Saudi law upgrades geared to attract FDIs
Foreign businessmen often ask me about investment opportunities in Saudi Arabia, the ease of doing business in the kingdom, and the extent of legal protection afforded to foreign investors.
This article highlights the most prominent legal steps taken by Saudi Arabia over the past five years with the goal of attracting foreign investments (FDIs), but without addressing specific laws governing any particular sector. We will, however, try to explain the laws that are of interest to investors in detail in subsequent articles.
For the moment, what is of interest is that Saudi Arabia continues to update its laws that are relevant to the economy. This comes in line with the objectives of the Saudi Vision 2030 and the kingdom’s future plans, as it works to attract foreign capital and diversified investments in order to diversify and support its economy, in addition to creating more job opportunities within the country.
This is reflected in the efforts of the kingdom’s leadership toward empowering women in business, and issuing laws supporting the financial and economic sectors in order to help increase the size of the contribution from the private sector as a key partner for the government in achieving the kingdom’s vision.
An example of such efforts is the Saudi government’s announcement of a SAR72 billion ($19.2 billion) plan geared to stimulate the private sector and raise its contribution from 40% of the GDP to 65% by 2030.
This rapid legislative renaissance, which started about five years ago, also falls in line with the kingdom’s plans to support its position globally. This is especially the case when it comes to the economy, given the fact that Saudi Arabia is a member of the G20, meaning it is among the world’s 20 largest and most powerful economies.
It currently ranks 19th in terms of its nominal GDP, which the International Monetary Fund estimates at $843 billion, while it ranks 17th as the world’s most powerful economy if its GDP is calculated on the basis of its purchasing power parity.
Saudi Arabia also aims to become a global investment powerhouse as well as a leading center for business, and to position its capital, Riyadh, among the world’s 10 largest city-economies. All of that warranted the extensive legal amendments tackling investments, labor, judiciary, tourism and real estate among other sectors.
Such laws included the kingdom asking foreign companies in the region to move their headquarters to Saudi Arabia within a specific time limit, if they wished to secure government contracts.
This is why the Saudi government prohibited awarding contracts to any foreign company or commercial institution that has its regional headquarters outside the kingdom as of 2024.
However, the Saudi government’s step came in tow with a package of incentives to entice foreign companies to move to the kingdom. This included raising the volume of investment opportunities for foreign companies in recent years, which during the second quarter of 2021 amounted to about $13 billion.
With the introduction of the new legislations facilitating the path of investments in the kingdom, the procedure to obtain a foreign investment license has become faster and easier. In fact, the process is now fully automated and can be done online. If the files and documents are complete as per the requirements, investors can obtain their license in less than three days.
Furthermore, it is now up to foreign companies to define the form of their legal entity, be it is a limited liability company, a joint stock company, or a branch of the foreign company. It is also pivotal for foreign investors, who wish to obtain an investment license in Saudi Arabia, to specify their commercial activity, which should be in line with the primary activity in the countries where their companies are headquartered.
This is why it is always recommended that foreign investors check the codes of the Saudi Classification of Economic Activities (ISIC4) to help them choose the appropriate activity before applying for an investment license.
The investment licenses vary according to the type of activity. They can be a services investment license, an industrial investment license, a commercial investment license, a real estate investment license or a professional investment license.
It should be noted that Saudi Arabia in recent years has allowed foreign investors to fully and solely obtain an investment license to practice trade without the need for a Saudi partner, provided that the capital investment is not less than SAR30 million ($8 million).
Moreover, to ensure the ease of doing business, foreign investors can obtain a temporary certificate for a period of one year, without fees, to apply for government projects (such as tenders and bids). If foreign investors are awarded the project, they can then proceed to obtain a foreign investment license. In addition, Saudi Arabia has, under its privileged residency, also allowed foreign investors to obtain an investment license directly without the need to have a legal entity activity outside the kingdom.
Meanwhile, the real estate sector is now open for foreign investors to engage in property development activities, meaning a foreign investor can own real estate for his licensed activity in Saudi Arabia, and even own a home.
The Saudi labor system was also subject to the recent legal revamps that provide legal protection to foreign workers. It now imposes the e-documentation or labor contracts and requires a worker’s consent to a contract via the “Absher” system, which allows a worker to view a copy of the contract and accept or reject it electronically. This way, the employee can obtain an e-copy of the contract without having to request one from the employer.
Another key step to ensure FDIs’ confidence in the process of litigation in the kingdom is the development and enhancement of the Saudi arbitration system and the establishment of the Saudi Center for Commercial Arbitration. Thus, in the event of a dispute, foreign investors can choose the arbitrator from any country and choose the laws and languages in which they wish to apply without having to pay additional fees.
New laws have also been introduced that ensure the protection of rights and freedoms within Saudi Arabia, the most important of which is the anti-cyber crime law. The new laws support information security and protect the rights and private interests of investors while using the internet.
These come hot on the heels of a law to protect personal information, which was issued in 2021, and which benefits individuals and commercial entities alike. The Personal Data Protection Law prohibits those holding or controlling personal data from processing such information without the consent of the data subject, or even disclosing personal data to an entity outside of Saudi Arabia.
The exception to the law is when such transfer of data affects the national security or the vital interests of Saudi Arabia. This system aims to protect and regulate the use of personal data of all kinds and prevent its misuse, whether this data relates to a personal address, personal photos, name, identity number or bank account numbers, which provides additional protection for investors and companies investing in the kingdom by legally securing their data.
Going forward, we expect Saudi Arabia to continue to adopt new legislations to support its economy and financial sector, and keep pace with global changes in a way that preserves the state’s leading position and contributes toward achieving its vision of the future
* Mohammed Al Otaibi is a Saudi lawyer and expert in the domain of foreign investments. He is specialized in drafting contracts to establish companies and joint ventures, as well as is an expert in commercial and labor contracts.