Overview & Update

This article is an ongoing series related to institutional and project development trends in Saudi Arabia.  The purpose of this series is to help potential investors and project developers better understand issues related to Saudi Arabia's evolution toward greater roles for the private sector in the economic development of the Kingdom. The article presented here specially addresses recent changes to the Executive Rules governing foreign investment law of 2002.  (For a more comprehensive review of other important changes in the Kingdom regarding private investment and development, click here).

About the Author:  Dr. J. Michael Cobb, worked extensively in Saudi Arabia in the early 1980's and later in the mid 1990's, especially on the planning, development finance and implementation of Jubail Industrial City, while serving as a senior manager and consultant with the Saudi Arabian Bechtel Company and the Royal Commission for Jubail and Yanbu.

On August 9, 2002 Saudi Arabia announced important changes to its 2000 Investment Law. These changes were approved by the Saudi Arabian General Investment Authority (SAGIA) on June 24, 2002. Although important issues related to some sectors of the Saudi economy remain to be addressed and further clarified, overall the new rules appear an important positive step in attracting foreign investment.

One of the key clarifications of the new rules involves an investor’s rights of appeal against charges alleging investment law violations. The new rules specifies that foreign investors first appeal to the Investment Disputes Settlement Committee of SAGIA.  If the dispute cannot be resolved there, the case goes to arbitration as specified under Saudi Arabia's Arbitration Law.

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In seeking to provide greater clarity to investors, the new rules replace the entire set of Executive Rules issued subsequent to the landmark 2000 law on foreign investment. In addition to the important dispute resolution clarification, other important new clarifications include those related to foreign ownership of property, capital repatriation, loss carry-forward regulations, double taxation avoidance and the issue of legal parity of foreign with domestic companies.  Also, newly specified are minimum capital investment requirements for economic sectors, such US$1.3 million for industrial projects, US$6.7 million for agricultural projects and US $533 thousand (SR2 million) in the category 'other installations'.  There are also relaxation provisions for these minimum requirements for certain high technology projects with export-oriented production.

Other important change relates to permitting foreign investors under one company to obtain multiple business licenses thus simplifying investment process, assuming the new law on capital is established. SAGIA has also been designated as the only investment licensing authority for the Kingdom, regardless of investment sector. Although further details remain to be specified, to seeking to stream line and speed the investment process, SAGIA says it intends to permit investment applications to be made and by email.

Summary

While the new investment regulations do not contain all the detail actually needed in practice, they do show progress.  In major areas such as the gas sector and the as yet undefined capital law, however, there are still substantial issues related to foreign investment needing explanation.  Further clarity is promised to be available soon from SAGIA.  For example, it has plans to produce on an overall investment guide for the Kingdom where the full spectrum of  procedures and documentation required for gaining business licenses are to be specified.

In general, we do not see the most recently promulgated new rules from SAGIA opening major flood-gates to new foreign investments flowing to the Kingdom.  The revised rules do, however, provide some important new guidance to project investors and should be viewed as another important step in further opening the Kingdom to outside private investment.

For those needing further information, please click here to see the full text of the 26 articles comprising  the new investment rules posted on SAGIA's website.

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