The Kingdom of Saudi Arabia: A Promising Investment Destination

Driven by Vision 2030, Saudi Arabia aims to be a leading investment destination, with foreign investment representing 15% of its investment strategy. The Ministry of Investment has amended the Saudi Foreign Investment Law and its executive regulations to support this goal.

Objectives of the New Investment Law:

• Equal treatment for local and foreign investors, with unified investment standards.
• Transparent and clearly defined incentives, applied non-discriminatorily.
• Easier entry for foreign technical employees.
• Protection of foreign investors’ assets.
• Increased foreign direct investment (FDI).

Key Changes in the Recent Amendment:

• Increased foreign ownership: From 49% to 100% in certain sectors.
• Streamlined approval processes, eliminating pre-approvals for some activities.
• Improved visa regulations, facilitating entry and work permits for foreign employees.
• Enhanced transparency through published regulations and clear investor guidelines.

Expected Impacts:

• Increased FDI in Saudi Arabia.
• Job creation.
• Improved business environment.
• Increased attractiveness to foreign investors.

Scope of the Saudi Foreign Investment Law:

The Law on Foreign Capital Investment regulates foreign investment, defining foreign investment (Article 1/d) as “Investment of foreign capital in an activity licensed by this law.” It covers:

• Activities: All investment activities, including establishing new companies, acquisitions, joint ventures, and branch offices. Specific regulations may apply to sectors like defense, security, and media.
• Investors: All foreign individuals and entities, including companies, investment funds, and NGOs. A foreign investor (Article 1/c) is defined as “A natural person who is not of Saudi nationality or a corporate person whose partners are not all Saudi.”

Incentives:

The law provides incentives such as tax breaks, customs duty exemptions, and benefits in special economic zones. Articles 6, 7, and 8 of the law, and Article 5 of the executive regulations, grant licensed projects the same benefits as national projects, including:

1. Incentives from the Gulf Cooperation Council’s Common Industrial Regulatory Law.
2. Real estate acquisition (with approval) for business and residential purposes.
3. Benefits from double taxation avoidance and investment protection agreements.
4. Protection against confiscation or expropriation without fair compensation.
5. Repatriation of profits, equity sales proceeds, and liquidation surpluses.
6. Free exchange of shares (with approval).
7. Sponsorship of foreign employees by the licensed firm.
8. Industrial loans from the Saudi Industrial Development Fund.
9. Carry-forward of net operating losses.
10. Tax incentives (Council of Ministers Resolution no. 359), including a 10-year exemption and a 50% deduction on Saudi training costs, subject to conditions such as a minimum capital of one million Saudi riyals and location in specified regions (Hail, Northern Borders, Jazan, Najran, Al Baha, Al Jawf).

Procedures:

The Ministry of Investment issues licenses within 30 days of receiving all required documents; otherwise, the license is automatically granted. Rejected applications must be justified, with a right of appeal. Licensed entities can be jointly owned or wholly foreign-owned. Legal forms include limited liability companies, joint stock companies, branch offices, and one-person companies (Article 5 of the law and Article 4 of the executive regulations).

Conditions and Controls for Granting a License (Article 6 of the executive regulations):

1. The activity must not be excluded from foreign investment.
2. Products and production methods must meet Saudi, Gulf, or international standards.
3. The applicant must have no significant past violations or convictions.
4. The applicant must abide by license conditions.
5. Licensing must align with investment objectives.

Multiple Licenses: Foreign investors can obtain multiple licenses, subject to meeting the conditions above and providing necessary documentation, along with a report confirming no violations related to existing projects.

Restricted Activities (Article 3 of the law and the Ministry of Investment’s manual):

The Ministerial Committee for Examination of Foreign Investment determines restricted activities, including:

• Petroleum exploration, drilling, and production (excluding certain mining services).
• Military-related insurance and livelihood services.
• Investigations and security.
• Real estate investment in Mecca and Medina.
• Hajj-related tourist guidance.
• Civil employment services.
• Commercial commission agents (internationally classified as 621).
• Fishing for live aquatic resources.

These restrictions are subject to review.

Investor Obligations (Article 17 of the executive regulations):

Foreign investors must:

1. Adhere to license conditions, requiring approval for amendments or cancellation.
2. Use an accredited accounting system and submit audited budgets.
3. Deposit and transfer employee wages through Saudi banks.
4. Provide requested information to the Authority.
5. Allow access to accounting systems and data.
6. Maintain a registered address.
7. Maintain a website with entity information.
8. Appoint a liaison officer registered with social insurance.

Violation of the Law (Article 12 of the law and Article 19 of the regulations):

Violations may result in penalties such as withholding incentives, fines (up to 500,000 Saudi riyals), or license cancellation. The Ministry provides written notification to rectify violations before penalties are applied.

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