Recently Saudi Arabia passed Royal Decree No. (M/1), in relation to changes in the country’s Investment Law. These are set to come into force during the course of 2025 and are intended to enhance the competitiveness of investments, as well as contribute to the economic development of the Kingdom, as they transition away from an oil-based economy. The plan is to create a more attractive investment environment for foreign and domestic investors, which in turn will lead to more job opportunities in the Kingdom. These laws are part of Saudi Arabia’s 2030 Vision, which aims to create a successful and thriving economy in the Kingdom. The goal is to attract USD $100 billion annually in Foreign Direct Investment (FDI).
Key goals of the Investment Law include:
Facilitating investment, ownership of assets, as well as mechanisms to liquidate companies efficiently.
Guaranteeing and promoting the rights of investors.
Guaranteeing equal treatment for local and foreign investors.
Transparent information about incentives and grants.
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.
Key Changes
Investors will have the following rights:
- Equal treatment between investors – local and foreign – including equality with procedural treatment.
- Fair and just treatment.
- Investments cannot be fully or partially confiscated except via a judicial ruling.
- Investments cannot be expropriated without legal authority and in return for fair compensation.
- Access to a range of investment initiatives linked to defined eligibility criteria.
- Ability to transfer and move funds within and outside the Kingdom without delay.
- Manage investments, dispose of these investments according to law, and own property needed to conduct business.
- Protect their intellectual property, trade secrets and confidential commercial information.
National register of investors
The Ministry will establish a national register of investors. A foreign investor will register with the Ministry prior to engaging in any investment, as specified in the Regulations. This will not apply to investments in securities subject to the Capital Market Law (e.g. convertible and tradable shares, tradable debt instruments, investment units issued by investment funds).
The Ministry also intends to replace foreign investor licenses with a simplified registration process. This includes the introduction of new service centers to expedite government transactions and investment procedures.
Excluded activities
Foreign investors who wish to invest in ‘excluded activities’ may apply to the Ministry for approval to invest in these (e.g. catering to military sectors, security and detective services, real estate investment in Makkah and Madina, tourist services related to Hajj and Umrah). The Ministry may also suspend any foreign investment for the purposes of protecting national security, provided this is done objectively and based on the Kingdom’s international obligations.
Alternative dispute resolution
Investors may take their disputes to the competent authorities, or refer them to alternative dispute resolution mechanisms – arbitration, mediation, and conciliation.
Penalties
When a foreign investor commits a non-serious violation (conducting an excluded activity, or breaching registration requirements), they may be asked by the Ministry to rectify this. Failure to do so can result in a warning, a fine (not exceeding SAR 300,000 for each violation), or a cancellation of their registration.
Penalties for serious violations by foreign investors shall be governed by the relevant Regulations and shall be considered by a Ministry committee, consisting of at least three (3) members, one of whom is a lawyer. Consideration of any penalty will take into account the gravity of the violation, the frequency, and the size of the establishment.
Appeal
Any decision made by the Ministry is subject to appeal within thirty (30) days.
Comparison of New Law and Old Law
| Investment Law (New) | Foreign Investment Law (Old) | |
| Scope | Governs domestic and foreign investors. | Governs foreign investors. |
| Investment Requirements | Single license for both foreign and domestic investors. Economic activities are generally allowed, with a small list of exceptions designated for activities like security and military activities. | Foreign investors have to obtain an investment license. Council Minister issues a list of excluded activities. |
| Local vs Foreign Investor | Equal treatment between the domestic and foreign investor. | No protections. |
| Investment Incentives | A range of investment incentives for investors. | No incentives. |
| Investor Rights | Establishment of a clear and transparent complaints handling system. Aligning local and foreign investor rights with international investment principles and policies. Freedom to use transfer capital without delay. Emphasising protection of intellectual property, trade secrets and confidential commercial information. Investments cannot be expropriated without going through appropriate legal channels, and for fair compensation. | No such system. No such rights or considerations. Allocation of specific rights for foreign investors. Transferring of funds with restrictions. No such protections. Expropriation allowed, with limited protections. |
| Violations | Differentiating between serious and non-serious violations as outlined in the relevant regulations. When considering penalties for violations, consideration should be given to the gravity of the violation, its frequency, and the size of the establishment. | No such considerations. |
| Settlement of Disputes | Local and foreign investors can refer their dispute to the competent court if there is a dispute with a government authority. Investors may agree to settle their dispute through alternative dispute resolution (ADR) mechanisms, including arbitration, mediation and conciliation. | Requirement to settle disputes amicably between the foreign investor and the government. |
Impact on International Investors
A few notable points to consider for investors:
The KSA government has introduced these legislative changes to try and improve the speed and ease for investors wishing to enter the market. Generally, these changes seem positive, particularly the establishment of government centers to speed up investor entry into KSA. Government ‘red tape’ can hinder the attractiveness of investment prospects if the jurisdiction has too many barriers to overcome to initiate investment or the complexity and costs prove to be prohibitive.
Creating equality in treatment between domestic and foreign investors is a significant step for KSA and demonstrates their commitment to encouraging FDI in the Kingdom.
The establishment of dispute resolution mechanisms, including ADR measures, is important from a foreign investment standpoint.
How these measures will apply in practice remains to be seen. However, with the government wanting to attract $100 billion in foreign investment annually in the lead up to 2030, these measures will be important in realizing this goal.
