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Insights into Saudi Arabia’s Evolving Laws & Regulations

Investment Opportunities & Requirements for Businesses in Saudi Arabia

Apr 3, 2023

Investment Opportunities & Requirements for Businesses in Saudi Arabia
Saudi Arabia is predicted to be one of the world’s fastest-growing economies during this decade, according to the World Economic Outlook of October 2022 released by the International Monetary Fund.1

Saudi Arabia has committed to encouraging business investment in the Kingdom and welcomes foreign investors to engage in the Saudi market and be a part of its economic expansion. The Regional Head Quarters (RHQ) program launched in 2022, inviting companies to relocate their RHQ to Saudi Arabia. This program also announced that governmental agencies and public entities would not contract with any company not having its RHQ in The Kingdom.

In a recent statement earlier this month to the British Financial Times, the Saudi Minister of Investment, Khalid Al-Falih, stated that multinationals relocating their RHQ to Saudi Arabia would only be taxed on limited profits, adding that companies relocating this year are more likely to get a tax exemption.2 The Kingdom currently imposes a 20% corporate income tax on profits.

These initiatives are part of a large-scale strategy to convert Saudi Arabia into a center of commerce and finance to reduce the Kingdom’s reliance on oil revenues. Continuing its drive to expand the economy in different sectors, Saudi Arabia has undertaken several Mega and Giga projects, including NEOM, The Line, and the ‘Murabaa,’ currently representing the most ambitious developments under construction and offering promising investment prospects.

With Crown Prince Mohammed bin Salman’s Vision 2030 plans, His Excellency officially announced the launch of the development of the largest downtown in the city of Riyadh, targeting future economic development in the Kingdom. Major Saudi corporations are set to invest hundreds of billions of dollars on new projects during the next ten years, which would draw multinationals to the Kingdom.3

This article will focus on the Kingdom’s investment requirements, different license types, and the available routes to start your investment journey in Saudi Arabia.

Investment Opportunities – MISA Release of 2022 3Q Investment Highlights Report

Saudi Arabia has strengthened its competitiveness, as demonstrated by the Kingdom’s seventh ranking in the G20 and 24th overall, rising eight ranks from 2021.

The Kingdom’s current economic growth rate is the highest in a decade, according to figures issued this month by the General Authority for Statistics (GASTAT). In a recent brief by the Government’s Centre for Communications, Minister of Commerce Majid Al-Qasabi stated that the Kingdom’s economy is the highest among G20 countries and ranked first in ease of starting a business.

According to MISA’s Investment statistics, the food services sector witnessed a 263% growth rate in the year 2022, and the real estate sector saw a 233% growth rate.  Recognition is rightly given to the new Companies Law 1444 H which offers an updated framework that significantly simplifies the registration and management of companies in the Kingdom, improving governance and streamlining investment routes.  Besides easing restrictions on operation and management of companies, the law has enabled companies to tap into debt markets.

Over a thousand business investment opportunities are currently listed by MISA across all different sectors with a particularly high demand in the industrial and manufacturing sectors, tourism and entertainment, chemicals, environment services, and real estate.

International Investment Agreements with 24+ Countries

Saudi Arabia has entered into international investment agreements with over 24 countries in the world. This is in line with the Government’s efforts to advance mutual investments and promote business partnerships between the kingdom and international private sectors.

Additionally, these agreements seek to develop ways to expand investment-related collaborations in a variety of industries, such as clean energy, petrochemicals, advanced manufacturing, automobiles, and healthcare, and encourage businesses to take advantage of the Kingdom’s investment prospects.

These agreements seek to strengthen economic cooperation between States and intend to create favorable conditions for investments by investors of one contracting party in the territory of the other contracting party, and to boost prosperity in their respective territories; recognizing that encouragement and protection of such investments will benefit the economic prosperity of all investing States.

Investment Law, Requirements & License Types

The Foreign Investment Law (FIL) regulates investment in Saudi Arabia and sets out the rules and regulations to carry out business in the Kingdom. Foreign investors may obtain more than one license for different activities, with necessary requirements specified in the law’s implementation regulations – those usually vary according to the different types of activities.

Companies formed under the FIL may either be jointly owned by foreign investors and Saudi nationals or be 100% foreign-owned, subject to specific activity-related restrictions.  An example of such restriction is imposed on companies practicing professional activities such as accounting and consultation services, in which Saudi ownership must at least be 25% of the company’s shares.

Different types of investment licenses which may be obtained include:

  • Service Investment License; for construction, administrative investment, information technology, tourism, training, health, insurance and re-insurance, education, advertising & media, logistic services, organizing exhibitions, catering & food services, financial services, and aviation, etc.
  • Trading Investment License; for wholesale, retail trade, e-commerce, and non-store auctions.
  • Professional Investment License; for accounting, consultancy, legal services, translation, and real estate valuation.
  • Agricultural Investment License; for crop production, cultivation, and farming.
  • Real Estate Investment License; for buying, selling, and subdividing of land and real estate, and the management and leasing of real estate.
  • RHQ Investment License; for the activities of headquarters.
  • Scientific/Technical Investment License; for the scientific offices of pharmaceuticals, and legal representation of medical products and device manufacturers.
  • Mining License; for establishments that wish to practice mining activities.
  • Industrial License; for mining activities; coal mining and mining of non-ferrous metal ores – aluminum, copper, lead etc.

Documents required to obtain an investment license:

  • A copy of the commercial registration of the entity in the country of origin, authenticated by the Saudi Embassy, Ministry of Foreign Affairs (MoFA) in the issuing country, and MoFA in Saudi Arabia.
  • The financial statements for the last year prior to the application authenticated by the Saudi Embassy, MoFA in the issuing country, and MoFA in Saudi Arabia.

Besides the aforesaid requirements, certain activities require additional documents evidencing the fulfilment of specific criteria for carrying out those activities.

You may refer to our schedule covering special criteria here:

New Foreign Investment Guidelines Under New Saudi Arabian Companies Law

Fees for obtaining an investment license:

  • The License Fee is (SAR 2,000) / (USD 533) annually for a 5-year maximum.
  • Subscription Fees to obtain services from Ministry of Investment investors’ relations centers:
    • First year; payment of (SR 10,000) / (USD 2,666)
    • Following years afterward; payment of (SR 60,000) / (USD 16,000)

Forms of Companies

Investors may facilitate their investments by forming any of the following legal entities:

  • Limited Liability Company (LLC)
  • LLC Branch
  • Individual LLC
  • Closed/Public Joint Stock Company Branch
  • Individual Closed Joint Stock Company Branch
  • Foreign Company Branch
  • Establishment Branch
  • Professional Partnership Company

Conclusion

AlGhazzawi and Partners has been advising domestic and foreign investors for over five decades, and we fully understand the commercial aspects and objectives of such investments. We work closely with our clients to create strategies for market entry, including new business structuring, mergers and acquisitions, franchising/distribution agreements, financing arrangements, intellectual property protection, taxation, employment, and real estate acquisition.

Our business investment specialists apply a comprehensive legal approach to market entry as well as to protecting and furthering the interests of existing enterprises. They work with our experts in key practice areas to provide specific and customized advice for every investor’s unique requirements.

Whether you are a Saudi Entrepreneur or a foreign company looking to do business in the Kingdom, we invite you to contact us to discuss your particular investment project. With offices located in Jeddah, Dammam, and Riyadh, we support investors across the Kingdom. Contact us to book a consultation.



Authors

Written By:

Narjis Alshabeeb

Narjis Alshabeeb

Mid-Level Associate

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