The SAG has taken important steps since 2018 to improve intellectual property rights (IPR) protection, enforcement, and awareness. While some concerns remain regarding IPR protection in the pharmaceutical sector, no new incidents related to regulatory data protection for health and safety information have been reported since October 2020, and in March 2022 Saudi Arabia issued a public statement stipulating that data protection in the Kingdom is for five years. While the sharp downturn in oil prices in 2020 put pressure on Saudi Arabia’s fiscal situation, the subsequent spike in oil prices has increased government revenue and the SAG expects a budget surplus in 2022.
Despite these investment opportunities, investor concerns persist regarding business predictability, transparency, and political risk. Although some activists have recently been released, the continued detention and prosecution of activists remains a significant concern, while there has been little progress on fundamental freedoms of speech and religion. The pressure to generate non-oil revenue and provide increased employment opportunities for Saudi citizens has prompted the SAG to implement measures that may weaken the country’s investment climate going forward. Increased fees for expatriate workers and their dependents, as well as “Saudization” policies requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities. Additionally, while specific details have not yet been released, Saudi Arabia announced in 2021 that multinational companies wanting to contract with the SAG must establish their regional headquarters in Saudi Arabia by 2024.
The Saudi entertainment and sports sector, aided by a relaxation of social restrictions, is also primed for foreign investment. The country hopes to build hundreds of movie theaters and the SAG aims to sign agreements for production studios in Saudi Arabia for end-to-end film production. The SAG seeks to host world class sporting events and has already hosted the European Golf Tour, Diriyah ePrix, Dakar Rally, and Saudi Formula One Grand Prix. In addition, recent film festivals and concerts have demonstrated strong demand for art and cultural events. Lastly, the SAG is eager for foreign investment in green projects related to renewable energy, hydrogen, waste management, and carbon capture to reach net-zero emissions by 2060. It is particularly interested in green capacity-building and technology-sharing initiatives.
To accomplish these ambitious Vision 2030 reforms, the SAG is seeking foreign investment in burgeoning sectors such as infrastructure, tourism, entertainment, and renewable energy. Saudi Arabia aims to become a major transport and logistics hub linking Asia, Europe, and Africa. Infrastructure projects related to this goal include various “economic cities” and special economic zones, which will serve as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries. The SAG plans to double the size of Riyadh city and welcomes investment in its multi-billion-dollar giga-projects (including NEOM, Qiddiya, the Red Sea Project, and Amaala), which are the jumping-off points for its nascent tourism industry. The Kingdom is also developing tourism infrastructure at natural sites, such as AlUla, and the SAG continues to grow its successful Saudi Seasons initiative, which hosts tourism and cultural events throughout the country.
In 2021, the Saudi Arabian government (SAG) continued its ambitious socio-economic reforms, collectively known as Vision 2030. Spearheaded by Crown Prince Mohammed bin Salman, Vision 2030 provides a roadmap for the development of new economic sectors and a transition to a digital, knowledge-based economy. The reforms aim to diversify the Saudi economy away from oil and create more private sector jobs for a young and growing population.
Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments. The SAG has transformed its Public Investment Fund (PIF), into a major international investor and sovereign wealth fund. The PIF’s outward investment projects are covered in Section 6 (Financial Sector). Saudi Aramco and SABIC are also major investors in the United States. In 2017, Saudi Aramco acquired full ownership of Motiva, the largest refinery in North America, in Port Arthur, Texas. In December 2021, the ExxonMobil-SABIC $10-billion-dollar joint venture, Gulf Coast Growth Ventures, commenced operations at its new petrochemical facility near Corpus Christi, Texas.
Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom. Under Vision 2030, Saudi Arabia aims to increase SME contribution to its GDP to 35 percent by 2030. To facilitate and promote the growth of the SME sector, the SAG established the Small and Medium Enterprises General Authority, Monsha’at, in 2015 and released a new Companies Law in 2016, which was amended in 2018 to update the language vis-à-vis Joint Stock Companies (JSC) and Limited Liability Companies (LLC). It also substantially reduced the minimum capital and number of shareholders required to form a JSC from five to two. The SAG continues to roll out initiatives to spur the development of the SME ecosystem in Saudi Arabia. As of 2019, women no longer need a male guardian to apply for a business license. In February 2021, Monsha’at launched the Bank of Small and Medium Enterprises to provide a one-stop shop for SME financing. In March 2022, Monsha’at and the King Abdulaziz City for Science and Technology inaugurated the National Business Innovation Portal, which provides guidance and resources for SMEs.
In addition to applying for a license from MISA, foreign and local investors must register a new business via the Ministry of Commerce (MOC), which has begun offering online registration services for limited liability companies at https://mc.gov.sa/en/ . Though users may submit articles of association and apply for a business name within minutes on MOC’s website, final approval from the Ministry often takes a week or longer. Applicants must also complete several other steps to start a business, including obtaining a municipality ( baladia ) license for their office premises and registering separately with the Ministry of Human Resources and Social Development, Chamber of Commerce, Passport Office, Tax Department, and the General Organization for Social Insurance. From start to finish, registering a business in Saudi Arabia takes about three weeks.
In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair; computer reservation systems; wholesale, retail, and franchise distribution services; basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom. While some companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over $50 million during the first five years and ensure that 30 percent of all products sold are manufactured locally – have proven difficult to meet and have precluded many investors from taking full advantage of the reform.
Professionals, including architects, consultants, and consulting engineers, are required to register with, and be certified by, the Ministry of Commerce. In theory, these regulations permit the registration of Saudi-foreign joint venture consulting firms. As part of its WTO commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. Foreign engineering consulting companies, however, must have been incorporated for at least 10 years and have operations in at least four different countries to qualify. Foreign entities practicing accounting and auditing, architecture, and civil planning, or providing healthcare, dental, or veterinary services, must still have a Saudi partner.
Joint ventures almost always take the form of limited liability partnerships in Saudi Arabia, to which there are some disadvantages. Foreign partners in service and contracting ventures organized as limited liability partnerships must pay, in cash or in kind, 100 percent of their contribution to authorized capital. MISA’s authorization is only the first step in setting up such a partnership.
Foreign firms are barred from investing in the upstream hydrocarbon sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. ExxonMobil, Shell, China’s Sinopec, and Japan’s Sumitomo Chemical are partners with Saudi Aramco in domestic refineries. ExxonMobil, Chevron, Shell, and other international investors have joint ventures with Saudi Aramco and/or the Saudi Basic Industries Corporation (SABIC, a wholly-owned subsidiary of Saudi Aramco since 2020) in large-scale petrochemical plants. The Dow Chemical Company and Saudi Aramco are partners in the $20 billion Sadara joint venture with the world’s largest integrated petrochemical production complex.
In February 2021, MISA and the Royal Commission for Riyadh City (RCRC) announced a new directive requiring that companies wanting to contract with the SAG establish their regional headquarters in Saudi Arabia – preferably in Riyadh – by 2024. MISA has yet to publish details regarding this mandate. According to MISA, companies that relocate their regional headquarters to Riyadh will benefit from incentives including relaxed Saudization, spouse work permits, waivers of professional accreditation, visa acceleration, and end-to-end business, personal, and concierge services. Saudi officials have confirmed that offices cannot be headquarters “in name only” but, rather, must be legitimate headquarters offices with C-level executive staff in Riyadh overseeing operations and staff in the rest of the region. Companies choosing to maintain their regional headquarters in another country will not be awarded public sector contracts beginning in 2024. Implementing regulations for this new directive have not been issued and it remains unclear if the rule would affect contracting by parastatal organizations such as Saudi Aramco.
Foreign investors must contend with increasingly strict requirements to base a certain percentage of production within Saudi Arabia (localization), labor policy requirements to hire more Saudi nationals (usually at higher wages than expatriate workers), an increasingly restrictive visa policy for foreign workers, and gender segregation in business and social settings (though this is becoming more relaxed as socio-economic reforms progress).
Lastly, the Kingdom’s infrastructure sector is open to foreign investment. The SAG launched an $800 billion project to double the size of Riyadh city in the next decade and transform it into an economic, social, and cultural hub for the region. The project includes 18 “mega-projects” in the capital city to improve livability, strengthen economic growth, and more than double the population to 15-20 million by 2030. The SAG is seeking private sector financing of $250 billion for these projects, with similar contributions from income generated by its financial, tourism, and entertainment sectors.
Saudi Arabia’s transportation sector also provides ample opportunity for international investment. In June 2021, Crown Prince Mohammed bin Salman launched the National Transport and Logistics Strategy to upgrade transportation infrastructure throughout Saudi Arabia. The strategy aims to enhance Saudi Arabia’s position as a global logistics center, improve quality of life, and balance the public budget. The strategy calls for the launch of a new national air carrier, with the goal of increasing the number of international destinations served by the country to more than 250. The SAG also aims to raise air freight sector capacity to more than 4.5 million tons. The strategy includes an initiative to connect Saudi Arabia with the other Arab Gulf states via a railway line. The SAG plans to invest $147 billion in transport and logistics over the next eight years.
Investment opportunities in Saudi Arabia’s mining sector continue to expand. In June 2020, the SAG approved a new law allowing foreign companies to enter the mining sector and invest in the Kingdom’s vast mining resources. The law will facilitate the establishment of a mining fund to provide sustainable finance, support geological survey and exploration programs, and optimize national mineral resources valued at $1.3 trillion. The law could increase the sector’s contribution to GDP by $64 billion, reduce imports by $9.8 billion, and create 200,000 direct and indirect jobs by 2030. Saudi Arabia’s national mining company, Ma’aden, has a $12 billion joint venture with Alcoa for bauxite mining and aluminum production and a $7 billion joint venture with the leading American fertilizer firm Mosaic and the Saudi chemical giant SABIC to produce phosphate-based fertilizers.
To attract tourists to these new sites, the SAG introduced a new tourism visa in 2019 for non-religious travelers, and the Kingdom no longer requires foreign travelers staying in the same hotel room to provide proof of marriage or family relations. The SAG is facilitating private investments through its Tourism Development Fund, which has initial capital of $4 billion, and the Kafalah program, which provides loan guarantees of up to $400 million. In addition, the Tourism Fund signed MOUs with local banks to finance projects valued up to $40 billion to stimulate tourism investment and increase the sector’s contribution to GDP.
The SAG is also seeking foreign investment for its “economic cities” and “giga-projects” that are at various stages of construction. These projects are large-scale, self-contained developments in different regions focusing on particular industries, such as technology, energy, logistics, tourism, entertainment, and infrastructure. These projects include:
Saudi Arabia’s burgeoning entertainment sector provides opportunities for foreign investment. In a country where most public entertainment was once forbidden, the SAG now regularly sponsors and promotes entertainment programming, including live concerts, dance exhibitions, sports competitions, and other public performances. The audiences for many of these events are now gender-mixed, representing a larger consumer base. In addition to reopening cinemas in 2018, the SAG has hosted Formula One and Formula E races, professional golf and tennis tournaments, and a world heavyweight boxing title match. Saudi Arabia’s General Entertainment Authority launched the Saudi Seasons initiative in 2019, which hosts tourism and cultural events in each of the country’s 11 regions. The second iteration of Saudi Seasons began in October 2021 after a pause due to COVID. Riyadh Season attracted more than 15 million people and more than 1,200 companies participated, providing 150,000 job opportunities. The program included more than 7,500 entertainment events, including Arab and international concerts, international exhibitions, theatrical shows, and a freestyle wrestling tournament. The initiative also featured 200 restaurants and 70 coffee shops at 14 entertainment zones across Riyadh.
The SAG has adopted reforms to improve the Kingdom’s attractiveness as an investment destination. It has reduced the license approval period from days to hours, decreased required customs documents, reduced the customs clearance period from weeks to hours, and increased the investor license period to five years. It has launched e-licenses to provide a more efficient and user-friendly process and an online “instant” license issuance or renewal service to foreign investors that are listed on a local or international stock market and meet certain conditions. The SAG allows 100 percent foreign ownership in most sectors.
The Ministry of Investment of Saudi Arabia (MISA), formerly the Saudi Arabian General Investment Authority (SAGIA), governs and regulates foreign investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy. Established originally as a regulatory agency, MISA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guidance and a catalogue of current investment opportunities on its website https://investsaudi.sa/en/sectors-opportunities /.
In October 2021, Saudi Arabia announced its National Investment Strategy, which will help it deliver on its Vision 2030 goals. The National Investment Strategy outlines investment plans for sectors including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure, and health care. The strategy aims to grow the Saudi economy by raising private sector contribution to 65 percent of total GDP and increasing foreign direct investment to 5.7 percent of total GDP. The National Investment Strategy aims to raise net foreign direct investment flows to $103 billion annually and increase domestic investment to about $450 billion annually by 2030.
In May 2020, the Saudi Customs Authority released its amended Harmonized Tariff Schedule to increase various customs duty rates effective June 10, 2020. While the increases are within established WTO ceilings, certain rates increased up to 25 percent.
The corporate tax treatment in Saudi Arabia of foreign and domestic companies favors Saudi companies and joint ventures with Saudi participation. The SAG imposes a flat 20 percent corporate tax rate on foreign investors. Saudi investors do not pay corporate income tax but are subject to a 2.5 percent tax, or “zakat,” on net current assets.
In May 2021, the Saudi Council of Ministers approved merging the General Authority of Zakat and Tax (GAZT) and the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA). The merger is intended to improve the authority’s tax and customs procedures, as well as enhance security, business, and trade exchanges. Saudi Arabia does not have a bilateral taxation treaty with the United States, though the country maintained double taxation agreements with 54 countries as of March 2022.
In July 2021, the Saudi government issued a decree stating that preferential market access under the GCC tariff agreements will no longer apply to goods made in free zones or those affiliated with Israeli manufacturers.
Saudi Arabia is a founding member of the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates. While still under development, the GCC Customs Union formally ensures the free movement of labor and capital within the bloc. The GCC currently maintains free trade agreements (FTAs) with Lebanon, Singapore, the European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein), and the Greater Arab Free Trade Area of 18 Arab countries. The GCC is in the process of negotiating additional FTAs with China, the European Union, New Zealand, and several other trade partners. In October 2021, the GCC launched FTA consultations with the United Kingdom; formal negotiations will likely begin in 2022.
Saudi Arabia has signed bilateral trade and investment agreements with more than 20 countries. The United States and Saudi Arabia signed a Trade and Investment Framework Agreement (TIFA) in 2003, building upon a bilateral agreement on secured private investment with the United States that has been in place since February 1975. The United States and Saudi Arabia last held TIFA consultations in May 2018 in Washington, D.C.
- 1 3. Legal Regime
- 1.1 Transparency of the Regulatory System
- 1.2 International Regulatory Considerations
- 1.3 Legal System and Judicial Independence
- 1.4 Laws and Regulations on Foreign Direct Investment
- 1.5 Competition and Antitrust Laws
- 1.6 Expropriation and Compensation
- 1.7 Dispute Settlement
- 1.8 Bankruptcy Regulations
- 1.9 Share this:
- 1.10 Like this:
- 1.11 Related
3. Legal Regime
Transparency of the Regulatory System
Saudi Arabia received the lowest score possible (zero out of five) in the World Bank’s 2017-2018 Global Indicators of Regulatory Governance project, which places the Kingdom in the bottom 13 countries among 186 countries surveyed ( http://rulemaking.worldbank.org/ ). Few aspects of the SAG’s regulatory system are entirely transparent, although Saudi investment policy is less opaque than other areas. Bureaucratic procedures are cumbersome, but red tape can generally be overcome with persistence. Foreign portfolio investment in the Saudi stock exchange is well-regulated by the Capital Markets Authority (CMA), with clear standards for interested foreign investors to qualify to trade on the local market. The CMA has progressively liberalized requirements for “qualified foreign investors” to trade in Saudi securities. Insurance companies and banks whose shares are listed on the Saudi stock exchange are required to publish financial statements according to International Financial Reporting Standards (IFRS) accounting standards. All other companies are required to follow accounting standards issued by the Saudi Organization for Certified Public Accountants.
Stakeholder consultation on regulatory issues is inconsistent. Some Saudi organizations are diligent in consulting businesses affected by the regulatory process, while others tend to issue regulations with no consultation at all. Proposed laws and regulations are not always published in draft form for public comment. An increasing number of government agencies, however, solicit public comments through their websites. In addition, in March 2021, Saudi Arabia’s National Competitiveness Center launched a public consultation platform called “Istitlaa” to solicit feedback on proposed laws and regulations before they are approved. That said, the processes and procedures for stakeholder consultation remain generally opaque and are not codified in law or regulations. There are no private sector or government efforts to restrict foreign participation in the industry standards-setting consortia or organizations that are available. There are no informal regulatory processes managed by NGOs or private sector associations.
International Regulatory Considerations
Saudi Arabia uses technical regulations developed both by the Saudi Arabian Standards Organization (SASO) and by the Gulf Standards Organization (GSO). Although the GCC member states continue to work towards common requirements and standards, each individual member state, and Saudi Arabia through SASO, continues to maintain significant autonomy in developing, implementing, and enforcing technical regulations and conformity assessment procedures in its territory. More recently, Saudi Arabia has moved towards adoption of a single standard for technical regulations. This standard is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs).
Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access barriers for industrial and consumer products exported from the United States. The United States government has engaged Saudi authorities on the principles for international standards per the WTO Technical Barriers to Trade Committee Decision and encouraged Saudi Arabia to adopt standards developed according to such principles in their technical regulations, allowing all products that meet those standards to enter the Saudi market. Several U.S.-based standards organizations, including SDOs and individual companies, have also engaged SASO, with mixed success, in an effort to preserve market access for U.S. products, ranging from electrical equipment to footwear.
A member of the WTO, Saudi Arabia must notify the WTO Committee on Technical Barriers to Trade of all draft technical regulations.
Legal System and Judicial Independence
The Saudi legal system is derived from Islamic law, known as sharia. Saudi commercial law, meanwhile, is still developing. In 2016, Saudi Arabia took a significant step in improving its dispute settlement regime with the establishment of the Saudi Center for Commercial Arbitration (see “Dispute Settlement” section below). Through its Commercial Law Development Program, the U.S. Department of Commerce has provided capacity-building programs for Saudi stakeholders in the areas of contract enforcement, public procurement, and insolvency.
The Saudi Ministry of Justice oversees the sharia-based judicial system, but most ministries have committees to rule on matters under their jurisdictions. Judicial and regulatory decisions can be appealed. Many disputes that would be handled in a court of law in the United States are handled through intra-ministerial administrative bodies and processes in Saudi Arabia. Generally, the Saudi Board of Grievances has jurisdiction over commercial disputes between the government and private contractors. The Board also reviews all foreign arbitral awards and foreign court decisions to ensure that they comply with sharia. This review process can be lengthy, and outcomes are unpredictable.
The Kingdom’s record of enforcing judgments issued by courts of other GCC states under the GCC Common Economic Agreement, and of other Arab League states under the Arab League Treaty, is somewhat better than enforcement of judgments from other foreign courts. Monetary judgments are based on the terms of the contract – e.g., if the contract is calculated in U.S. dollars, a judgment may be obtained in U.S. dollars. If unspecified, the judgment is denominated in Saudi riyals. Non-material damages and interest are not included in monetary judgments, based on the sharia prohibitions against interest and against indirect, consequential, and speculative damages.
As with any investment abroad, it is important that U.S. investors take steps to protect themselves by thoroughly researching the business record of a proposed Saudi partner, retaining legal counsel, complying scrupulously with all legal steps in the investment process, and securing a well-drafted agreement. Even after a decision is reached in a dispute, enforcement of a judgment can still take years. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.
In 2021, the Crown Prince announced draft legal reforms including a new personal status law, civil transactions law, evidence law, and discretionary sentencing law that aim to increase predictability and transparency in the legal system, facilitating commerce and expanding protections for women. To date, Saudi Arabia has published the new evidence law and the new personal status law. The two new laws have not yet come into force, but if implemented effectively, these reforms could be a major step towards modernizing the Saudi legal system.
Laws and Regulations on Foreign Direct Investment
In January 2019, the Saudi government established the General Authority for Foreign Trade (GAFT), which aims to strengthen Saudi Arabia’s non-oil exports and investment, increase the private sector’s contribution to foreign trade, and resolve obstacles encountered by Saudi exporters and investors. The authority monitors the Kingdom’s obligations under international trade agreements and treaties, negotiates and enters into new international commercial and investment agreements, and represents the Kingdom before the WTO. The Governor of GAFT reports to the Minister of Commerce.
Despite the list of activities excluded from foreign investment (see “Limits on Foreign Control and Right to Private Ownership and Establishment” section), foreign minority ownership in joint ventures with Saudi partners may be allowed in some of these sectors. Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities. They are allowed to transfer money from their enterprises out of the country and can sponsor foreign employees, provided that “Saudization” quotas are met (see “Labor Policies” section). Minimum capital requirements to establish business entities range from zero to $8 million, depending on the sector and the type of investment.
MISA offers detailed information on the investment process, provides licenses and support services to foreign investors, and coordinates with government ministries to facilitate investment. According to MISA, it must grant or refuse a license within five days of receiving an application and supporting documentation from a prospective investor. MISA has established and posted online its licensing guidelines, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the bureaucratic licensing process.
MISA licenses foreign investments by sector, each with its own regulations and requirements: (i) services, which comprise a wide range of activities including IT, healthcare, and tourism; (ii) industrial, (iii) real estate, (iv) public transportation, (v) entrepreneurial, (vi) contracting, (vii) audiovisual media, (viii) science and technical office, (ix) education (colleges and universities), and (x) domestic services employment recruitment. MISA also offers several special-purpose licenses for bidding on and performance of government contracts. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at MISA’s discretion. Depending on the type of license issued, foreign firms may also require the approval of relevant competent authorities, such as the Ministry of Health or the Ministry of Tourism.
An important MISA objective is to ensure that investors do not just acquire and hold licenses without investing, and MISA sometimes cancels licenses of foreign investors that it deems do not contribute sufficiently to the local economy. MISA’s periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.
MISA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment. These agreements permit MISA to facilitate the granting of visas, establish MISA branch offices at Saudi embassies in different countries, prolong tariff exemptions on imported raw materials to three years and on production and manufacturing equipment to two years, and establish commercial courts. To make it easier for businesspeople to visit the Kingdom, MISA can sponsor visa requests without involving a local company. Saudi Arabia has implemented a decree providing that sponsorship is no longer required for certain business visas. While MISA has set up the infrastructure to support foreign investment, many companies report that despite some improvements, the process remains cumbersome and time-consuming.
Competition and Antitrust Laws
The General Authority for Competition (GAC) reviews merger transactions for competition-related concerns, investigates business conduct, including allegations of price fixing, can issue fines, and can approve applications for exemptions for certain business conduct.
The competition law, as amended in 2019, applies to all entities operating in Saudi Arabia, and covers all activities related to the production, distribution, purchase, and sale of commodities inside the Kingdom, as well as practices that occur outside of Saudi Arabia and that have an impact on domestic competition. The competition law prohibits anti-competitive practices and agreements. This may include certain aspects of vertically integrated business combinations. Consequently, companies doing business in Saudi Arabia may find it difficult to register exclusivity clauses in distribution agreements but are not necessarily precluded from enforcing such clauses in Saudi courts.
Certain merger transactions must be notified to the GAC, and each entity involved in the merger is obligated to notify the GAC. GAC may approve, conditionally approve, or reject a merger transaction.
Expropriation and Compensation
The Embassy is not aware of any cases in Saudi Arabia of expropriation from foreign investors without adequate compensation. Some small- to medium-sized foreign investors, however, have complained that their investment licenses have been cancelled without justification, causing them to forfeit their investments.
ICSID Convention and New York Convention
The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. Saudi Arabia is also a member state of the International Center for the Settlement of Investment Disputes Convention (ICSID), though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis. Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.
Investor-State Dispute Settlement
Since issuance of an Enforcement Law in 2012, foreign and local arbitration awards, along with foreign judgments, may now be taken to the Enforcement Courts in the same manner as domestic judgments. These new enforcement procedures have proven to be generally faster and more effective than the old system, in which these awards and judgments required final review by Saudi courts. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.
International Commercial Arbitration and Foreign Courts
Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially supersede any foreign judgments or legal precedents. Even after a decision is reached in a dispute, effective enforcement of the judgment can be lengthy. In several cases, disputes have caused serious problems for foreign investors. In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.
The SAG has demonstrated a commitment to improve the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms. Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take too long to litigate. The Saudi Center for Commercial Arbitration (SCCA) offers comprehensive arbitration services to domestic and international firms based on the United Nations Commission on International Trade Law (UNCITRAL) rules. The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. While the SCCA is still in the early stages of operation, it appears to be functioning as intended. Awards rendered by the SCCA can be enforced directly by the local enforcement courts without prior review on the merits, assuming there is no obvious conflict with essential sharia principles, most importantly the prohibition against interest.
In December 2017, UNCITRAL recognized Saudi Arabia as a jurisdiction that has adopted an arbitration law based on the 2006 UNCITRAL Model Arbitration Law. UNCITRAL took this step after Saudi judges clarified that sharia would not affect the enforcement of foreign arbitral awards. In May 2020, Saudi Arabia ratified the United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the “Singapore Convention on Mediation,” becoming the fourth state to ratify the Convention. As a result of Saudi Arabia’s ratification, international settlement agreements falling under the Convention and involving assets located in Saudi Arabia may be enforced by Saudi Arabian courts.
In August 2018, the SAG implemented new bankruptcy legislation that seeks to “further facilitate a healthy business environment that encourages participation by foreign and domestic investors, as well as local small and medium enterprises.” The law clarifies procedural processes and recognizes distinct creditor classes (e.g., secured creditors). It also includes procedures for continued operation of a distressed company via financial restructuring. Alternatively, the parties may pursue an orderly liquidation of company assets, which would be managed by a court-appointed licensed bankruptcy trustee. Saudi courts have begun to accept and hear cases under this new legislation.