Saudi Arabia’s New Investment Law: Paving the Way for Sustainable Growth
On 11 August 2024, the new investment law of Saudi Arabia was published pursuant to Royal Decree No. (M/19) dated 16/01/1446 H (the “New Investment Law”).
The New Investment Law replaces the current Foreign Investment Law issued by Royal Decree No. (M/1) dated 05/01/1421 H (corresponding to 10 April 2000 G). The New Investment Law will come into force one hundred and eighty (180) days from the date of its publication. This is expected to be on or around 07 February 2025. The executive regulations of the New Investment Law (the “Executive Regulations”), which will provide greater detail on how the New Investment Law will be implemented in practice, are expected to be issued within one hundred and eighty (180) days of publication of the New Investment Law in Umm al-Qura (Saudi Official Gazette).
Saudi Arabia’s recent update to its Investment Law represents a monumental shift in the Kingdom’s approach to fostering economic growth and attracting global investment. This comprehensive reform is a cornerstone of Saudi Arabia’s Vision 2030, a strategic framework aimed at diversifying the economy and reducing its reliance on oil revenues. The New Investment law introduces a host of measures designed to create a more transparent, equitable, and competitive investment environment.
Key Aspects of the New Investment Law
- An Integrated Legal Framework
The New Investment Law offers a unified legal structure that harmonizes the rights and obligations of both local and foreign investors. This integrated framework is crucial for ensuring consistency, transparency, and fairness in the investment landscape. By abolishing the previous Foreign Investment Law, Saudi Arabia has streamlined its regulatory environment, making it more accessible and appealing to global investors.
- Abolition of the Investment License Requirement
One of the most significant changes brought about by the New Investment Law is the elimination of the investment license requirement for foreign investors. This move is part of a broader effort to reduce bureaucratic hurdles and facilitate easier market entry. While the full implications of this change will be clarified in the Executive Regulations which will be issued by the Ministry of Investment, it is expected to significantly lower the barriers to doing business in Saudi Arabia.
- Liberalization of Economic Activities
The New Investment Law liberalizes the practice of economic activities, with exceptions limited to a specific list managed by Ministerial Standing Committee. This liberalization is intended to foster a more open and competitive market, which is expected to attract a diverse range of investments and stimulate economic growth across multiple sectors.
- Equal Treatment of Investors
Ensuring that both local and foreign investors are treated equally is a cornerstone of the New Investment Law. This provision aims to create a level playing field, which is essential for attracting foreign direct investment (FDI) and boosting investor confidence. By guaranteeing equal treatment, Saudi Arabia is signalling its commitment to creating a fair and predictable business environment.
- Enhanced Governance and Investment Incentives
The New Investment Law introduces stronger governance mechanisms for granting investment incentives. These incentives, which include tax breaks, exemptions, and other benefits, are now aligned with clear and objective criteria. This transparency ensures that all eligible investors can take advantage of these incentives, thereby making Saudi Arabia an even more attractive destination for global investments.
- Strengthened Investor Rights
The protection of investor rights is a key feature of the New Investment Law. Investors are guaranteed protection against expropriation without fair compensation, as well as the freedom to transfer funds in and out of the Kingdom. Additionally, the law emphasizes the protection of intellectual property and confidential commercial information. These provisions are designed to provide investors with the security and predictability they need to make long-term commitments.
- Robust Dispute Resolution Mechanisms
Recognizing the importance of effective dispute resolution, the new law offers multiple avenues for resolving conflicts. Investors have the right to seek recourse through competent courts, as well as alternative dispute resolution methods such as arbitration and mediation. This flexibility ensures that disputes can be resolved efficiently and fairly, further enhancing the attractiveness of Saudi Arabia as an investment destination.
Impact on Saudi Arabia’s Economic Landscape
The New Investment Law is expected to have a transformative impact on Saudi Arabia’s economy. By creating a more transparent, equitable, and competitive investment environment, the law is poised to drive economic diversification and growth. It is anticipated that the reforms will increase the contribution of the private sector to GDP, enhance Saudi Arabia’s global competitiveness, and attract high-quality investments in key sectors.
Conclusion
Saudi Arabia’s New Investment Law is a strategic tool that aligns with the Kingdom’s Vision 2030 objectives. By fostering a more investor-friendly environment, the New Investment Law is set to attract significant domestic and foreign investments, driving sustainable economic growth and development. For businesses and investors looking to capitalize on the opportunities presented by this new legal landscape, GLA & Co stands ready to provide the expert guidance and support needed to navigate the complexities of this reform.
Authors: Hegui Taha, Partner and Shahad Alhumaidani, Associate.