On August 11, 2024, the Kingdom of Saudi Arabia unveiled a new Investment Law,1 which repeals the existing Foreign Investment Law2 (“New Investment Law”) to enhance attraction of international investments and equality between domestic and foreign investors. The New Investment Law will take effect six months3 from its publication in the official gazette (February 2024), with the implementing regulations expected to be released within the same period.4 The New Investment Law is part of a broader set of pro-investment regulatory developments introduced by the Kingdom, including the Civil Transactions Law, the 2022 Companies Law, the creation of Special Economic Zones and changes to the merger control notification thresholds.5
Overview
Key takeaways from the New Investment Law include:
Local and Foreign Investors. The New Investment Law is set to apply to both local and foreign investors which is a major deviation from the existing Foreign Investment Law that primarily addresses foreign investors.6
Licensing/Approvals. The New Investment Law appear to eliminate the requirement for investors to obtain licenses (currently known as foreign investment licenses) as part of efforts to simplify the process. The New Investment Law refers to a registration process rather than the traditional licensing process required under the current regime, provided that the activities subject to the intended investment are not on the Negative List,7 unless the Ministry’s prior approval is sought.8 The Q&A published on Invest Saudi’s website9 further clarifies that following the registration with the Ministry of Investment, the commercial registration certificate is to be issued along with any required operational licenses.
Investment Incentives. The New Investment Law explicitly allows for the possibility of granting investment incentives, based on specific, objective and pre-announced eligibility and evaluation criteria to be detailed in the forthcoming implementing regulations.10
Investor Rights. The New Investment Law places great emphasis on governance mechanism to protect investors, including the establishment of transparent mechanism for handling complaints, addressing both direct and indirect expropriation of capital transfers and safeguarding intellectual property rights.11
Violations and Penalties. The New Investment Law distinguishes between serious and non-serious violations, which will be defined in the forthcoming implementing regulations, with penalties applied according to the principle of gradation.12
Settlement of Disputes. In cases where disputes emerge between investors and the competent authority in the Kingdom, such disputes shall be resolved by the competent local court, unless the parties to the dispute agree otherwise.13 In this regard, the New Investment Law expressly recognizes Investors’ rights to resort to alternative disputes resolution mechanisms, such as arbitration, mediation and reconciliation in addition to seeking recourse from the competent courts.
Conclusion
The New Investment Law is a welcome development that is set to enhance the attractiveness of the business and investment landscape into the Kingdom. Although the implementing regulations are expected to provide further details on the application of the New Investment Law, it is prudent to consider the New Investment Law and its forthcoming implementing regulations when structuring live or upcoming joint venture or M&A deals, particularly with respect to shareholding requirements and completion arrangements.
1 Royal Decree No. (M/19) dated 16/01/1446H (corresponding to July 22, 2024G)
2 Royal Decree No. (M/1) dated 5/1/1421H (corresponding to April 10, 2000G)
3 Article 16, New Investment Law
4 Article 15, New Investment Law
5 See Saudi Arabia: New Thresholds for Merger Filings
6 Article 5, New Investment Law
7 The list of excluded activities to be issued and updated, from time to time, by the competent authority and published by the Ministry of Investment.
8 Article 8, New Investment Law
9 Saudi Arabia’s National Investment Promotion e-platform
10 Article 6, New Investment Law
11 Article 4, New Investment Law
12 Article 11, New Investment Law
13 Article 10, New Investment Law
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