SAUDI ARABIA Law and Practice Contributed by: Dana Halwani and Leanne Farsi, Derayah LLPC
2. Restrictions on Foreign Investments 2.1 Approval of Foreign Investments Until the year 2000, the opportunities for foreign investment in Saudi Arabia were extremely restricted, being limited essentially to foreign minority sharehold - ings in industrial development projects involving tech - nology transfer to Saudi Arabia. Foreign participation in service or trading businesses was not possible. At the time, the economy was dominated by state- owned monopolies. With the assistance of the World Bank, a new for - eign investment framework was created through the enactment of the new Investment Regulation and the creation of the Saudi Arabian General Investment Authority (SAGIA) in April 2000. Until then, foreign direct investment in Saudi Arabia had been treated as a privilege. Under the new law, all business activities were opened to foreign investment, unless they were expressly excluded from foreign investment under the so-called Negative List. These reforms immediately opened most forms of industry and services to 100% foreign ownership. Trading activities remained restricted to Saudi nation - als until 2007, when the sector was opened up to 75% participation. 100% ownership of trading businesses has been possible since 2016, but is subject to high entry requirements. In 2020, SAGIA became the Ministry of Investment of Saudi Arabia (MISA). Foreign investors must now obtain approval from MISA before establishing a pres - ence in Saudi Arabia. Approval is obtained after meet - ing certain conditions (depending on the investment activity) and providing the required documentation. There are various limitations on foreign ownership of joint stock companies, which can vary depending on the nature of the activity carried out by such compa - nies. For example, foreign ownership limits apply to banks, insurance companies and telecommunications companies. In addition, the Negative List sets out a number of activities that foreign investors are prohibited from undertaking, such as real estate development in the holy cities of Makkah and Madinah.
Until June 2019, foreign investors could not gener - ally own more than 49% of the issued shares or con - vertible debt instruments of a listed company. The Capital Market Authority has now lifted the maximum foreign ownership limit, permitting foreign investors to increase their investments in some sectors, with the restriction that their shares cannot be sold until they have owned them for two years. In February 2025, the Investment Law (Royal Decree M/19 of 16 Muharram 1446 Hejra corresponding to 22 July 2024) came into effect. The Investment Law dif - fers from the previous Foreign Investment Law which it replaces (Royal Decree No M/1 dated 5 Muharram 1421 Hejra corresponding to 10 April 2000) in that while the Foreign Investment Law mainly applied to non-Saudi investors, the Investment Law applies to both Saudi and non-Saudi investors alike. The Investment Law is intended to promote equal treatment between Saudi and foreign investors who are in similar circumstances, and is intended to re- evaluate restrictions on economic activities to treat domestic and foreign investors equally without jeop - ardising public order in Saudi Arabia. 2.2 Procedure to Obtain Approval and Sanctions for Non-Compliance Up until recently, foreign investors were required to obtain a foreign investment licence from MISA called a “MISA Licence”. MISA licences have been replaced by “Investment Registration Certificates”. The process for obtaining an Investment Registration Certificate requires the submission of several documents by each shareholder; the required documentation may differ depending on the activity of the company to be incorporated. For example, the following documents are required for a company to obtain an Investment Registration Cer - tificate from MISA in connection with a limited liability company: • a commercial registration certificate; and • articles of association. In the past, these documents had to be authenticated in accordance with the authentication process in their
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