Updated Saudi investment law to enhance foreign investor rights

Graham Coop, an expert in public international law and investor-state dispute settlement and Pamela McDonald, a specialist in international arbitration, both of Pinsent Masons, were commenting alongside Ibrahim Alajaji of Alsabhan & Alajaji Pinsent Masons LLC following the approval by the Saudi Cabinet of an updated investment law earlier this month.

The updated law will take effect 180 days from its publication in the Official Gazette on 16 August and so is anticipated to enter into force in February 2025. It repeals the existing investment law and, among other things, is designed to guarantee equal treatment for local and foreign investors in Saudi Arabia. It will do this by unifying – and updating – existing legislation that provides for different rights and protections for local and foreign investors.

The updated law is based on international investment principles. It enhances investor rights by guaranteeing the rule of law, fair treatment, property rights, intellectual property protection, the freedom to manage investments and seamless fund transfers. To facilitate investment, the law simplifies the regulatory landscape by replacing the previous international investor licensing regime with a streamlined registration process. Furthermore, dedicated service centres are envisaged to operate to expedite government transactions and streamline investment procedures.

The new law builds on previously announced reforms under Saudi Arabia’s ‘Vision 2030’ and the country’s national investment strategy.

Alajaji said: “This is just one of many reforms that Saudi is making to enhance its legal and regulatory framework, rapidly evolving the commercial landscape in the Kingdom. These particular reforms are aimed at increasing investor confidence and bolstering foreign direct investment, which will be a welcome enhancement to the business infrastructure.”

Among the recent reforms, a new Civil Transactions Law entered into force in Saudi Arabia on 16 December 2023 and addresses matters  including contract formation, execution and termination, acts causing harm – similar to tortious acts – as well as loss and damages and specific provisions tailored to contract types such as construction, agency, insurance, and partnership contracts. 

Other reforms have been delivered through the introduction of a new Private Sector Participation Law, Companies Law, Bankruptcy Law and Special Economic Zones.

According to news website Argaam, the reforms implemented in Saudi Arabia have spurred 61% increase in foreign direct investments between 2017 and 2023, reaching approximately $215 billion last year.

Further recent changes include new arbitration rules published by the Saudi Center for Commercial Arbitration (SCCA). In this context, the new investment law makes specific provision for investors to be able to resolve disputes through alternative dispute resolution mechanisms.

McDonald, reflecting on the dispute resolution provisions in the new law, said: ““This appears to be a very positive move for Saudi Arabia and one that is likely to increase the inward flow of investment into the country, buoying the economy further. The law aims to bring about equality between local and foreign investors and specifically requires their equal treatment. Of further interest to investors will be the expansion of dispute resolution options from the local courts alone, to include alternative forms of dispute resolution such as arbitration.”

Coop, commenting on what this might mean for investment disputes, added: “This marks a significant departure from the current procedures, which typically mandated that disputes between private entities and public bodies be resolved by the KSA administrative courts (the Board of Grievances). The new law upholds the investor’s right to resort to the competent court in any dispute, including those with the competent authority, or to reach an alternative agreement with the relevant party. This embodies the principle of contractual freedom, allowing parties to choose their preferred dispute resolution method, subject to any other applicable legal provisions, and will certainly be an area to watch.”

The specifics of the investment law’s implementation will be clarified once the implementing rules are issued and actual practices under the new law are observed.

The new law also makes provision for the publication of new executive regulations within 180 days of the new law being published. Those regulations will provide more detail on how aspects of the updated framework will operate and are expected to take effect around the same time as the new law does.

Saudi minister of investment Khalid Al-Falih said: “The law reaffirms Saudi Arabia’s commitment to creating a welcoming and secure environment for investors, driving economic growth, and enhancing the Kingdom’s position as a premier global investment destination. The policy direction outlined in Vision 2030 allows investors to invest with certainty and to grow with confidence at a time when many other markets are experiencing considerable volatility. The updated investment law builds on an extensive diversification agenda from an enhanced quality of life offering to investment specific measures such as the establishment of special economic zones.”