Foreign Investment in the Kingdom of Saudi Arabia
In April 2000, the Saudi Arabian General Investment Authority (“SAGIA”) was launched to oversee the foreign investments in the country. The main objective of SAGIA is to empower the differentiated investments for building a sustainable economy. SAGIA represents the first such regulatory authority that will serve as the face for foreign investors, by virtue of being a primary licensing authority for those potential investors seeking to start a new business in KSA. Investors are given licenses, governed and also regulated by the SAGIA, which aims at promoting the investment opportunities in KSA across the globe, with emphasis on the field like energy, transportation, education, health, life sciences, and innovative, knowledge-based industries. Moreover, SAGIA also has a prominent role in offering the required support and guidance for the investors. SAGIA was originally functioning as a regulatory agency, has now placed more focus towards promoting investments and assisting potential investors. The official website touts many ‘strategic benefits’ for investors in the kingdom including great access to a large consumer and industrial market, with a population of 30.7 million, a well-qualified workforce, a strong supply of land for industrial and commercial real estate as well as utilities at highly competitive prices. It also mentions a positive regulatory environment, followed by incentives in a highly favorable tax environment.
The investment environment in Saudi has been witnessing constant changes following the implementation of Vision 2030 and the ambitious National Transformation Plan (2020). SAGIA also has relaxed restrictions which are applicable to foreign investors for enhancing the overall investment environment. SAGIA is also devoting more focus on attracting the large foreign entities, which led to the creation of Instant License service wherein eligible investors can obtain their licenses for in an expeditious manner.
According to foreign direct investment laws, foreigners can now invest in all sectors of the economy, except specific activities which are on a negative list such as oil and mining sector, the military services and some of the other services, etc. There is no longer a requirement for the foreign investors to tie up with local partners in many sectors and they can also own property for company related activities. They can even repatriate their company funds and sponsor their foreign employees, based on certain criteria specified in the Nitaqat (Saudisation) programme. For facilitating investments in the Kingdom, SAGIA has also created an exclusive Investment Services Centre (ISC). The ISC will be deciding to either grant or refuse a license to investors within a couple of days of an application from an investor.
It has even opened the doors for foreign investors to completely own 100% of the share capital of their investments in KSA in many diverse business activities, while meeting certain set of criteria. The Kingdom has permitted large foreign investors to make direct investments in its stock market. The Saudi Council of Ministers has also eliminated a requirement where retail and wholesale businesses which are operating in the kingdom must be about 25 percent Saudi-owned, thereby allowing complete foreign ownership of such enterprises. Foreign investors can now move ahead to establish full-fledged engineering consultancy firms by owning till 100% of their entities. The government has also privatized state-owned entities in key sectors such as aviation, energy, education, and healthcare. In the year 2017, Saudi Arabia made an announcement which gives foreign investors complete access to NOMU, a capital market which was launched for small and medium-sized enterprises. The kingdom is expected to sell some of its stake in the state-owned oil company Saudi Aramco which is expected to gain a windfall of $100 billion, even as few reports have indicated that the offering might be delayed till 2019, as a result of the current low level of global oil prices.
The Saudi Council of Ministers (CoM) has given its approval recently for complete foreign investments in sectors such as transport, audio visual, recruitment, and real estate sectors. Foreign direct investments (FDI) is now allowed in all the business activities which are not restricted to those that have to be undertaken exclusively by the nationals of Gulf Cooperation Council or companies which are owned by them. The list of prohibited business activities for the FDIs are also called as the "Negative List" (the Negative List) which are identified as such category by SAGIA.
SAGIA has made its policies open for foreign investors who can now establish the following legal entities to do business in Saudi Arabia.
1. Limited Liability Company (LLC).
2. Joint Stock Company.
3. Limited Liability One-person Company.
4. Foreign Company Branch
Limited liability Company (LLC) is the most common form of the legal entity selected by foreign investors in the Kingdom of Saudi Arabia. Starting an LLC involves a multistep process. Incorporation of an LLC may take about one week right from the date of submission of the application to the Saudi Arabia General Investment Authority (SAGIA) (or due to any delay which is caused by government authorities) and The Ministry of Commerce and Investment (MOCI) then issues a commercial registration certificate before this LLC is fully registered in KSA.
Foreign investors can even select establishing a branch rather than an LLC to do business in the KS. A branch can function on behalf of the parent company (foreign registered company) and there is no need for any separate legal existence in the KSA Registration of a branch related to the issuance of foreign investment license by SAGIA as well as the commercial registration certificate by the MOCI whose general procedure is similar to that of an LLC. Incorporating a new branch may take anywhere between one to two weeks. The parent company of the concerned branch will be liable for the branch's activities that it undertakes in the country. The paid-up capital for any branch involves no limitation of liability when compared to an LLC.
Although no statutory minimum capital requirement has been set in practice, SAGIA still requires foreign LLCs to have a minimum working capital of SAR 500,000. In a certain set of activities, the specific minimum capital which has been prescribed by SAGIA is as follows:
Service/property investment project value about SAR 30 million
Service/property financing projects with a value of SAR 200 million with a 40% shareholding by Saudi
Service/transport: SAR 500,000
Contracting: None (but there is a need for revenue/asset value)
Commercial (with a Saudi partner): About SAR 7 million along with a minimum contribution from foreign shareholder to the tune of SAR 20 million
Commercial (100% foreign owned): SAR 30 million
Agriculture: SAR 25 million
SAGIA also scaled down the average time which is required for issuing investment licenses from an earlier time frame of 53 hours to less than 4 hours currently. The recent set of policy initiatives that have been undertaken by SAGIA to restructure the business processes, reduce the total number of documents required, as well as for training and qualifying the cadres has resulted in notable progress.
The restructured processes are related to aspects such as issuing, amending and renewing the overall investment licenses. Earlier, eight documents were mandatory for getting an investment license, and this has now been reduced to two, such as financial statements and commercial registers which will be attested by a Saudi embassy from the region or country where the company seeking the particular investment license is based.
The official website of the SAGIA provides information to investors regarding the facility to renew investment licenses by themselves. SAGIA is undertaking several business-friendly initiatives for gaining more foreign investments to the Kingdom like reducing the overall requirements and duration of the issuing licenses, increase in the period of licensing for the foreign investment for 5 years, and approval for instant licenses and also reducing the list which is official excluded from foreign investments, and activating the e-services portal to facilitate the investors. These efforts have resulted in an increase of foreign direct investment by about 127% till the end of 2018, compared to previous year, and inking of 30 agreements at the forum of the future investment, with an estimated investment of about SR250 billion.
A number of works related to massive leisure and infrastructure related projects in Saudi Arabia is proceeding towards completion, while many other proposals are in earlier stages in a market, where the future vision is directed at increased diversification of its overall income sources. The Kingdom of Saudi Arabia is clear in its objectives to transform our understanding of what is innovation, aviation recreation, and invention. This presents a prime opportunity for international companies to be part of lucrative contracts worth hundreds of millions of dollars.
We at Khalil Khazindar Law Firm can help your company with the solid grounds to establish your presence in the Kingdom. We can provide you with tailored legal advice as a foreign investor on all laws and regulations, in addition to more guidance and help with foreign company licensing, joint ventures, incorporations, mergers, acquisitions, and liquidations. With us, you can legally invest in Saudi Arabia with so much of ease and confidence.