On 11 August 2025, the Saudi legislator issued the Saudi Investment Law, which includes language that may introduce a more comprehensive FDI review in Saudi Arabia. The Investment Law entered into force on 7 February 2025 and replaces Royal Decree M1/1421H on Foreign Investment in the Kingdom of Saudi Arabia. The old Foreign Investment Law took a more approach to traditional FDI regulation. It relied predominantly on providing incentives for foreign investment in some sectors and restricting or prohibiting engagement of foreign investors in others to steer FDI. The new Investment Law includes language that could be the basis for FDI screening like those for example in the US or Europe being implemented in Saudi Arabia. Supplementary instruments that enable and regulate such a review process are still outstanding. Therefore, it is unclear whether the Investment Law will establish an effective FDI review process in Saudi Arabia.
FDI regulation under the old regime
Over the last decade Saudi Arabia has implemented reforms to ease restrictions on foreign investment. As part of these reforms the Council for Economic Development Affairs substantially cut the so-called negative list. The negative list includes sectors, which foreigners—except citizens of other Gulf Cooperation Council (GCC) member countries (see below)—may not invest or otherwise engage in. While initially quite extensive, the negative list has been continuously reduced. Currently, it only restricts foreigners from investing and engaging in oil production and exploration, manufacturing of military equipment and civil use explosives, certain services relating to the security and defence industry, real estate brokerage, printing and publishing and other media activities, telecommunication services, as well as commercial agencies and distributorships. In addition, a rudimentary review of foreign investors applied where foreigners directly acquired shares or interest in existing Saudi entities or established new Saudi entities.
Any foreign investor seeking to directly hold shares in a Saudi entity—whether existing or newly incorporated—must apply for a foreign investment license. Foreign investment licenses are specific to the Saudi entity invested in. Hence, even if a foreign investor already was approved for a foreign investment license for investment in one Saudi entity, they had to apply for a new foreign investment license, if they intended to invest in an additional Saudi entity. The investor screening conducted by the Ministry of Investment (MISA) during the licensing process remained generally rudimentary. Unless they intended to invest in regulated activities, foreign investors applying to the MISA for a foreign investment license had to submit basic corporate documents as well as audited financial statements. The MISA only conducted a very high-level review of the foreign investor to confirm that they were in good standing and not from a jurisdiction deemed hostile to Saudi Arabia. Where the activity foreigners sought to invest in was regulated, approval form the competent sector specific regulator had to be sought in addition to licensing from the MISA.
Move towards more comprehensive FDI screening?
With the new Investment Law, a more comprehensive FDI screening may be implemented. The new Investment Law provides that investments in so-called ‘excluded activities’ may only go forward after they were approved by the the MISA. The Investment Law does not provide any details on how thorough investors and the transaction will be reviewed during the approval process. We expect further details to be provided in the pending Executive Regulations. Furthermore, the Investment Law does not clarify whether the new approval process will—as the licensing process under the old Foreign Investment Law—only apply where transactions include incorporation of a new or direct acquisition of shares in an existing Saudi entity. Finally, the Investment Law does not define ‘excluded activities’. Excluded activities within the meaning of the Investment Law are to be defined by the ‘competent authorities’ in a list of excluded activities to be published by the MISA. This list has not been issued so far. Moreover, the Investment Law does not clarify which authorities will be competent to contribute to the excluded activities list.
The Investment Law also does not address the relationship between the negative list and the new excluded activities list. At this time, it is unclear, whether the negative list will remain in place alongside the excluded activities list to continue to bar foreigners from some sectors, or whether the excluded activities list will replace the negative list essentially allowing foreigners to invest in all sectors of the Saudi economy, with some investments requiring prior approval.
Hence, the Kingdom may for the first time introduce a comprehensive FDI review regime with the new Investment Law. However, pending the excluded activities list, the Executive Regulations, and other supplementary legislation it remains unclear how impactful the new regime will be. As of writing of this client brief the MISA has not disclosed timelines for the Executive Regulations being enacted and the excluded activities list to be issued. Furthermore, we have not seen drafts of the Executive Regulations. Thus, parties contemplating transactions with link to Saudi Arabia will need to actively monitor forthcoming legislation further defining the Saudi FDI regime.
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