Foreign Investment Approval

Foreign Investment Approval

Recent Developments

Foreign investments in Saudi Arabia (whether foreign-owned companies or branches of foreign entities) are licensed by the Ministry of Investment. In recent years, and in line with Vision 2030’s goal of increasing both foreign investment and private sector contributions to the economy, the Ministry of Investment has considerably streamlined the process for obtaining a foreign investment licence. For example, the application process is now made online and for certain licences it only requires submission to the Ministry of Investment of a shareholder’s financial statements and commercial registration (although the Ministry of Investment retains the discretion to request further documents).

In June 2017, the Ministry of Investment announced that five-year foreign investment licences would be available to all new and existing investors, and that companies would be permitted to renew other licenses and permits, such as their Commercial Registration, for a similar term (previously, licences had to be renewed annually). Although this may give foreign investors greater confidence to commit to Saudi Arabia, the actual term of the foreign investment licence and commercial registration issued before renewal is required will be subject to the Ministry of Investment and MoCI’s discretion, and may ultimately be for a shorter period.

Demonstrating the strong government desire to encourage innovation in the Saudi economy, the Ministry of Investment has also introduced a new foreign investment licence, designed for entrepreneurs that intend to establish pilot projects accredited by Saudi universities or business incubators.

Whilst a number of industries (for example, oil exploration, drilling, and production) remain prohibited from foreign investment, this so-called “negative list” has been reduced in recent years. In addition, a number of industries that were blocked to foreign investors, either due to other laws and regulations or the practices of certain ministries or governmental authorities, are now open to foreigners. These industries include, in particular, the healthcare and education sectors. Also, certain sectors have been opened up to 100% foreign investment for the first time. Most notably, (i) retail and wholesale trading businesses, and (ii) engineering consultancies both no longer require a Saudi shareholder, subject to meeting certain additional requirements set by the Ministry of Investment.

Retail and Wholesale Trading

On incorporation, the foreign owner must make a foreign investment of at least SR30 million (USD $8 million). Additionally, during the five-year period after the foreign investment licence is issued (unless there is a further investment of at least SR300 million (USD $80 million)), the investor must commit to:

  • invest SAR200 million (USD $53.3 million); and
  • achieve at least one of the following:
    • 30% of distributed products manufactured in Saudi Arabia;
    • 5% of total sales revenue allocated to in-Kingdom research and development programmes; or
    • a local logistics, distribution, and after-sales services centre.

Regardless of capital invested over five years, all companies must:

  • employ sufficient Saudi nationals to meet the Ministry of Labour’s Nitaqat requirements;
  • annually train at least 30% of Saudi employees; and/li>
  • implement a plan for Saudi nationals to both hold key positions during the first five years and ensure continuation of their employment.

Engineering Consultancy

The foreign investor must:

  • have ten years of experience within the engineering consultancy field; and
  • be operating in at least four international markets, apart from Saudi Arabia.

Others

As well as permitting full foreign investment in a wider range of sectors, the Ministry of Investment has also recently shown a willingness to facilitate common structures used in cross-border transactions that were previously prohibited by it, for example:

  • a special purpose vehicle that is unable to provide one year’s worth of financial statements may be a foreign shareholder, provided it submits accounts for the mother/parent company; and
  • where a local shareholder is required, allowing that shareholding to be made indirectly in a foreign company that holds 100% of the shares of the new company.

Our Experience

Z&Co. lawyers’ recent experience in foreign investment covers a wide range of sectors, including:

  • the operation and maintenance of the Riyadh metro;
  • healthcare;
  • industrial activities; and
  • services, including IT services.
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