Saudi Arabia's foreign direct investment legal framework and outlook

Thursday 6 April 2023

Suhaib Hammad
Hammad and Al Mehdar Law Firm, Jeddah

Boasting an impressive gross domestic product (GDP) of approximately $833 bn[1], Saudi Arabia stands as one of the most powerful economies in the world. As well as being a major catalyst for GDP growth[2] throughout the Middle East and North Africa (MENA region), it achieved its highest GDP rate in over ten years at 8.7 per cent[3] in 2022, breaking its record of more than US$1tn from the previous year. With such remarkable momentum built up, there's no doubt that Saudi Arabia will continue to be a dominant force driving economic progress throughout the MENA region in 2023.

The impressive economic growth in the country can be attributed to several factors, namely, government initiatives towards decoupling the Kingdom’s economy from oil dependency paired with significant infrastructure investment. But perhaps one of the region’s most impactful drivers of growth has been foreign direct investment (FDI).

FDI into Saudi Arabia

Over the last year, Saudi Arabia has experienced a surge in FDI. In Q3 of 2022, FDI inflows to the tune of SAR 7.2bn[4] (US$1.9bn) were reported by the Investment Ministry. This was an impressive surge compared to 2021, which saw SAR 6.5bn worth of investment during the same quarter. This 10.7 per cent growth in FDI inflows is a testament to the growing attractiveness of Saudi Arabia as an investment destination. By 2030, the Saudi Arabian Government aims to reach US$100bn in annual FDI, an ambitious but achievable goal if current trends continue.

In 2022, the FDI trend reached its pinnacle after having grown steadily since before the Covid-19 pandemic and stayed strong in spite of the pandemic-fuelled economic disruption of 2020 and 2021. The United Nations Conference on Trade and Development's (UNCTAD's) World Investment Report 2021[5] showed that FDI inflows into Saudi Arabia were impressively robust. In 2020, FDI in the Kingdom climbed to a remarkable US$5.5bn. This represented an impressive increase of 20 per cent compared to 2019, which saw US$4.6bn worth of FDI. During the first six months of the following year, Saudi authorities announced that FDI inflows had increased by an impressive 33 per cent[6] year-on-year. This upward surge in FDI only continued into 2022, which has been Saudi Arabia’s most impressive year yet.

According to the World Bank's Doing Business report[7], the Kingdom has climbed 30 places to become 62nd out of 190 economies. The Kingdom has also been named the world’s top improver, demonstrating a commitment to opening up its markets and making it easier for foreign investors to enter.

Key sectors attracting FDI

A diverse range of sectors has been attracting increasing FDI inflows into Saudi Arabia. With the majority of investment coming from France, Japan, Kuwait, Malaysia, Singapore, the United Arab Emirates and the United States, the key sectors[8] which are currently attracting FDI include:

  • the chemical industry;
  • real estate;
  • fossil fuels
  • automobiles;
  • tourism;
  • plastics; and
  • machinery.

Recently, Saudi Arabia launched its special economic zone (SEZ) programme[9] to focus on non-conventional investment sectors, such as renewable energy, mining, cloud computing, logistics and the digital economy. This programme aims to attract quality FDI within these key sectors by creating a more favourable investment environment. Some benefits of investing in the SEZs include attractive corporate taxation, expedited visa processes and financial incentives. Long-term, the SEZ programme will boost the private sector and propel the government's economic reform agenda.

Alongside the SEZ programme, the Saudi Arabian government has implemented a variety of fiscal and regulatory incentives to attract more foreign investment. This has helped to create a more inviting legal and regulatory landscape for would-be investors looking for a promising location for their next investment venture. Some of these key drivers are set out in more detail below.

Regulatory reforms

Attracting FDI is at the forefront of Saudi Arabia's agenda, and regulatory reforms have taken centre stage. To further this goal, the government has introduced far-reaching legal reforms to encourage FDI in the Kingdom. The new Foreign Investment Law[10], introduced last year, removed many of the previous obstacles that restricted the activities of foreign investors. Under the new law, investors can enjoy far more freedom when managing, selling or disposing of their investment projects.

Investment law business regulations zone (ILBZ)

The ILBZ is a specialised zone in Riyadh that caters to foreign investments. Nestled alongside the King Khalid International Airport in Riyadh, the zone was officially founded by Royal Order in 2018. Businesses that set up shop in the ILBZ[11] will enjoy a 50-year tax exemption, including VAT and a customs duty waiver.

Furthermore, corporate taxes, income taxes and withholding taxes are exempt for certain payments for these companies. All foreign entities operating in this zone can also benefit from 100 per cent business ownership rights with no import or export restrictions. The ILBZ provides investors with easy access to local markets, as well as numerous services and facilities related to setting up and running their businesses.

Saudi Arabia: a promising investment opportunity

Saudi Arabia has undoubtedly become an increasingly attractive destination for foreign investment in the past 12 months thanks to a combination of government reforms, ambitious economic plans, and ongoing investment in infrastructure and consumer sectors. With its SEZ programme and highly transparent regulatory framework, the Kingdom is well-positioned to further grow its FDI inflows in the coming years.


[5] World Investment Report 2021 | UNCTAD, accessed 18 April 2023. 

[7] Doing Business 2020 (worldbank.org), accessed 18 April 2023. 

[9] Special Economic Zones | ECZA, accessed 18 April 2023.