Are You Eligible to Invest in Saudi Arabia under the New Investment Law?
A new law is set to make it much easier for foreign businesses to invest in Saudi Arabia. Here’s what you need to know.
Danny Bateman | 4 December 2024
In just a few years, Saudi Arabia has turned itself into one of the world’s investment hotspots. Attracting diverse foreign capital is a make-or-break part of the Vision 2030 strategy to diversify the country’s economy. And it seems like it’s working. In the first half of 2024 alone, 184 foreign companies relocated their regional headquarters (RHQs) to Saudi Arabia
The Saudi government has marshalled this impressive progress by adopting a carrot-and-stick approach. The state provides a menu of inducements in the form of tax breaks, 100% ownership rights, customs duty exemptions and streamlined licensing progress. However, it also excludes companies that haven’t located their Gulf headquarters in Saudi Arabia from taking lucrative government contracts.
Change is Coming in 2025
In August 2024, the government announced a new Investment Law, set to replace the previous Foreign Investment Law of 2000 and liberalise the regulatory landscape still further. This is set to come into force in February 2025.
With the new law, doing business in Saudi Arabia will be easier and more open to all than ever before. However, limitations will still apply to a select few investment opportunities.
Before you start making arrangements to invest in Saudi Arabia, find out if you meet the criteria for foreign investors.
Saudi Arabia’s New Foreign Investment Law
The new Investment Law contains several key stipulations to liberalise the country’s investment landscape.
1. Licensing Requirements Scrapped
Its most significant change is to eliminate the current Foreign Investment licence, also known as a MISA or SAGIA licence. Investors will instead be required to register with the Ministry of Investment through an updated, streamlined process.
2. Applicability Expanded
The new Investment Law applies to both foreign and domestic investors, whether natural or legal persons, including those operating in special economic zones.
3. Investors Rights Updated
The law guarantees protection from expropriation, fair treatment, freedom to manage investments, and the ability to transfer funds. It ensures that investments cannot be confiscated or expropriated without legal procedures and fair compensation.
4. Freedom of Investment Expanded
Foreign investors can now invest in any sector not on the “Excluded Activities” list. MISA reserves the right to suspend investments for national security reasons, but investors can seek approval for excluded activities.
5. Investment Incentives Made Transparent
A framework has been introduced for granting investment incentives based on transparent and objective eligibility criteria.
6. New Alternative Dispute Resolution
Investors can resolve disputes through alternative methods, such as arbitration and mediation, while retaining the right to pursue cases through competent courts.
7. New Penalties Defined
The law categorizes violations as either material or non-material. Investors must correct non-material violations within a set timeframe. Failing to do so—or committing material violations—can lead to penalties, including fines or licence revocation. Investors may appeal MISA’s decisions within 30 days.
How the New Investment Law Benefits Foreign Investors
The new Investment Law was drawn up after extensive study of investment regimes in other countries. It is designed to make Saudi Arabia a more attractive destination for a wider pool of potential investors.
Ensures equality between investors
Unlike the Kingdom’s previous regime, the New Investment Law applies equally to foreign and domestic investors. This safeguards against expropriation and protects intellectual property.
The new Law also applies these protections to investors in the country’s various special economic zones (SEZs).
Streamlines registration processes
By replacing the existing MISA Licence with an updated system for getting regulatory approval, the new Law should speed up investment.
Improves remittance rights
By enshrining the principle of equality between different types of investors, the new Law will make it easier for investors to repatriate their returns.
Opens up new sectors for investment
The new Investment Law will continue the principle by which some strategic sectors are out of bounds to foreign investment. These prohibited sectors are currently codified in a ‘Negative List’, which has been steadily whittled down in recent years. The Negative List currently rules out foreign investment in:
- Exploration, prospecting and production of petroleum substances (excluding certain mining-related services)
- Manufacturing of military equipment, uniforms and devices
- Manufacturing of civil explosives
- Providing services to the military
- Security and detective services
- Real estate investment in Mecca and Madina
- Recruitment
- Tourist services for Hajj and Umrah
- Midwifery, nursing, physical therapy and quasi-doctoral services
- Fisheries
While the new list of excluded sectors has not yet been made public, we expect it to open up at least some of these fields to foreign participation.
A ministerial committee will develop the new list according to objective criteria. It is noteworthy that the new Law stipulates that foreign investors can apply to make exceptional investments in excluded fields.
As a rule of thumb, under the new Investment Law, you will be able to easily invest in Saudi Arabia without obtaining the MISA Licence in its current form, as long as you are not looking to operate in an excluded sector. But even then, you may be able to secure an exemption.
What is Staying the Same?
Beyond the continued presence of an Exclusion List for foreign investment, a few features of the current dispensation will prevail.
Preferential Treatment for Companies with a Physical Presence
While a physical presence in the Kingdom is not a prerequisite for investing in Saudi Arabia, it opens a lot of doors that remain firmly shut to those operating remotely.
The Regional Headquarters scheme is meant to entice foreign companies to make Saudi Arabia their base of operations in the Gulf. Its incentives include:
- A 30-year tax exemption package, including 0% corporate income tax
- Exemption from the Saudization requirement to hire a set quota of Saudi nationals
- The right to issue unlimited work visas
- Exclusive access to the Public Investment Fund (PIF)
- Exclusive rights to compete for government contracts
- Exemption from local professional accreditation
Without an RHQ, you will have to shoulder these extra compliance burdens and restrictions,
You can find out more about opening an RHQ here.
Capital Requirements
At present, minimum capital requirements for setting up an entity in Saudi Arabia vary by the type of business activity.
- Wholesale and Retail Trade: Foreign companies wishing to engage in wholesale and retail trade activities with 100% ownership must have a minimum capital of SR30 million. Additionally, these companies must demonstrate their presence in at least three regional or global markets, supported by commercial registrations certified by the Saudi embassy.
- Sector-Specific Requirements: Other sectors may have different minimum capital requirements. For example, sectors like real estate financing, digital brokerage, and public transportation may require a minimum registered capital ranging from SR2 million to SR200 million.
- Joint Stock Companies: For closed joint stock companies, the minimum capital is generally set at SR500,000. If a joint stock company is owned by a single individual, the minimum capital requirement increases to SR5 million.
Get Ready to Invest in Saudi Arabia in 2025
Eligibility for tapping into the Vision 2030 opportunity is not a simple yes or no proposition – it’s a nuanced assessment based on sector, scale, and structure of proposed operations.
The new Investment Law should open the KSA up to more overseas interests and smooth the path to setting up. The RHQ scheme ensures that those who commit the most stand to make the most.
For businesses contemplating entry into the Saudi market, thorough preparation is invaluable. For a free consultation with seasoned Saudi specialists on your best options, get in touch with Centuro Global today.
