Explore investment in Saudi Arabia: the new investment law

Saudi Arabia

Introduction

As part of our Explore Investment in Saudi Arabia series, in this article we focus on the new Investment Law[1] (the “Investment Law”), which was published on 16 August 2024, and forms part of one of the goals of Vision 2030 to attract foreign investment to the Kingdom of Saudi Arabia (the “KSA”).

The Investment Law is expected to come into force around 16 February 2025 (being 180 days after its publication in the Official Gazette) and will replace the Foreign Investment Law[2] (the “Foreign Investment Law”). Implementing Regulations that will set out further details relating to aspects of the Investment Law are expected to be published within 180 days after the publication of the Investment Law (the “Implementing Regulations”).

We consider the Investment Law to be a positive development which serves to strengthen trust in the legal and regulatory framework in the KSA and forms part of the efforts of the Saudi Government, through its Vision 2030 programme, to continue to improve the KSA’s standing as a more attractive, reliable and competitive business environment for both foreign and local Saudi investors.

Key features of the Investment Law

The Investment Law seeks to enhance the investment environment and create an appealing investment atmosphere in the KSA through the following[3]

  1. facilitating the establishment, management, and exit from or liquidation of an investment;
  2. protecting the rights of investors;
  3. ensuring equality of treatment between local and foreign investors;
  4. protecting  investments from confiscation or expropriation;
  5. promoting the freedom of investment and utilisation of capital; and
  6. facilitating administrative procedures and providing investors with the necessary support as required by the relevant authorities.

Definition of an investor and investment

In line with the principle of equal treatment between local and foreign investors, one of the key changes in the Investment Law is that it no longer differentiates between local and foreign investors and defines an investor as “any local or foreign investor”.

While the Foreign Investment Law did not provide a definition of investment, the Investment Law has provided a comprehensive definition of investment which includes company shares and interests, contractual rights, fixed or movable assets, intellectual property rights, rights granted under any law such as licenses, permits or the like.[4] 

Abolishing the requirement for foreign investors to obtain a foreign investment license

The Investment Law abolishes the requirement for foreign investors to obtain a separate foreign investment license with a single registration process that will apply equally to local and foreign investors. The Ministry of Investment (the “MISA”) will establish a national register for investors which will include all information related to investors and will be updated regularly.[5]

The MISA will also assist with investors’ applications to obtain regulatory approvals required to carry out certain business activities through the MISA’s comprehensive business centres[6] which are currently limited just to supporting foreign investors. 

With the removal of the requirement for foreign investors to obtain a separate foreign investment license under the Investment Law it is anticipated that the process to incorporate and manage foreign companies will be simplified and expedited. However, it remains to be seen if abolishing the need to obtain foreign investment licenses will impact on other areas where differences exist between local and foreign investors, including for example the minimum capital requirements and the need to have Saudi citizens/companies as shareholders with respect to certain professional and trading business activities. We expect to see further details set out in the Implementing Regulations.

Freedom of investment

The Investment Law generally permits investors to invest in all business activities available for investment based on the principle of the freedom of investment.[7] However, certain business activities will continue to be excluded from investment for foreign investors as per a periodic list to be developed, maintained and updated by the competent authority. 

The Implementing Regulations are expected to provide further details on the excluded activities and the process of requesting an exemption from the competent authority to carry out an excluded business activity.

Investment incentives

The Investment Law seeks to reduce the cost of doing business in the KSA by providing enhanced investment incentives and facilities to investors which are to be determined by the KSA Government and public agencies according to fair and objective eligibility criteria. Again, further details are expected to be set out in the Implementing Regulations. 

Rights of investors

Article 4.1 of the Investment Law specifies that an Investor shall have the following rights:

  1. being treated equally to other investors. Local and foreign investors shall be treated equally, under similar circumstances;
  2. being treated fairly and justly;
  3. investments may not be fully or partially confiscated except pursuant to a final judicial ruling, nor may such investment be directly or indirectly expropriated except for public interest, in accordance with legal procedures, and in return for a fair compensation;
  4. the right to transfer funds within or outside the KSA without delay; this shall include, but shall not be limited to, transferring the proceeds of investments and the profits gained therefrom as well as the proceeds of the sale or liquidation thereof through legal channels using any recognized currency, and disposing of such funds through any other lawful means;
  5. the right to manage investments, dispose of such investment in accordance with the law, and own any property necessary for the conduct of business;
  6. protection of intellectual property and trade secrets; and
  7. facilitation of administrative procedures and provision of necessary support and assistance by the competent authority.

Dispute resolution

The Investment Law recognises the right of investors to refer disputes to the competent court, including disputes with any competent authority unless agreed otherwise by the parties. The Investment Law also allows the investors to resolve disputes through alternative dispute resolution methods including arbitration, mediation, and conciliation.[8]

Special economic zones

The Investment Law provides that each competent authority in the special economic zones is entitled to grant investment incentives to investors according to objective, specific and fair eligibility criteria which will be detailed in the Implementing Regulations.[9] The Investment Law further stipulates that its provisions shall not prejudice any specific laws or regulations which are applicable to certain economic zones, provided that the investor enjoys, as a minimum, the rights stipulated in the Investment Law.[10]

Conclusion

Being benchmarked against international best practices and standards, the Investment Law aims to enhance equality between foreign and local investors. The principle of freedom of investment set out in the Investment Law provides further assurance about the KSA Government’s commitment to continuing to build a competitive business environment which will positively benefit foreign and local investors.

If you would like to understand more about the Investment Law and its potential implications for your business going forward, we would be delighted to receive your enquiry. Please reach out directly to our team on the ground Rizwan Osman (Partner, Head of Corporate (Saudi Arabia)), Reem Alsmail (Associate), and Harry Taylor (Associate) via their contact details.
 

[1] Issued by Royal Decree No. M/19 dated 16/01/1446H corresponding to 22 July 2024, (which was published in the Official Gazette on 12/02/1446H corresponding to on 16 August 2024).

[2] Issued by Royal Decree No. M/1 dated 5/1/1421 H corresponding to 10 April 2000.

[3] Articles 2 and 4 of the Investment Law.

[4] Article 1 of the Investment Law.

[5] Article 7 of the Investment Law.

[6] Article 7 of the Investment Law.

[7] Article 3 of the Investment Law.

[8] Article 10 of the Investment Law.

[9] Article 6 of the Investment Law.

[10] Article 14 of the Investment Law.