Foreign Investment

Foreign Investment

Reasons & Ways of Doing Business in KSA:
KSA attracts the attention of foreign investors for several reasons:

  • Its prolonged political stability
  • strategic geographic location
  • the Middle East’ biggest economy
  • A stable currency ($UD)=SAR3.75)
  • few industrial relations concerns
  • relatively stable interest rates
  • relatively cheap labor
  • low taxes, and
  • Low establishment cost.

 

World Trade Organization Accession

KSA acceded to the World Trade Organization (“WTO Accession”) on 1st November, 2005
As part of the WTO accession process, KSA made a number of commitments as to the conditions to be imposed on services, wholesale and retail trade. a schedule setting out these commitments is annexed to the protocol of accession
The conditions apply to various services and activities and must be identified and observed by the government in the establishment and conduct of business activity in KSA.

 

Saudi Arabian General Investment Authority

The promotion and stimulation of investment opportunities in KSA is centralized through the Saudi Arabian general investment authority (“SAGIA”). SAGIA is responsible for licensing investment with collaboration of ministry of commerce and investment in KSA and seeks to create developed environment for investment”.
Proscribed List of foreign investment :
There are a number of activities which are excluded from foreign investment and cannot be the subject of a SAGIA license (“the Negative List”). For specific classification some activities are cross-referenced to product codes derived from the United nations inventory of classifications (”CPC”).

 

SAGIA License Conditions

The fundamental conditions that must be satisfied by SAGIA to grant a foreign investment license are :
·        The investment activity should not be on the negative list.
·        The intended product must comply with KSA laws.
·        The applicant should be a natural or juristic entity that has come to KSA for investment purposes.
·        The investor must not have substantially breached the FIL in the past
·        The investor must not have been convicted of financial or commercial offences either in KSA or elsewhere, and
·        The grant of the license must not breach any international or regional agreement to which KSA is a party.

 

National Capital Requirement

Foreign investors can own up to 100% of the capital of an enterprise subject to a few exceptions, the principal limits are:
·        Professional services (such as legal, accounting, taxation, architectural, auditing and medical) 25%
·        Basic telecommunication services: the limit is 60%
·        Franchising 75%
·        Financial and banking services 60% and
·        Insurance 49%
In relation to wholesale and retail trade, as part of the WTO accession, KSA agreed to allow foreign investment under certain conditions:
a.     Foreign equity is limited to 75% from 1st November, 2008
b.     There is a minimum foreign investment of SAR 20 million (USD$5.33m) by each service supplier.
c.     The minimum size of outlets may be prescribed, and
d.     A minimum of 15% of employees are to be Saudi and trained each year.

 

Foreign Investment Law (FIL)

The main regulation of foreign investment is derived from the foreign investment law issued by Royal Decree in 2000(“FIL”). all foreign investors must have a license issued under the FIL.
THE FIL:
·Regulates the procedures and requirements for investing in KSA and the rights and obligations of foreign investors.
·Lists the businesses prohibited from having foreign investment.
·Includes provisions dealing with tax, with holding tax, the regulatory regime and foreign investment dispute resolution.
Strict anti-harbouring legislation, in the form of the anti commercial covering up law (anti-harbouring law), issued by Royal Decree in 2004, is in place. The anti-harbouring laws prohibits a non-KSA citizen from investing or practicing, for his own personal account or in collaboration with others, any activity that the FIL or other related laws and instructions do not permit. A person who facilitates inappropriate investment or practice is considered to be a covering up (harbouring) accomplice, severe penalties, including imprisonment apply.