The New Investment Law is part of a series of legislation issued in recent years in line with KSA’s ‘Vision 2030’.
Legal framework
Back in August 2024, KSA unveiled its new Investment Law (Royal Decree No. M/19) (the "New Law"). The New Law and its Implementing Regulations entered into force this month, repealing the Foreign Investment Law 2000 (Royal Decree No. M1) (the "Old Law"). *This article is based on the draft Implementing Regulations (whilst publication of the final Implementing Regulations is eagerly awaited).
Purpose of the New Law
The New Law aims to (1) develop and enhance the competitiveness of the investment environment in KSA, (2) contribute to the country’s economic development, and (3) create job opportunities by providing an attractive investment climate.
The Implementing Regulations which provide a detailed framework, enhancing transparency and predictability, are well aligned with the goals sought to be achieved by the New Law.
Key Features of the New Law
1. Equality of local and foreign investors
The New Investment Law marks a significant shift from the Old Law by extending the definition of "Investor" to encompass both local and foreign entities (Article 1). Thus under the New Law, with certain exceptions to safeguard national interests, local and foreign investors are subject to the same regulatory framework.
Article 4 explicitly mandates equal treatment for all investors, irrespective of their origin. The Implementing Regulations reinforce this principle, stipulating that "treatment shall be equal between Local Investors and Foreign Investors in similar circumstances" (Article 4(1)). The criteria for determining "similar circumstances" are clearly outlined in Article 4(2) of the Implementing Regulations, which provides a non-exhaustive list of relevant factors. This approach aims to ensure a transparent and equitable investment environment, enhancing legal certainty for all stakeholders.
2. Enhanced investment protection
The New Law reasserts the rights enjoyed under the Old Law and introduces several new ones. Article 4 of the New Law outlines the various rights of investors (both local and foreign), including for the first time, the protection of their intellectual property and trade secrets (although there is no further detail provided within the Implementing Regulations as to what this means in practice).
Fair and equitable treatment and protection against expropriation
Among other things, investors enjoy fair and equitable treatment, and protection against indirect expropriation. By reference to well-established international law principles, Article 5 of the Implementing Regulations specifies various scenarios that constitute a breach of fair and equitable treatment, while Article 6 outlines the criteria for determining whether indirect expropriation has occurred. This structured approach aims to provide legal certainty and assure investors that their rights are protected in a manner consistent with international (legal) standards.
Free transfer of funds
Investors' rights to transfer funds are also protected. Article 7 of the Implementing Regulations provides a detailed (although non-exhaustive) list of what this right encompasses. While there may be circumstances that justify a delay or prevention of transfer, Article 7(2) ensures that such actions can only be taken "through the equitable, non-discriminatory and good-faith application" of specific legislation (e.g. legislation relating to bankruptcy, insolvency, securities, criminal offences, or compliance with adjudicatory proceedings). This framework not only enhances predictability but also consistently reaffirms investors' fundamental rights. It assures investors that, despite the limited exceptions, the overarching principle remains for their protection.
Access to data
A notable new feature of the New Law is the obligation placed on the Ministry of Investment to provide investors with relevant statistical data and information (Article 4(3) of the New Law and Article 8 of the Implementing Regulations). This commitment to transparency aims to empower investors with the information they need to make informed decisions, fostering a more supportive and predictable investment environment.
National security protection measures
While Article 9 of the New Law allows the Ministry of Investment to suspend foreign investments to protect national security, this is made on the express condition that the decision be based on objective grounds, consistent with obligations under international treaties, and in accordance with the Implementing Regulations. These set out several safeguards, including the investor's ‘right to be heard’ (Article 25(4) of the Implementing Regulations) and the possibility to discuss with the Ministry alternative measures to mitigate national security concerns (Article 25(5) of the Implementing Regulations).
3. Freedom of investment
The New Law appears to broaden the scope of investment opportunities for foreign investors. Under Article 3 of the New Law, "an investor may engage in investment in any sector or activity available for investment."
Similar to the Old Law, Article 8 of the New Law provides for the issuance of a list of "excluded activities." While it remains to be seen which investment activities will be excluded, under the Old Law, excluded activities included investments in the military sector, real estate investments in Mecca and Medina, and tourist services related to Hajj among others.
By contrast to the Old Law which contained no similar provisions, the New Law (and its Implementing Regulations) set out a clear and comprehensive procedure by which foreign investors can apply for approval to engage in excluded investment activities (Articles 16 to 21 of the Implementing Regulations). In particular, a distinction is drawn between prohibited activities (not available for foreign investors without prior approval of the FDI Ministerial Committee) and restricted activities (which foreign investors may carry out provided they meet the conditions set by a ‘Competent Authority’, which includes the FDI Ministerial Committee as the case may be).
Whilst the Ministry of Investment retains discretion in the approval or rejection of applications by foreign investors to engage in prohibited activities, the Ministry is required to communicate the reasons for rejection and outline any applicable legal remedies (Article 19(1) of the Implementing Regulations). This aligns with the general objective of the New Law: to encourage foreign investment, even within excluded activities, subject to the necessary conditions being satisfied.
4. Simplified procedures
Procedures appear to be streamlined under the New Law, thereby making investments more accessible to both foreign and local investors.
Article 7 of the New Law introduces a new registration system (detailed in Articles 11 to 15 of the Implementing Regulations), which is less burdensome and more expeditious than the current licensing system. For example, under the Old Law, the Ministry of Investment was required to notify the applicant of a licensing decision within 30 working days, whilst under the New Law, the Ministry is mandated to give notification of registration in a non-excluded activity within a much-reduced 5 days (Article 13(1) of the Implementing Regulations).
Furthermore, Article 7 of the New Law provides for the establishment of a ‘service centre’ within the Ministry of Investment, which shall "receive the investor’s applications to obtain the legal approvals necessary for engaging in an investment activity, including licenses or permits." In accordance with this provision, the Ministry will coordinate with the competent authority "to ensure that the investor satisfies the necessary legal requirements." Article 22 of the Implementing Regulations clarifies that the purpose of the service centre is to facilitate communications between the Ministry and investors, providing investors with a single point of contact.
Penalties
Article 11 of the New Law sets out the procedures to be followed and penalties to be applied in case of investor violations. Unlike the Old Law, the New Law distinguishes between serious and non-serious violations (Articles 33 and 34 of the Implementing Regulations).
Further, while the Minister imposed penalties under the Old Law, the New Law provides that a committee of at least three members (of which at least one member shall be a legal specialist) shall have the power to impose penalties (Article 11(4) of the New Law). Investors are also granted a right to appeal within 30 days (Article 12 of the New Law). These changes provide investors with greater legal certainty and comfort.
Dispute resolution
Articles 27 to 29 of the Implementing Regulations outline procedures for "investor grievances." In addition to their right to initiate judicial or similar proceedings, investors now have a formal mechanism to raise complaints related to their investments with the Ministry and resolve such issues outside of the court system.
Further, Article 10 of the New Law permits investors to resolve their disputes through alternative dispute resolution methods, including arbitration, mediation, and conciliation. This provision offers reassurance to investors who may prefer these methods, particularly those more familiar with arbitration. However, it remains unclear how this provision, which seemingly allows public bodies to enter into arbitration agreements, will interact with other legislation that restrict or condition government entities' arbitration agreements.
Conclusion
The New Law along with the Implementing Regulations mark a significant step towards creating a more attractive and competitive investment environment. In particular, the Implementing Regulations aim to provide clear guidelines and safeguards to ensure that investors can confidently navigate the expanding and increasingly complex investment landscape of the Kingdom.
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