Saudi Arabia replaced its Foreign Investment Law with a new Investment Law, issued by Royal Decree No. M/19 dated 16/01/1446H. The main change for a foreign investor is that the system moves from licensing the investor to registering the investor, while sector licenses and approvals still come from the competent authority. This guide explains the Law and its Implementing Regulations using the English texts published by the Ministry of Investment (MISA), which carry the note that the Arabic text governs. We assist clients with Saudi Arabia from our office in Kuwait, in cooperation with our partners in Saudi Arabia. Related guides are linked at the end of this article.
What the Law covers
The Law applies to local and foreign investors alike. "Investment" means using capital to establish, expand, develop, finance, manage, or partly or fully own an investment project in the Kingdom for economic gain (Article 1). Capital includes company shares, contractual rights, fixed or movable assets, intellectual property rights, and rights granted under any law such as licenses and permits. It does not include loans, bonds, financing sukuk or public and private debt instruments. The Law lists its goals in Article 2, which include equal treatment of local and foreign investors and transparent, efficient and fair procedures.
Freedom to invest, with two limits
Under Article 3, an investor may invest in any sector or activity open to investment, without prejudice to Articles 8 and 9 and to other relevant laws. Article 8 is the list of excluded activities. Article 9 lets the Ministry suspend a foreign investment to protect national security, on objective grounds, consistently with the Kingdom's international agreements and under the procedures in the Regulations.
The investor's rights
Article 4(1) gives the investor these rights, subject to relevant laws:
- equal treatment with other investors, and equal treatment of local and foreign investors under similar circumstances;
- fair and just treatment;
- no full or partial confiscation except by a final judicial ruling, and no direct or indirect expropriation except for the public interest, by legal procedure and against fair compensation;
- the right to transfer funds within or outside the Kingdom without delay, including investment proceeds, profits, and sale or liquidation proceeds, through legal channels in any recognized currency;
- the freedom to manage the investment, to dispose of it lawfully, and to own what is needed to run the business;
- protection of intellectual property and confidential commercial information;
- facilitation of administrative procedures, with support and assistance from the competent authority.
When the authorities act for the public interest, including to meet the Kingdom's international obligations, maintain public order or protect national security, they must still respect these rights (Article 4(2)). The Ministry provides the investor with available information and services, and seeks to resolve complaints under clear procedures (Article 4(3)). Article 5 requires the investor to comply with all laws in the Kingdom and with the Kingdom's obligations under international agreements.
Registration replaces the old license
Under Article 7, the Ministry keeps a national register of investors holding the information on their investments, and keeps it confidential. A foreign investor must register with the Ministry before engaging in any investment, as the Regulations specify. This does not apply to investments in securities under the Capital Market Law. Through its comprehensive service center the Ministry may receive the investor's applications for the legal approvals needed for the activity, including licenses and permits, and it coordinates with the authority that issues them (Article 7(4)). Registration is not the same as having your sector license, so plan both.
The Implementing Regulations add the practical detail:
- A legal person applying to register provides its name and place of incorporation, its business scope and the activities it will engage in, its capital, the expected capital contribution to the investment, and particulars of its owners, shareholders, controlling persons or ultimate beneficial owner. The applicant must also affirm the Ministry's declarations on the accuracy of the information (Regulations, Article 11).
- The Ministry notifies the applicant of registration within 10 working days from satisfaction of all requirements. If the application is incomplete, the applicant has at least 15 working days to supply what is missing, or the application is deemed cancelled (Regulations, Article 12).
- A registered investor submits an annual update of its declarations and any changes to its data (Regulations, Article 13). The Ministry notifies the investor 30 working days before the update date and gives up to 30 working days to submit. A lapsed registration may be reactivated within three years after the annual-update grace period ends, and after that the investor must re-register.
- An investor may apply for voluntary deregistration. The Ministry deregisters an investor after the cessation of all registered investments by final decision, after a suspension decision for national security, or when the committee issues a decision imposing cancellation of registration (Regulations, Article 14).
Excluded activities: prohibited or restricted
The competent authority issues and updates the list of excluded activities and the Ministry publishes it (Article 8(1)). Under the Regulations, the list specifies prohibited and restricted activities (Regulations, Article 15). A foreign investor must apply to the Ministry for approval before engaging in an excluded activity, and the Ministry refers the application to the competent authority (Article 8(2)), and under the Regulations the Ministry refers the application to the examination committee (Regulations, Article 16). The investor must also apply for approval before any change affecting ownership of an investment in a restricted activity (Article 8(3)). If an application is rejected, the investor may reapply with the reference number of the first application and any new information or documents that warrant reconsideration (Regulations, Article 19). Check the published list for your activity before you commit capital.
Incentives
Under Article 6, the competent authority grants investment incentives under objective and fair eligibility criteria, and the Regulations say that the authority must publish them in a way that is easy to find (Regulations, Article 8).
Disputes
Under Article 10, an investor that is party to a dispute, including a dispute with the competent authority, may go to the competent court unless the parties agree otherwise, and investors may agree to arbitration, mediation or conciliation. A person against whom the Ministry issues a decision may appeal it before the competent court within 30 days of notification (Article 12).
Penalties for registration and approval failures
For a non-serious violation of Article 7 or 8, the Ministry notifies the investor and sets a period to correct it. If the investor does not correct it, or commits a serious violation, a committee may impose one or more of the following penalties: a warning, a fine of up to SAR 300,000 that can be doubled for a repeat violation, or cancellation of registration (Article 11). The committee considers the gravity and frequency of the violation and the size of the establishment.
Special zones and effective date
The Law does not prejudice the laws of other agencies that apply to certain economic activities or the laws of special economic zones, as long as the investor has at least the rights the Law gives (Article 14). The Law took effect 180 days after its publication in the Official Gazette and repealed the Foreign Investment Law issued by Royal Decree No. M/1 dated 5/1/1421H (Article 16).
A decision map for a foreign investor
- Check whether your activity is open, restricted or prohibited on the published excluded activities list.
- If restricted, apply for approval first and wait for the decision.
- Register with the Ministry before you invest, with the owner and beneficial owner details ready.
- Obtain the sector licenses and approvals your activity needs, through the comprehensive service center where available.
- Calendar the annual registration update.
- Put dispute resolution terms in your contracts, including arbitration if you want it.
Read also: Saudi Commercial Contracts: Civil Transactions Law Guide | Entering the UAE: Company Forms, Ownership and Free Zones | Company Formation in Saudi Arabia (MISA)
Frequently asked questions
Does a foreign investor need a prior license?
The Law requires registration with the Ministry before engaging in any investment (Article 7(2)), except for securities under the Capital Market Law. Licenses and permits for the activity itself still come from the competent authority.
Does the law treat local and foreign investors equally?
Yes, under similar circumstances (Article 4). Confiscation requires a final judicial ruling, and expropriation requires public interest, legal procedure and fair compensation.
Can profits be transferred abroad?
Yes. Article 4(1)(d) gives the right to transfer funds without delay, including proceeds and profits, through legal channels.
What if my activity is on the excluded list?
You must apply for approval before engaging in it (Article 8(2)), and for approval of any ownership change if it is restricted (Article 8(3)).
How do you help companies with Saudi Arabia?
From our office in Kuwait, in cooperation with our partners in Saudi Arabia, we map your entry and review registration, approvals and contracts.