In recent years Saudi Arabia has committed to a series of wide-ranging reforms that aim to diversify the economy; foster a more open and connected society; and establish a transparent, efficient and accountable government under the country’s Vision 2030 strategic framework. With those objectives in mind, there have been numerous legislative developments related to real estate, foreign investment, judicial processes, financial innovation, tourism, entertainment and civil law that are transforming the landscape and positioning the economy for growth.
Real Estate
The most recently published data from the General Authority for Statistics reveals an increase in the real estate price index in 2020/21 compared to 2019/20, specifically in terms of residential real estate. This has been seen in parallel with an increase in the number of real estate development projects and a drop in the number of real estate transactions due to the Covid-19 pandemic. Indeed, Saudi real estate funds are a growing market and registered dividends of 5.8% in 2020, outperforming peer funds in international markets.
This has prompted regulators to expand opportunities to invest in the sector, and encourage foreign investment in the cities of Makkah and Medina. This attention has led to essential changes in the Law of Real Estate Ownership and Investment by Non-Saudis (REOIN), in line with Vision 2030 projects to designate prime areas within cities for land development, housing, educational institutions, retail and entertainment centres, and industrial projects.
These changes were initiated with the introduction of Royal Decree No. (M/83) on April 29, 2021, amending Article 5 in the REOIN Law. This amendment stated that listed companies in the Saudi Exchange could own, usufruct and have easement rights for land located within the boundaries of Makkah and Medina, under the condition that they coordinate with the Capital Market Authority (CMA) and commit to its rules and regulations. In other words, a listed Saudi company which is incorporated by Saudi and non-Saudi foreign investors (natural person or legal person), including a foreign investor who joins after incorporation and becomes a shareholder is excluded from the definition of a non-Saudi under the REOIN Law if it wishes to invest in real estate in Makkah and Medina. This rule applies even if the company is not engaged in real estate activities, as it has the legal ability to do so upon meeting CMA requirements, which were being drafted as of mid-2022.
Investment
Following the aforementioned amendments and in accordance with the Vision 2030 goal of raising socio-economic performance and diversifying income sources, the government has created a more favourable regulatory environment to attract investment in Saudi Arabia by establishing rules and guidelines safeguarding investors’ rights. In general, foreigners are permitted 100% ownership of locally established businesses. Nonetheless, under the Foreign Investment Law, foreign companies that wish to invest in Saudi Arabia are subject to special rules and requirements. One such stipulation is that they must obtain a foreign investment licence, in addition to any licence that is related to the business’ activities.
There are various types of investment licences available, each with different provisions such as minimum capital requirements. Potential investors can apply for a licence through the Ministry of Investment (MISA) portal. MISA also has the authority to issue the list of businesses excluded from foreign investment. This amendment in REOIN Law led to the formation of the Permanent Ministerial Committee for the Examination of Foreign Investment by the Ministerial Council Decision No. 83, dated September 8, 2021. The committee membership includes:
• The minister of investment;
• The minister of commerce;
• The minister of economy and planning;
• The minister of communications and information technology;
• The chairmen of the board of the Local Content and Government Procurement Authority;
• The chairman of the board of the Saudi Authority for Intellectual Property;
• The chairman of the board of the CMA;
• The chairman of the board of the Saudi Data and Artificial Intelligence Authority;
• The chairman of the board of the General Authority of Foreign Trade’s board;
• The governor of the General Authority for Competition; and
• The CEO of the Cautiousness programme. The committee is tasked with reviewing foreign application for Saudi joint-stock companies, and identifying on an ongoing basis sensitive and strategic sectors in which foreign investment may affect national security or public order. Foreign investment in those sectors or companies will be subject to examination and potential restrictions.
Furthermore, the government is actively drafting and finalising a new foreign direct investment law. In line with the Kingdom’s Vision 2030, the law aims to improve the business climate in a number of industries and endeavours, produce an environment that is inviting to both local and foreign investors, inspire confidence in the sustainability of the national economy, expand and develop capabilities, and realise the national investment strategy.
Additionally, the Saudi Exchange amended the eligibility requirements for its Qualified Foreign Investor Programme in June 2019, expanding the range of foreign investors who have direct access to domestic financial market. This programme has been altered to simplify the registration process and broaden the pool of eligible investors.
In November 2021 the CMA also permitted financial institutions to accept non-Saudi subscriptions in the real estate fund that invest part or all of their assets in projects situated within the borders of Makkah and Medina.
Digitalisation
One of the objectives of Vision 2030 is to create a legal and regulatory framework that enhances interaction between public authorities and citizens, improves performance, productivity and flexibility to create a business environment conducive to investment, and inspires confidence in Saudi Arabia’s economy. To achieve these goals, the government created the National Transformation Programme 2020 Model in 2016. Within this programme the Ministry of Justice (MoJ) has set forth several initiatives to improve the judicial system. Among these reforms is enhancing digitalisation and providing innovative technology solutions that facilitate services, streamline procedures, and boost security to enhance overall customer experience and satisfaction.
Najiz
As part of the MoJ’s digital transformation plan, the Najiz Judicial Electronic Services platform was established to provide court and notary services to all citizens, residents and businesses. Najiz facilitates access to 120 judicial electronic services without having to visit courts, notaries or ministry branches. Services are classified according to specialisation such as judicial, enforcement, authentication and settlement to simplify the process for users.
Case Verification Centre
The MoJ’s case verification centre – which was established in 2019 with the goals of enhancing performance, saving clients time and effort – has reviewed over 2.6m case files before referring them to the judicial panel. Additionally, the centre works to advance institutional justice through administrative policies, rules, and scientifically supported activities as part of the ministry’s model court project. As a result, its quality management system received ISO 9001:2015 accreditation in November 2021.
Enforcement
Due to the introduction of Tanfith, an enforcement e-system designed to increase efficiency and save clients time and effort, regulatory enforcement in Saudi Arabia saw significant progress in terms of digital transformation in 2021. Over 800,000 applications were submitted to the enforcement courts since their creation, and each case was handled electronically from start to finish.
The system used smart interactive features to combine five operating systems into one and cut the number of procedural stages from 70 to five. Almost 500 applications for the enforcement of foreign judgments, and local and international arbitration decisions totalling SR2.7bn ($719.8m) were handled by domestic enforcement courts in 2021. Additionally, enforcement courts received over 165,000 rental e-leases, or Ejar, as enforcement instruments through direct e-filing, without the need for court proceedings.
Nafith Enforcement Platform
Another digital solution is the Nafith enforcement platform, which allows clients to electronically create, save and manage enforcement instruments such as promissory notes in a secure and reliable environment. Since its establishment in April 2020 until the end of 2021, the Nafith platform was used by more than 666,000 clients and issued over 1.5m enforcement instruments.
Judicial E-auction Platform
The judicial e-auction platform was launched to allow users to bid in enforcement auctions. The platform allows courts to manage the liquidation process for movable and immovable assets, and enables users to log in and start bidding directly. According to the MoJ the platform recorded sales worth SR2.9bn ($771.4m) through 950 auctions and over 18,000 registered bidders in 2021.
Property E-conveyances
The MoJ has published a guide explaining the e-conveyance service, including the requirements for the seller and the buyer, and general advice for completing the transaction in under an hour. The service is available through Najiz and has been streamlined and simplified to enable electronic agreements on sales terms without a notary’s certification. Furthermore, the upper limit for the e-conveyance of property has recently been raised from SR3m ($800,000) to SR20m($5.3m).
In addition, the MoJ announced in January 2022 that property e-conveyances increased to over 44,000 operations in 2021, with a total value of SR5.2bn ($1.4bn).
Personal Data Protection
The Personal Data Protection Law (PDPL) was implemented by Royal Decree No. M/19 dated September 16, 2021. The law went into effect on March 23, 202. However, as of September 2022 the law was under review, and its enactment was postponed.
The PDPL aims to build a secure society, protect the privacy of personal data, regulate data sharing and prevent abuse of personal data by developing digital infrastructure, empowering the private sector, creating an environment conducive to business growth, attracting foreign investment and supporting innovation to ensure economic sustainability and global leadership for the digital economy.
Before the implementation of the PDPL there were broad privacy protection measures outlined in several laws and regulations. The courts and adjudicatory bodies interpreted privacy violations under sharia law provisions.
The PDPL aims to protect and safeguard the personal data of individuals when collected or used by any means in Saudi Arabia. The law protects the privacy of individuals, regulates communication between different entities and prevents the misuse of private data.
As a general principle, the PDPL permits entities to collect and disclose personal information directly from individuals and for a specific purpose with prior consent. However, there are several exceptions when consent is not required:
• If prior consent had already been obtained from the data subject;
• When the personal data is available to the public;
• If the data is being collected by a public institution and is required to fulfil security or judicial purposes;
• When it is not possible to contact the data subject;
• If the data will be recorded or stored in a format that prohibits personally identifiable information;
• If data collection is necessary to protect the public health or public safety;
• As long as personal data is collected for a specific purpose directly related to the entity;
• If the methods used to collect the data are not in conflict with established methods, or deceptive or fraudulent; and
• As long as the collected data is destroyed immediately if it is no longer needed. It is only permissible to copy official documents identifying an individual’s personal data when this is required by law, or when a competent public body requests that such documents be copied in accordance with law.
The PDPL grants people the right to secure personal data, know why it is being collected and processed, view it or obtain a copy of it, and ask for its removal once the intended use has been met.
Furthermore, the PDPL governs the disclosure of personal information in accordance with specific mechanisms that guarantee its optimal use. The legislation prohibits personal means of communication for marketing or advertising purposes without obtaining the owner’s consent. However, this excludes public awareness campaigns distributed by government officials.
The Saudi Data and Artificial Intelligence Authority will oversee the enforcement of the PDPL, and supervise personal data protection by developing national strategies, policies, controls and procedures, thus supporting their implementation.
Tech Regulations
The country is demonstrating its commitment to developing the financial technology (fintech) market and facilitating the growth of the sector with the 2018 launch of Fintech Saudi. The Saudi Central Bank (SAMA) and the CMA established Fintech Saudi in the framework of their financial services development programme. The framework is primarily responsible for supporting innovation in the sector, and providing a conducive environment for entrepreneurs and start-ups to flourish in the local market. Fintech regulations and experimental licences developed by SAMA and CMA have greatly benefited businesses operating in this space, and enabled them to grow and thrive.
There has been a significant increase in fintech companies in Saudi Arabia in recent years. As the country continues to support venture capitalists, new regulations and national initiatives, a new generation of fintech solutions is expected to emerge.
SAMA has launched an open banking policy to support the development of a new generation of fintech solutions in Saudi Arabia. Open banking allows customers to share their data securely with third parties, which in turn has opened up opportunities for fintech firms to build new business models. Banks and other financial services companies can use this information to build innovative applications that analyse financial transactions, and provide customers with tailored products and services based on their preferences.
Innovation Support
In addition to open banking, SAMA has also established a regulatory sandbox that enables national and foreign organisations to test new digital solutions in a monitored setting in preparation for their eventual deployment in Saudi Arabia. This initiative aims to attract local and foreign fintech firms to enter the market with innovative financial products, services, or improved business procedures.
The CMA also started a Saudi fintech lab in December 2018 to develop the necessary infrastructure and support entrepreneurs. Through the CMA’s efforts, a more streamlined regulatory framework has been created to attract innovative business models and emerging technologies. The authority’s objective is to enable the financial services industry to thrive by facilitating financing, promoting economic development, reinforcing transparency and stimulating investment to grow deep and diverse financial sector businesses.
The lab is open to local and international fintech firms, and offers them an experimental environment to examine innovative business models, products and services under specific criteria, timeframes, and regulatory requirements. The CMA has granted numerous fintech companies permits to participate in the lab, which has resulted in 17 new services and activities being approved by the CMA’s Board of Commissioners. These activities cover a range of business models including a social trading platform, custody services, equity crowdfunding, robo-advisory, debt instrument offering and investment, and a platform that uses distributed ledger technology to arrange and offer securities.
Tourism Ecosystem
From a structural perspective, the Ministry of Tourism (MoT) has undergone an institutional transformation over the last two decades to facilitate the sector’s emergence as a leading contributor to GDP. Starting with the creation of the Supreme Commission for Tourism in 2000 under a royal decree by King Fahd bin Abdulaziz Al Saud, it was renamed to the Saudi Commission for Tourism and Antiquities in 2008. In 2015 the name was amended to the Saudi Commission for Tourism and National Heritage, and in 2020 it was transformed into the Ministry of Tourism. Two additional entities – the Saudi Tourism Authority and the Saudi Tourism Fund – were established to support the sector and oversee its expansion.
This evolution highlights the importance of both tourism and national heritage to the development of the Saudi economy. Indeed, the importance of preserving the Kingdom’s historical past and the promotion of tourism has increased to the point that it became essential to separate the two areas into different sectors. As a result, a royal decree was issued in 2020 to allocate tourism under the scope of the Ministry of Tourism and to dedicate national heritage under the purview of the Ministry of Culture. This was followed by the creation of the Heritage Authority which has responsibility for the development of archaeological sites across the country. The fundamental objective of such a transformation is to provide a structured framework to support the expansion and growth of Saudi Arabia’s tourism industry.
The Ministry of Tourism has implemented several programmes aimed at successfully developing the sector, including the May 2021 launch of the Middle East’s first-ever regional office of the UN World Tourism Organisation, located in the capital city of Riyadh. With the launch of the local branch of the international organisation, the country aims to create development strategies and offer investment opportunities that attract both regional and global players. This falls in line with the goals of the ministry’s statute, which is to regulate and develop the sector, and address any challenges to its development with an aim to contribute to the national economy in a manner consistent with Saudi Arabia’s customs and values.
More specifically, the ministry’s main responsibilities include:
• Proposing tourism-related laws;
• Issuing licences for investors to engage in tourism activities;
• Regulating and monitoring such activities;
• Developing tourist destinations in coordination with relevant governmental entities;
• Assessing the infrastructure of tourist sites in Saudi Arabia;
• Overcoming challenges facing tourism players, and proposing the provision of incentives and support to investors in the tourism sector; and
• Encouraging the private sector to establish companies for planning and developing tourist sites, and investing in such sites.
Tourism Oversight
The Council of Ministers issued the Saudi Tourism Authority’s statutes in March 2020, laying out the authority’s main responsibilities, which are:
• Promoting Saudi Arabia as a tourism destination domestically and internationally;
• Developing, promoting and distributing tourism packages and products in collaboration with the private sector;
• Providing guidelines and coordinating with destination marketing organisations on brand strategy and positioning, marketing campaigns, tourism events, tradeshows and roadshows;
• Participating in domestic and international tourism events and exhibitions, tradeshows and roadshows; and
• Defining, delivering and measuring tourism experiences, and identifying opportunities for new products and services. The third agency within the Saudi tourism ecosystem is the Tourism Development Fund (TDF), established by a royal decree in June 2020 to facilitate local and international investors’ access to high-potential tourism investment projects across key destinations in the Kingdom. The Tourism Development Council, which is led by the minister of tourism was established in September 2020 to ensure the alignment of all of the agencies involved in the tourism sector and to foster cooperation with other intra-governmental entities. The key responsibilities of the TDF are:
• Develop financial products that suit the needs of small and medium-sized enterprises, and large institutions;
• Make the tourism investment more attractive to both lenders and investors, maximising the impact on the sector;
• Support investors by providing access to the entire tourism ecosystem; and
• Establish partnerships with public and private lenders to unlock investment potential. The sector has advanced due to cooperation among several Saudi agencies. The royal commissions that govern Riyadh City, Al Ula, and Yanbu and Jubail have launched numerous initiatives to support the growth of the industry in these cities. Since these commissions’ regulatory authority is independent of the Ministry of Tourism and directly related to the prime minister, their involvement in the sector has been crucial. For example, the commissions have created scholarship opportunities for tourism programmes and projects to establish tourism academies to develop a more qualified workforce. They have also sought investment partnerships with significant domestic and international stakeholders, in line with the cities’ aim to become popular tourism destinations.
Tourism Law
Laws and regulations in the sector have changed as tourism agencies are evolving and improving to cope with national reforms and international economic developments.
One of these improvements is the introduction of the Tourism Law, which was issued in October 2014 and came into effect in May 2016 to replace the Hotel Law issued in April 1975. The current tourism legislation aims to regulate the tourism industry and is applicable to dealings with both domestic and international tourists.
It also seeks to regulate the relationship between service providers and consumers to enable an atmosphere where tourism can thrive and provide investment opportunities for both locals and foreigners. Furthermore, the law is expected to create new employment opportunities and address an increased demand for domestic tourism. The new law’s scope includes the following areas :
• Tourism accommodation reservations and marketing;
• Tourist accommodations;
• Tourist destinations;
• Travel and tourism agents;
• Tour operators;
• Tour guides; and
• Committees for overseeing tourism regulation infringement. All activities related to the tourism industry are now regulated, and anyone wishing to carry out business activities within the sector must be licensed. Previously, all tourism business was limited to Saudi nationals or Saudi-owned entities. Now, with the exception of tour guides – who can only be Saudi nationals – any foreign citizen can carry out tourism activities as long as they meet the criteria set by the implementing regulations and have not had their licence revoked in the last five years. Licences are valid for three years and are non-transferrable.
Visas
Building on the approval of the 2014 Tourism Law, important regulatory changes have occurred. One such effort was the introduction of the eVisa programme in September 2019, which aimed to attract more international tourists to Saudi Arabia. Visitors from 49 countries can apply for a tourist visa online through the eVisa platform before traveling or upon arrival in the Kingdom through the visa offices of the immigration department. Tourists from other countries must apply for a consulate visa at the Kingdom’s representations abroad. US, UK and Schengen business or tourist visa holders can apply for a visa upon arrival.
Tourists are eligible for two types of visas. The single entry visa is valid for 90 days from the issue date, and permits a 30-day maximum duration of stay. The second type of visa is multiple-entry, and is valid for one full year (365 days) with a maximum 90-day duration of stay at one time from the issue date.
In addition to easing visa procurement, lawmakers are looking at international best practices to attract more visitors and improve the country’s regional and international rankings as a top tourist destination. These regulations include an updated version of the Tourism Housing Regulation issued in January 2021 to include the usage of digital platforms to improve the guest experience in any licensed housing facility in Saudi Arabia.
The regulation also includes new classification of housing services such as heritage hotels, resorts, health spa hotels and boutique hotels. The expanded definition of tourist accommodation will provide a new market for national and foreign investors to participate and grow their business in Saudi Arabia.
The new regulations also feature procedural advancements that have significantly reduced the time it takes to grant tourism licences. Whereas it used to take up to 150 days, it can now be done in two minutes and no paperwork is required. Such developments accelerate the expansion of the domestic and international tourism business.
To achieve the Vision 2030 goal to increase the contribution of tourism in the GDP to more than 10% and adding job opportunities, the country is working to develop its tourism sector to attract numerous domestic and foreign investors. This will increase the number of tourists visiting the country to explore and invest, with the goal of ultimately increasing GDP and welcoming more than 100m visitors on an annual basis.
Entertainment Law
The General Entertainment Authority (GEA) was established on May 7, 2016 by royal decree. The GEA is responsible for regulating and expanding the public entertainment industry in the Kingdom. It also enjoys legal, financial and administrative independence, and is associated organisationally with the chairman of the Council of Economic and Development Affairs.
The GEA seeks to organise and develop entertainment-related activities in the Kingdom and update all regulations related to the sector in cooperation with the relevant authorities. Without prejudice to the capabilities and responsibilities of other entities, they are also accountable for developing the strategies, programmes and policies required for the management of entertainment. Additionally, the GEA manages the application procedure and issues licences to any individual wishing to invest and operate in the local entertainment industry via the Tarfeeh portal.
In August 2021 the GEA issued the draft of Entertainment Law on the public-consultation platform Istitlaa, which enables the public and government entities to view and provide feedback on draft laws related to economic and developmental affairs before they are approved. The drafted law included 19 articles divided into five chapters, and identified 10 types of venture and service licences within the entertainment industry. The three main sectors include: entertainment facilities, events and support services. As part of these regulations, the GEA specifies the types of licences, permits, provisions and obligations covering recreational activities. Additionally, it developed mechanisms to facilitate the process of issuing, renewing, amending and cancelling such licences.
The law also outlines the types of penalties imposed on anyone who violates such provisions. On the other hand, the licensee has the right to object or file a grievance with the complaints department against the commission’s decisions. The department then considers the objection and takes the appropriate action according to the relevant laws.
Legal Analysis
The Saudi legal system is based on sharia, the traditional Islamic law derived from the holy Quran and the sunnah (words and deeds) of Prophet Muhammad, as interpreted by scholars of Islamic jurisprudence.
However, sharia views are often presented in broad terms, leaving courts with discretion to determine how it should be applied in specific circumstances. The Saudi legal system supplements sharia by issuing royal decrees, regulations, circulars and policy statements that govern various legal aspects such as corporate, labour, foreign investment and property law.
Saudi Arabia has taken steps towards enhancing its legislative environment by creating and amending laws that establish principles of justice and transparency, protect human rights, achieve comprehensive economic development and improve the Kingdom’s global competitiveness.
By applying specific institutional, procedural and objective references, the legislative and judiciary branches consider the latest legal trends and modern international judicial practices in a manner that does not conflict with sharia provisions, and considers the Kingdom’s obligations with regard to international charters and agreements to which it has acceded.
Even as the government has implemented a series of legislative and regulatory reforms in recent years, efforts are ongoing to develop the legislative environment conducive to meeting the goals of Vision 2030. As part of a new wave of judicial reforms, Saudi Arabia amended and approved 38 laws and regulations in 2021.
Among the most notable of these laws include the Evidence Law, which went into effect in July 2022 and governs all commercial and civil transactions, and in part, administrative and criminal cases. It permits the submission of digital evidence in an electronic form, and gives it the same status as written evidence.
The Personal Status Law, which was approved in June 2022, regulates issues related to engagement, marriage, divorce and custody. These laws were created to address and keep pace with the most recent international legal practices and social, economic and technological developments; to protect individual and societal rights and property; and enhance trust and transparency to encourage foreign investment.
The Civil Transactions Law introduces payment of fees when filing cases and motions before courts in Saudi Arabia and represents an important policy shift for the Kingdom. The law went into effect in March 2022 and capped the amount that litigants will pay when filing cases and motions – subject to a defined list of exclusions including criminal, disciplinary and personal status cases. It sets fees for cases filed with the courts at a ceiling of 5% of the claim value and is capped at SR1m ($267,000).
The intended effect is to increase the cost of litigating claims that have little merit, reduce the number of court filings and allow for alternative dispute resolution processes such as negotiation and mediation.
A draft of the Penal Code for Discretionary Sanctions was approved in May 2022, and will be released pending agreement on proposed amendments.
Outlook
These laws aim to facilitate a step forwards in the legal system and establish principles based on fixed references that consider the provisions of sharia and the Kingdom’s international obligations. Furthermore, the most recent rules introduce laws in previously unregulated fields to enhance the business environment and affect the rate of economic growth. Examples of such laws include the Personal Data Protection Law, the Freedom of Information Law, the Electronic Transactions Law, fintech regulations, amendments to the law on real estate acquisition by foreigners, judicial systems transformations regulations, and the Medical Devices and Supplies Regulation.
In addition, Saudi Arabia continues to initiate legislative reforms in the digital space. The authorities also seek to be proactive and pioneering by providing integrated digital services to government agencies via the Digital Government Authority, issuing the e-Commerce Law in July 2019, establishing the regulatory framework for the internet of things in October 2019, and updating the country’s Communications and IT Law in June 2022.
Read More from OBG
