Changes to Saudi Investment Law will help facilitate foreign investment

The law was introduced through Royal Decree No. (M/19) and is expected to be effective from 7 February 2025.

Christoper Neal, corporate law expert at Pinsent Masons, said: “The new investment law introduces a number of positive changes that will help in fostering the continued development of the investment landscape in Saudi Arabia. The Investment Law represents a substantial amendment of the existing investment regime for both foreign and domestic investors and will further support the Kingdom’s transition away from oil and gas. The updates to the Investment Law create a sophisticated framework that reduces entry barriers, enhances legal certainty, and strengthens investor rights. The reforms unlock significant opportunities for long-term strategic partnerships and market expansion in the Kingdom”

The Investment Law aims to support Vision 2030 by diversifying Saudi Arabia's economy and enhancing its competitiveness as a global investment hub.

“Developed through extensive research and benchmarking of best practices, the law seeks to foster economic growth and create job opportunities by providing an appealing investment climate for both Saudi and foreign investors,” said Neal.

The Investment  Law (43 pages / 4.5 MB) no longer differentiates between local and foreign investors, defining an investor as “any local or foreign investor”. It sets out a comprehensive list of definition which includes investments, company shares and interests, contractual rights, fixed or moveable assets, intellectual property rights, rights granted under any law such as licenses, and permits, investor, and economic incentives.

Ibrahim Alajaji of Alsabhan & Alajaji Pinsent Masons LLC said: “The amendments and inclusion of these definitions provide a valuable clarity by defining the scope of what constitutes both an investment and an investor, creating a more transparent legal environment for local and foreign investors.”

The new law also enshrines the principle of freedom of investment in the Kingdom and, while some restrictions will remain, any person may invest in any sector or activity available for investment.

Under the new law, the Ministry of Investment of Saudi Arabia (MISA) will collaborate with relevant authorities in the Kingdom to publish a list of activities restricted to Saudi investors, referred to as “excluded activities”, for which foreign investment is prohibited or restricted. In such circumstances, an investor may apply to MISA for approval. The new law does not impact the power of MISA to suspend foreign investment in the interests of national security. However, MISA’s decision to do so must be based on objective grounds and consistent with the Kingdom’s international obligations.  Additionally, there are also certain activities that require minimum Saudi participation.

Previously, there has been a significant narrowing of the list of excluded activities over the past few years, leaving most investment activities open for foreign investment.

“It is anticipated that the list of excluded activities under the new Investment Law framework will continue this trend, further aligning the Kingdom’s trajectory with its broader goals of fostering foreign investment in key sectors,” said Neal.

The new law will also replace the current investment license regime with a simplified registration process. As such, investors will no longer require an investment licence to invest in the Kingdom, but must, as a pre-condition to investing, register with MISA. This condition is not applicable where an investor is investing in publicly listed securities subject to the capital markets law.

The new Investment Law maintains the right to fair and just treatment, protection against confiscation, and protection against both direct and indirect exportation. There are no restrictions on the transfer or repatriation of funds, whether within or outside the Kingdom. The new law continues to uphold the right to manage investments, dispose of them according to the law, and own any property necessary for conducting the investor’s business. It also provides protection to both intellectual property and trade secrets as well as the right to information and data.

The update further enhances the governance of investments, incentives and facilities involving regulating the procedure to ensure transparency and fairness. This aims to create a well-structured environment that aligns investment benefits with investor interests and broader economic objectives. The law further stipulates that its provisions shall not prejudice any specific laws or regulations which are applicable to certain economic zones, provided that the investor enjoys, as a minimum, the rights stipulated in the investment law.

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.”

The amendments to the Investment Law also differentiate between serious and non-serious violations, with the specific criteria for each category yet to be outlined in the expected implementing regulations. Penalties for violations under the law will be imposed based on the severity of violation.

“For investors, this approach reduces the risk of disproportionate sanctions, enhancing investor confidence and providing greater predictability.”

“Whilst it is yet to be seen the position that will entail in the implementing regulations, prudent investors must take into consideration the potential impacts of the new Investment Law when structuring transactions in the Kingdom,” said Neal.