Investment opportunities in Saudi Arabia

An increasing number of foreign nationals are considering the benefits of investing in Saudi Arabia as the choice of investment vehicles here is steadily growing.

Foreign investment in Saudi Arabia has historically been the preserve of multinational corporations with large capital and grandiose plans for the future of the Kingdom. However, new and interesting investment options are now available to experienced and enterprising businessmen.

As part of its long-term economic strategy, the Saudi Arabian government wants to attract a greater share of foreign investment in emerging industries. These include logistics, healthcare, education, infrastructure, entertainment, clean energy, defence, tourism and mining. The idea, essentially, is to diversify the economy away from oil.

The Saudi Stock Exchange opened its doors to foreign institutional investors in mid-2015. Additionally, non-Saudi citizens may (subject to approval from the Ministry of Housing) purchase property. In addition, the entrepreneurial ecosystem is gaining strength. For example, the Kingdom welcomes 100% foreign-owned businesses. “The financial sector is open and offers a wide range of opportunities,” — says the Heritage Foundation, which produces the annual Index of Economic Freedom. “Since no minimum capital is required, the process of starting a business has also been relatively simplified,” — he declares.

All of this is supported by a stable economy (albeit subject to the influence of regional geopolitical events), consolidated finances and a well-regulated banking system. The fact that the Kingdom ranks as the 118th freest economy in the world (as of 2022) indicates that there is still work to be done; for example, in areas such as the legal framework for resolving commercial disputes and addressing transparency issues in areas such as intellectual property law. However, Saudi Arabia — this is a land of opportunity where the mantra “he who dares wins” is very applicable.

Business investment in Saudi Arabia

«We are open for business». This is the Saudi government's message to foreign investors. However, as with almost everything, the reality is a little less simple. Yes, foreigners can (and generally do) invest in all areas of the Kingdom's economy, with the exception of oil and mining. But the World Bank's 2019 Doing Business Index ranks the country 62nd out of 190 countries. This suggests that for foreign investors not everything is so simple.

If you are an entrepreneur, you will have no shortage of advice and help. Small and medium-sized enterprises (SMEs) account for about a fifth of the nation's GDP. The government wants this figure to be 35% by 2030.

Procedures for starting a business

Procedures for starting a business are becoming more simplified, and entrepreneurs are provided with all kinds of help and advice. The Office of Small and Medium Enterprises serves as a source for financial advice and marketing and export support. Meras is also useful — program that offers a website and a nationwide network of department stores to start-up businesses.

The Saudi Arabian Ministry of Investment is also very helpful. It issues trade licenses and can advise on other formalities for foreign investors in the Kingdom, including visas. Foreign investors in Saudi Arabia choose one of three corporate structures:

• Limited Liability Company (LLC):Minimum starting capital SAR 500,000. There must be a minimum of two shareholders (neither of whom must be Saudi); The LLC is also subject to annual inspection;
• Branch: open to foreign companies to conduct business activities. The parent company assumes full responsibility. Minimum starting capital 500 000 Saudi riyals. This structure is easier to create than an LLC, since there is no need to approve the charter;
• Representation: may be a technical and scientific office (TSO); through which the manufacturer can provide technical support to the local market through a distributor. It cannot engage in commercial activities or earn income.
• Or temporary registration of a company (TC) short-term business created for the purpose of fulfilling a specific government contract.

Investment funds in Saudi Arabia

Types of investment funds available to foreign investors and expats in Saudi Arabia include mutual funds, exchange-traded funds (ETFs) and bonds. Jadwa Investment manages a range of mutual funds according to the risk appetite and profile of the investor. Riyad Capital offers dealing services in the sukuk (Islamic bonds), ETF and bond markets. Al Rajhi Capital, meanwhile, offers a comprehensive portfolio of managed mutual funds. And the HSBC Islamic Global Equity Index Fund invests in Shariah-compliant global equities. Everyone will be able to give advice on how to invest, how much to invest, as well as the costs, risks and likely returns.

In April 2019, Saudi Arabia announced it would open its government bond market to retail investors in a bid to promote a savings culture. The government bonds, or Islamic bonds, will be sold in increments of SAR 1,000 instead of the previously proposed amount of SAR 1 million. In addition, the Kingdom has reduced fees and trading commissions on the local bond market to stimulate trading.

Investment tax in Saudi Arabia

There is no personal income tax in Saudi Arabia. Examples of taxable income for foreigners are income tax levied on the foreigner's interest in a Saudi Arabian resident corporation; unless the corporation is listed on a stock exchange, in which case zakat, a form of Islamic tax, applies.

The sale of shares of a resident corporation is subject to a 20% capital gains tax. The capital gain on the sale of shares of a company traded on a stock exchange is nil if the shares were acquired after 2004. Corporation tax is levied at 20% of income. In addition, there is no capital tax, stamp duty, property tax or inheritance tax in Saudi Arabia. Deloitte publishes an overview of the Saudi Arabian tax system.

How to invest wisely in Saudi Arabia

Investing in Saudi Arabia may be very different from what you are used to although the same basic principles apply. Factors to consider when investing in Saudi Arabia include:

• What investment opportunities are available to a foreigner?
• Will the rules regarding foreign investment change?
• Are foreign investments sufficiently protected by law?
• Are there any incentives to attract foreign investment (eg loans)?
• Can your capital be repatriated from the Kingdom?
• How does the geopolitical environment affect the market?
• Is the country politically stable?
• Is the currency stable?
• How developed is the banking and financial system?
• Do you understand the implications of the new bankruptcy law?

Investment advice in Saudi Arabia

Most foreign investors seek advice and assistance from government agencies such as the Ministry of Investment. On the other hand, you can use the services of a lawyer who can help you understand the rules.