contract is signed and directly affects the cost of executing the contract. The affected contractor would need to submit a request to the government entity, after which the entity may approve a price increase or decrease. The Government Tenders and Procurement Law also allows for variation orders – these are often used to accommodate cost increases due to tax or duty changes.

Saudi courts do not have a concept of binding precedent but often uphold contractual risk allocation (provided this does not violate Sharia principles) and provide for equitable relief where performance becomes unduly burdensome due to external changes.

 

For particular market segments in your location, what changes, if any, have employers or contractors made recently to the usual risk allocation?

Giga-projects: Employers are increasingly retaining design responsibility or using progressive design-build models to reduce disputes over scope changes. Contractors are also negotiating more robust change in law clauses to address VAT and duty changes. Moreover, employers are demanding higher performance security, but contractors are pushing back with caps on liability and step-in rights.

Infrastructure and transport: Employers are inserting clauses that deny compensation for concurrent delays, shifting more time and cost risk to contractors. Late access and approvals remain major causes of claims. Contractors are now negotiating clearer site access milestones and approval timelines to mitigate risk.

Industrial and energy projects: With the rise of modular and digital construction, contractors are assuming more integration and coordination risk, especially under EPC contracts. Employers are transferring sustainability compliance obligations to contractors, including penalties for non-compliance with environmental standards

General trends: Contractors are becoming more cautious in pricing risk, avoiding underbidding in a highly competitive market. There is also a growing trend toward early dispute resolution mechanisms, such as dispute boards and mediation, especially in mega-projects.