Kingdom of Saudi Arabia (KSA) has introduced a new Investment Law that will, upon publication in official gazette, repeal the previous Foreign Investment Law (Royal Decree No. (M/1) dated 5/1/1421 AH). The new law is integral part of series of initiatives undertaken in furtherance of Kingdom’s Vision 2030 to create an enabling environment to attract foreign investors by enhancing competitiveness of KSA investment climate.
One ubiquitous aspect of the planning and implementation of the Kingdom’s Vision 2030 that rightly deserves appreciation is the mind and approach behind this ambitious program. This approach, as can be seen, is not bogged down by time trapped endeavors. The urge to acquire the desired results under Vision 2030 is evolutionary by design. This critical fact is manifested within the Saudi government and administration which is ready and willing to adopt, after careful analysis, the best global practices and follow them to strengthen the commercial ecosystem within the country.
The new Investment Law is an invitation to foreign investors to bring their money to KSA. The idea is simple – make KSA a preferred investment destination and bring the country at par, if not better, than other growing economies. This idea is supported by various sectors within KSA that are open for investment (positive list). This new law, in all earnest and with genuine seriousness announces with confidence that KSA is open for business!
Effective from the first quarter of 2025, the new Investment Law shall come into force. This law has been drafted after a detailed study of best international practices especially relating to investment screening and negative list (sectors where foreigners are not allowed to invest or invest with conditions), restrictions on ownership of businesses and assets, investment incentives, national treatment (where foreign investors are treated at par with Saudi counterparts), transfer of funds, protection against expropriation (where State takes over the ownership and control of a business venture/assets) and effective mechanism for settlement of disputes. The new Investment Law is a product of a well-organised research initiative that scrutinized laws and regulations of many developed economies including Indonesia, Germany, the United States of America, the United Arab Emirates, Singapore and Turkey. This comprehensive exercise formed the foundation of the new law.
The Preamble of any law shows the intent of the lawgivers. It also shows the intended scope of the law. Article 2 of the new Investment Law dilates upon, in detail, the purpose behind this law. A cursory reading of Article 2 ibid shows that the new Investment Law desires to achieve multiple purposes all aligned with the larger objective i.e. attracting foreign investment. This fact can be gathered from the wording of Article 2 which reads that “this Law aims to develop and enhance the competitiveness of the investment environment in the Kingdom, contribute to economic development, and create job opportunities by providing an attractive investment climate in accordance with relevant laws”.
The multi-facet strategy to achieve the above objective is also provided in Article 2 and includes measures like facilitating the establishment of investments, ownership of assets therein, exit therefrom or liquidation thereof, guaranteeing and promoting the rights of investors, guaranteeing equal treatment for local and foreign investors, ensuring transparent, efficient, and fair procedures for investors and their investments and promoting the principle of competitive neutrality and fairness and ensuring equal opportunities in investments.
The intention of lawgiver is clear i.e. to create an enabling investment environment founded upon principles of fair play, equality, transparency and justice where (a) ethical competition is promoted; (b) business interests are protected; (c) there is the freedom to acquire/own assets and businesses (d) where control over transfer or repatriation of funds is not restrictive but permissive in nature (e) nationality is not a ground to deny rights or equal treatment; (f) a swift dispute resolution system guarantees safety to investor/investment and (g) administrative procedures, rules and regulations facilitate ease of doing business.
Let us proceed further and examine more closely the salient features of the new Investment Law and how it aims to attain the above-stated objective:
Article 1 – Definition of Investor:
In the previous Foreign Investment Law an implied distinction was drawn between Saudi national and foreign investor. This distinction created a different regime with Saudi investors on one side of the divide and foreign investors on the other side. Naturally, this resulted in different treatments depending on the status of investors. In the new Investment Law, this distinction has been removed in three ways. First, the title of the new law does not use the words “Foreign”. Secondly the term “investor” is not prefixed by the term “foreign”. Thirdly, the definition clause (Article 1) mentions the term “investor” which includes both foreign as well as local investor. This definition has huge implications. The new Investment Law has created a unified investment regime for both local and foreign investors thereby creating a realm of equality in practice and procedure for all those investing in the Kingdom of Saudi Arabia. It is reiterated that this equality is one of the guiding principles of the new Investment Law.
Article 1 – Definition of Investment:
The previous Foreign Investment Law confined itself to foreign investment which was defined as “investment of foreign capital in an activity licensed by this Law”. As the new Investment Law aims at creating a unified investment regime, therefore, it uses the word “investment” to mean “the use of capital to establish, expand, develop, finance, manage, or partially or fully own an investment project in the Kingdom for the purpose of economic gain”. A fair comparison of the two definitions brings forth a clear difference. The definition of “investment” in the previous law was restrictive in nature while in the new Investment Law it is exhaustive. Again this improvement in legal terminology in the new Investment Law supports its main objective i.e. attracting foreign investors.
Article 1 – Definition of Capital:
It is an established fact that capital is an integral part of the universally recognized factors of production. It is the backbone of any business ecosystem. Legitimate creation, allocation, transmission (inflow and outflow) and prudent use of capital is imperative for economic progress and growth. The Foreign Investment Law gave a qualified meaning to this term thereby limiting its efficacy. The new Investment Law has removed this qualification and has adopted a more holistic definition that sits well with the internationally accepted meaning of capital. Article 1 of the new Investment Law defines capital as “any asset which has a material value, whether cash, in-kind, or intangible, as specified in the Regulations”. The law proceeds to mention specific categories that would be deemed to be capital which include company shares and interests, contractual rights, fixed or movable assets, Intellectual property rights, and rights granted under any law such as licenses, permits, or the like. This elaborate definition in new law will allow different forms of capital to land inside the Saudi shores bringing the local investment regime in sync with other developed economies and corporate jurisdictions. Additionally, this refined definition of capital will open up new opportunities for cross-jurisdiction ventures, partnerships, mergers and acquisitions.
Article 1 – Investment Incentives:
Foreign investors love incentives be it in the form of relaxations/ease in setting up businesses, a variety of investment options, tax reliefs/holidays, subsidies, concessions, rebates, freedom of repatriation of capital, a hassle-free exit strategy, or a responsive regulatory regime that facilitates businesses. The new Investment Law in Article 1 categorically mentions investment incentives in the following words “the benefits, facilitations, or exemptions granted to an investor to encourage him to engage in investment, in accordance with relevant legal provisions”. Article 6, being the substantive provision, adds support to this definition by stating that “without prejudice to relevant laws, the competent authority shall grant investment incentives to investors in accordance with objective and fair eligibility criteria. The Regulations shall specify the provisions necessary for the implementation of this provision”. Investment incentives, if offered with reasonable precaution under a monitored scheme, will encourage foreign investors to choose KSA as their preferred investment destination. As stated above, this legal provision also aligns with the primary objective of the new Investment Law and has the potential to act as a catalyst for attracting foreign investment.
Addition of Article 2 – Purpose of the Law:
The previous law, the Foreign Investment Law, did not provide, in specific terms, the purpose of that law. However, in the new Investment Law, Article 2 clearly captures the intent behind and purpose of the law, as discussed above. This inclusion brings clarity, gives direction and embodies the letter, spirit and scheme of the new law. It may be noted that foreign investment flows into a market that is driven by principles of equity and fair play, equal opportunities to similarly placed persons and security net for the investment. The new Investment Law tends to create this confidence for the investors at home as well as from abroad.
Article 4 – Rights of Investors:
As stated above, the new Investment Law has removed the distinction between local and foreign investors in order to provide a smooth passage to investments landing in KSA. Therefore Article 4 outlines the substantial rights that all investors (irrespective of nationality) shall hold and enjoy. These rights include equal treatment, protection against confiscation or expropriation of investment, unrestricted transfer of funds, right of management of investments and freedom to own properties, protection of IP rights and trade secrets and official administrative facilitation to investors. In essence, these rights are essential to build investor confidence.
Article 7- Registration:
The Foreign Investment Law operated through a licensing regime. This meant that any foreign investor was required to procure a license before starting any new venture in KSA. Licensing regimes are restrictive by nature and application. They involve high costs (recurring license fee, processing fee etc.), limited time (licenses are often issued for a specific time frame that can be renewed on fulfillment of conditions and payment of fee), strict oversight by regulator/licensor, frequent interference in affairs of business and restrictions on ownership rights, change of ownership, free movement of capital and constitution of the board. It is also settled that licensing regimes tend to discourage investors. The new Investment Law has substituted the licensing regime with the “registration” of investors. This departure from a controlling licensing regime to a more relaxed registration regime will surely attract investors from all over the world.
Article 10 – Dispute Resolution:
All businesses carry the risk of disputes cropping up every now and then. A system that fails to resolve disputes is destined to fail. Security of investment and investor confidence is interlinked. To achieve a balance, an investment ecosystem must provide a mechanism where the investors feel safe that they will not be embroiled in a never-ending expensive litigation. No one wants his investment, time and resources to be allocated for non-productive activities. The new Investment Law caters to this need by providing a dispute resolution mechanism where the investors are free to either amicably settle their disputes (arbitration, mediation, conciliation) or approach courts of law.
Conclusion – Investment Law – Impact Analysis:
The new Investment Law has many groundbreaking provisions that will attract foreign investment. These provisions when implemented in letter and spirit have the capacity to transform the investment climate in KSA. Sectors like Information & Technology, Health, Education & Skill Development, Infrastructure Development, Transport & Logistics, Startups, Real Estate Development, Communications, Banking & Finance and many others can gain tremendous momentum by attracting foreign capital, skills and expertise. The other advantage is that KSA will rank high as a preferred investment destination for international investors. It is noteworthy that investment is not restricted to the inflow of capital only. Expertise and specializations also follow any investment. The new Investment Law has the potential to attract this large pool of capital and expertise and improve licensor, frequent interference in affairs of business and restrictions on ownership rights, change of ownership, free movement of capital and constitution of the board. It is also settled that licensing regimes tend to discourage investors. The new Investment Law has substituted the licensing regime with the “registration” of investors. This departure from a controlling licensing regime to a more relaxed registration regime will surely attract investors from all over the world.
Article 10 – Dispute Resolution:
All businesses carry the risk of disputes cropping up every now and then. A system that fails to resolve disputes is destined to fail. Security of investment and investor confidence is interlinked. To achieve a balance, an investment ecosystem must provide a mechanism where the investors feel safe that they will not be embroiled in a never-ending expensive litigation. No one wants his investment, time and resources to be allocated for non-productive activities. The new Investment Law caters to this need by providing a dispute resolution mechanism where the investors are free to either amicably settle their disputes (arbitration, mediation, conciliation) or approach courts of law.
Conclusion – Investment Law – Impact Analysis:
The new Investment Law has many groundbreaking provisions that will attract foreign investment. These provisions when implemented in letter and spirit have the capacity to transform the investment climate in KSA. Sectors like Information & Technology, Health, Education & Skill Development, Infrastructure Development, Transport & Logistics, Startups, Real Estate Development, Communications, Banking & Finance and many others can gain tremendous momentum by attracting foreign capital, skills and expertise. The other advantage is that KSA will rank high as a preferred investment destination for international investors. It is noteworthy that investment is not restricted to the inflow of capital only. Expertise and specializations also follow any investment. The new Investment Law has the potential to attract this large pool of capital and expertise and will, with time, improve KSA’s GDP, promote diversification, increase the private sector’s contribution to the national economy and create jobs and revenue.
