Foreign investment is no longer the monopoly of big-money owners or multinational corporations with huge capital. The Kingdom’s efforts are continuing to improve the business environment and increase the attractiveness of investment in Saudi Arabia for residents. Below is a comprehensive guide on investing in Saudi Arabia for foreigners.
attraction secret Investing in Saudi Arabia for residents
The growth of investment in the Kingdom of Saudi Arabia is constantly increasing. The Kingdom received 13 billion Saudi riyals of foreign direct investment in 2018, and it ranks 41st in the global foreign direct investment attractiveness index. But this is only part of the picture.
According to its long-term economic strategy, the Saudi government wants to attract greater levels of foreign investment in emerging sectors such as logistics, health, education, infrastructure, entertainment, clean energy, defense, tourism, and mining as an attempt to diversify the economy away from just oil.
On the other hand, the Saudi stock market opened its doors to foreign institutional investors in the middle of 2015. The kingdom welcomes 100% of foreign companies. “The financial sector is open and offers a range of options,” according to the Heritage Foundation, which compiles the annual Index of Economic Freedom. All this is backed by a stable economy, consolidated finance, and a strong and coherent banking system.
How to invest wisely in Saudi Arabia
Despite applying the same basic principles, investing in Saudi Arabia for residents may be very different from what they are used to back home. Factors to consider when investing in Saudi Arabia include:
- What are the investment opportunities available as a foreigner or expatriate resident?
- Are foreign investment regulations on the way to change?
- Does the law adequately protect foreign investment?
- Are there any incentives to attract foreign investment (eg loans)?
- Is it possible to return your capital 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?
The best investment opportunities in Saudi Arabia for foreigners 2022
1- Savings account investments in Saudi Arabia
Saudi banks offer a range of checking accounts, savings accounts, and deposits for expatriates. These banks include SABB, Samba, Albilad Bank, Alawwal Bank, Riyad Bank, Banque Saudi Fransi, Arab National Bank (ANB), Saudi Investment Bank, and MEEM.
2- Pension investments in Saudi Arabia
Expats in Saudi Arabia are not legally required to pay on the government social insurance system. However, it is common for expats to contribute to the employer’s pension scheme. Furthermore, some expatriates choose to continue contributing to their home country’s social insurance programs or opt for a private pension provider.
3- Real estate investments in Saudi Arabia
The real estate market in the Kingdom of Saudi Arabia is expanding, developing and continuing to provide investment opportunities in Saudi Arabia for residents. It now represents about 5% of the country’s GDP. However, the government is still seeking to double this number in the next few years. Real estate prices have risen in the last decade as demand has outpaced supply, leading to robust economic growth.
But prices are now falling due to the entry of new housing units to the market and slowing economic growth. Real estate consultancy Knight Frank’s global home price index for the third quarter of 2018 reported that prices in Saudi Arabia fell 3.7% compared to the same period in 2017.
Riyadh, Jeddah and Dammam are the most developed real estate markets in the country, where most expats live and work. New residential developments, from affordable homes to luxury apartments, are starting to appear all over the three cities. Meanwhile, new mega urban transport projects, such as the Riyadh metro, are supposed to drive up real estate prices, especially around stations.
4- Property laws in Saudi Arabia
As mentioned earlier, it is possible for expatriate residents to purchase real estate except in the cities of Makkah and Madinah, which are prohibited for all foreign investors and expatriate residents. It is necessary that the property purchased by the expatriates represent the main residence and not only for investment.
Investing in real estate in Saudi Arabia requires patience. The first step is to obtain permission from the Ministry of Housing, and this can take up to a year. Then the price is negotiated between the buyer, seller and broker before the investor gets confirmation from the local Sharia court that the seller owns the property. The transfer of ownership is then recorded, and the court stamps the title document to indicate the legal transfer of ownership.
5- Obtaining a mortgage in Saudi Arabia
Twelve local banks currently offer home loans to expats. They are Al Rajhi Bank, Alinma Bank, Arab National Bank, Al Jazira Bank, Bank Albilad, Banque Saudi Fransi, National Commercial Bank, Riyad Bank, Saudi Investment Bank, Alawwal Bank, SABB and Samba.
When assessing your eligibility for a mortgage, Saudi banks take into account your income and the reputation of the business owner. The larger and more stable the company, the better. Once the mortgage is approved, the bank typically debits the monthly payments by direct debiting your salary account.
It’s no surprise that home prices vary by location. The largest part of the population of the Kingdom lives in Riyadh, Jeddah or Dammam, so the prices there are high, as the price of a high-end three-bedroom house in Riyadh can reach 800,000 dollars. But remember that you should hire a good lawyer, and do the necessary market research before you make any move.
6- Commercial investments in Saudi Arabia
“We are open to business”: This is the Saudi government’s message to foreign investors, but the reality may be somewhat different. Despite their right to invest in all areas of the Kingdom’s economy, with the exception of oil and mining, the country ranks 92nd out of 190 countries on the Doing Business Index for 2019 issued by the World Bank, which indicates that the matter is not entirely easy for them.
Small and medium-sized enterprises account for about one-fifth of the national GDP. The government aspires to increase this number to 35% by 2030. In the 2019 Global Entrepreneurship Monitor report, 75% of respondents said there are good opportunities to start their own business in Saudi Arabia now.
7- Procedures for establishing projects
The procedures for setting up projects in Saudi Arabia are simple. You can obtain financial advice, marketing and export support by contacting the Small and Medium Enterprises Authority. Also check out Meras, a program that provides a website and nationwide network of one-stop shops for startups.
The Investment Services Center of the Saudi Arabian General Investment Authority (SAGIA) is really helpful, as it issues business licenses and can advise on other formalities for foreign investors in the Kingdom. Foreign investors in Saudi Arabia choose from three institutional structures:
- Limited Liability Company: The minimum start-up capital is 500,000 Saudi riyals and you must have at least two shareholders. Limited liability companies are subject to annual review.
- Branch office: It is open to foreign companies to practice their commercial activities.
- . The parent company bears full responsibility. The minimum start-up capital is 500,000 Saudi riyals. Setting up this structure is easier than setting up an LLC since there is no statute to be approved.
- Representative office: The factory can provide technical support to the local market through the distributor. This structure cannot engage in any commercial activity or earn income.
8- Investment funds in Saudi Arabia
According to Investopedia, an investment fund is defined as “a supply of capital belonging to several investors who use it to purchase securities collectively while each investor retains ownership and control over his own shares.
The types of investment funds available to foreign and expatriate investors in Saudi Arabia include mutual funds, exchange-traded funds, and bonds. Jadwa Investment manages a range of mutual funds according to investors’ risk appetite and profile. Riyad Capital provides dealing services in sukuk (Islamic bonds), ETFs and bond markets. Al Rajhi Capital offers a comprehensive portfolio of managed mutual funds. The HSBC Global Equity Index Fund invests in global equities that comply with Islamic law. Each of these options will give you advice on how and how much to invest, as well as the costs, risks, and potential returns.
Saudi Arabia announced in April 2019 that it would open the government bond market to retail investors with the aim of developing a savings culture. Government sukuk, or Islamic bonds, will be sold in parts of 1,000 Saudi riyals, instead of the 1 million Saudi riyals previously offered. In addition, the Kingdom has reduced fees and trading commissions for the local bond market to stimulate trading.
9- Investing in stocks in Saudi Arabia
The Saudi Stock Exchange is the largest capital market in the Middle East. Made CMA financial many efforts and measures to increase the attractiveness of the market financial Saudi Arabia and promote the entry of the foreign investor directly or indirectly, from allowing foreign investors resident investment market Saudi stocks directly, allowing foreign investors entry to the Saudi Stock Market for Through swap agreements, allowing qualified investors from foreign financial institutions to invest in listed securities, allowing foreign strategic investors to own strategic stakes in listed companies, and finally allowing foreign investors to invest directly in debt instruments.
In 2016, the Capital Market Authority launched the Real Estate Investment Traded Fund (REIT) on the Saudi Stock Exchange and non-resident foreign investors can now trade in REITs on the stock exchange.
For more information on the categories of non-resident foreign investors and the relevant provisions and controls, you can view the Foreign Investor in Saudi Securities Guide.
Conditions for investing in Saudi Arabia for residents
The efforts of the Kingdom of Saudi Arabia are continuing in order to develop its economy and to enable local and foreign investors to access investment opportunities and to provide them with facilities and flexibility and other services.
The Kingdom of Saudi Arabia is concerned with its economy and prosperity, and aims to be an attractive and stimulating investment destination for continuity and expansion; Therefore, a ministry concerned with investment has designated one of its most important tasks to enable investors to access investment opportunities, provide them with facilities and flexibility, and other services.
Proceeding from the Kingdom’s Vision 2030, one of the most important objectives of which is to raise the economic level and diversify sources of income, the Saudi government has worked to encourage foreign investors to invest in Saudi Arabia, and has set regulations and controls for foreign investors (conditions for investing in Saudi Arabia for residents) to ensure that the desired goals are achieved and the rights of investors are preserved.
Foreign Investment Licensing Regulations:
- Having a work permit in the Kingdom is necessary for a foreign investor to obtain a business start-up permit.
- The Ministry is responsible for promoting investment in the Kingdom of Saudi Arabia, setting and following up foreign investment regulations, in addition to facilitating the entry of investors into the Kingdom and the issuance of their licenses.
- There are different types of investment licenses available, each with its own requirements, such as the minimum acceptable share capital and the foreign capital ceiling.
- Potential investors can apply for a license through the Ministry of Investment portal.
Investment tax in Saudi Arabia for foreigners
There is no personal income tax in Saudi Arabia. An example of taxable income for expatriates is the income tax imposed on a foreigner’s share in a company residing in Saudi Arabia. If the company is traded on the stock exchange, zakat, a form of Islamic taxation, is applied.
Disposing of stock in a resident company attracts a capital gains tax of 20%. Capital gains on disposal of publicly traded company shares are zero if the shares were acquired after 2004. Corporate tax is levied at 20% of income, and there are no capital, property tax or inheritance tax in Saudi Arabia .
Investment advisory in Saudi Arabia
You can hire a lawyer to guide you properly, contact people in Saudi Arabia who can provide accurate and impartial advice, or even contact government agencies such as SAGIA and the Ministry of Trade and Investment as a starting point for advice and assistance.
As for foreign investments in Saudi Arabia, Saudi Arabia does not provide any kind of foreign investment tools for Saudis or non-Saudis.