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HomeReportsInvestment Climate Statements...Custom Report - 822e9a8e8e
Jordan, Saudi Arabia
12. OPIC and Other Investment Insurance Programs
Jordan is a Middle Eastern country centrally located on desert plateaus in southwest Asia and strategically positioned to serve as a regional business platform. Since King Abdullah II's 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. Jordan is also uniquely poised as a platform to host investments focused on the reconstruction of Iraq and projects in regional markets.
Jordan's economy grew by two percent in 2018, despite ongoing domestic and regional challenges. Jordan's economic growth has been slowed for several years by regional security concerns, the 2015 closure of Jordan's borders with Iraq (reopened in August 2017) and Syria (partially re-opened in 2018), and an influx of Syrian refugees. During this time the government ran large annual budget deficits, but has been able to reduce its near-term financing gap with loans, foreign assistance, and savings from economic reform measures enacted as part of an International Monetary Fund (IMF) Extended Fund Facility program that began in August 2016. As a result of these factors, the investment outlook for Jordan began to decline, and by September 2018 foreign direct investment had dropped 60 percent from its level at the end of 2017.
International reports and metrics indicate that Jordan's overall investment environment is improving. The Kingdom advanced 15 places from 118th to 103rd on the World Bank's "Doing Business Report 2018" (sliding back one place in 2019 to 104th). Jordan advanced four points on the Global Innovation Index, maintained its rank at 49th place on the Global Entrepreneurship Index 2018, and improved one place on the Global Talent Competitiveness Index from 58 in 2018 to 57, up 13 points from 2017.
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 58 of 175 http://www.transparency.org/research/cpi/overview
World Bank's Doing Business Report 2019 104 of 190 http://www.doingbusiness.org/en/rankings
U.S. FDI in partner country ($M USD, stock positions) 2017 USD 232 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 USD 3980 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD
The Jordanian Investment Law grants equal treatment to local and foreign investors and grants incentives for local and foreign investment in industry, agriculture, tourism, hospitals, transportation, energy, and water distribution. In 2017, Jordan passed amendments to the Companies' Law and a law to regulate and unify monitoring and inspection of economic activities. The government implemented additional reforms in 2018, including the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital bylaw, and a new Income Tax Law. The new tax law is dependent on a number of bylaws that the government is still developing.
In 2014, Jordan endorsed the Public Private Partnership Law and Investment Law to support the government's commitment to broadening the utilization of the public-private sectors partnership, and allowing the private sector to have a larger role in overall economic activity.
Policies Towards Foreign Direct
Jordan is largely open to foreign investment, and the government is committed to supporting foreign investment. Foreign and local investors are treated equally under the law. The Jordan Investment Commission is the body responsible for implementing the 2014 Investment Law and promoting new and existing investment in Jordan, through a range of measures to incentivize and facilitate investment procedures. The Investment Council, established by the law, which is comprised of the Prime Minister, ministers with economic portfolios, and representatives from the private sector, oversees the management and development of the national investment policy, and is responsible for legislative and economic reforms to facilitate investment.
In 2017, the Jordanian government introduced a new ministerial portfolio for Investment Affairs, and assigned the Minister of State for Investment Affairs as the President of Jordan Investment Commission. Investment Law No. 30/2014 identifies the Commission as the key reference point for investors and grants additional authorities to the Investment Window to facilitate and accelerate investment registration. The President of the Commission and the administrative team supervise and centrally approve investment-related matters within the guidelines set by the Investment Council and approved by the government.
The Investment Commission can expedite the provision of government services and provide a number of investment incentives, tax, and customs exemptions. An investment-dedicated "One Window " provides information and technical assistance to investors, with a mandate to simplify registration and licensing procedures for investment projects that benefit from the Investment Law. In 2018, the Commission launched a "Follow-Up and After Care" section with an aim to remove obstacles facing investors and find appropriate solutions as part of the investment process.
Limits on Foreign Control and Right to Private Ownership and Establishment
Investment and property laws allow domestic and foreign entities to establish businesses that engage in remunerative activities. Foreign companies may open regional and branch offices, branch offices may carry out full business activities, and regional offices may serve as liaisons between head offices and Jordanian or regional clients. The Ministry of Industry, Trade and Supply's Companies Control Department implements the government's policy on the establishment of regional and branch offices.
Foreign nationals and firms are permitted to own or lease property in Jordan for investment purposes and are allowed one residence for personal use, provided that their home country permits reciprocal property ownership rights for Jordanians. Depending on the size and location of the property, the Lands and Surveys Department, the Ministry of Finance, and/or the Cabinet may need to approve foreign ownership of land and property, which must then be developed within five years after the date of approval.
Regulations governing foreign ownership include the following exceptions:
Foreigners are prohibited from wholly or partially owning investigation and security services, sports clubs (exception: health clubs), stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks. The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council. To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
Investors are limited to 50 percent ownership in certain businesses and services, including periodical publications, printing/publishing companies, aircraft or maritime vessel maintenance and repair services, land transportation services, and retail and wholesale trading.
Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm. The agent's connection to the foreign company must be direct, without a sub-agent or intermediary. The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents. Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.
However, according to the Bilateral Investment Treaty with Jordan, U.S. investors are granted several exceptions and are accorded the same treatment as Jordanian nationals, allowing U.S. investors to maintain 100 percent ownership in some restricted businesses. The most up-to-date listing of limitations on investments is available in the FTA Annex 3.1 and may be found at http://www.ustr.gov/trade-agreements/free-trade-agreements/jordan-fta/final-text.
For national security purposes, foreign investors must undergo security screening through the Ministry of Interior, which can be finalized through the "One Window" located at the Investment Commission.
Other Investment Policy Reviews
Jordan has been a World Trade Organization (WTO) member since 2000. The WTO conducted Jordan's second Trade Policy Review in November 2015.
In 2012, the United States and Jordan agreed to Statements of Principles for International Investment and for Information and Communication Technology Services, and a Trade and Investment Partnership Bilateral Action Plan, each of which is designed to increase transparency, openness, and governmental and private sector cooperation. The two parties also began discussions on a Customs Administration and Trade Facilitation Agreement. All current treaties and agreements in force between the United States and Jordan may be found here: https://www.state.gov/s/l/treaty/tif/.
In follow up on OECD's Investment Policy Review of Jordan and Jordan's adherence to the OECD Declaration on International Investment and Multinational Enterprises in 2013, the MENA-OECD competitiveness program issued a report in 2018 entitled "Enhancing the legal framework for sustainable investment: Lessons from Jordan" (http://www.oecd.org/mena/competitiveness/Enhancing-the-Legal-Framework-for-Sustainable-Investment-Lessons-from-Jorden.pdf ).
Business Facilitation
Businesses in Jordan need to register with the Ministry of Industry, Trade, and Supply's Companies Control Department, or the Chambers of Commerce or Industry depending on the type of business they conduct; open a bank account, obtain a tax identification number, and obtain a VAT number. They also need to obtain a vocational license from the municipality, receive a health inspection, and register with the Social Security Corporation. In November 2017, the government issued a decision to cancel all non-security related pre-approvals for registering a business and require all approvals before starting operations.
The "Investment Window" at the Jordan Investment Commission (www.jic.gov.jo ) serves as a comprehensive investment center for investors. The window provides its services to both local and foreign investors, particularly those in the agricultural sector, medical, tourism, industrial, ICT-Business Process Outsourcing (BPO), and energy sectors. In 2018, the commission introduced a fast track for investors at Queen Alia International Airport.
In 2017, the Commission further streamlined procedures to register and license investment projects in development zones, introducing a Fast Track Investment Window, reducing the number of committee approvals from 23 to 13, and reducing registration procedures from 15 to five. These changes reduced the typical time period required to register in development zones from five days to one day. Additionally, the time period needed to grant or renew the investor card (an ID card for investors used to facilitate various transactions) has been reduced from five working days to two, the time period to grant exemptions under the investment law from two weeks to one, and the time period to grant exemptions under the decisions of the Prime Minister from seven days to one.
Jordan has also adopted a single security approval to replace the 11 approvals that were previously required for new investors. The new approval covers registering and licensing the company, obtaining driving licenses for investors, possessing immovable property for the establishment of investment projects in the industrial and developing zones, in addition to granting residence permits to non-Jordanian investors and their family members. The Companies Control Department has developed and launched a portal for online registration: http://www.ccd.gov.jo/
The commission has completed the first phase of automating its services. Sixteen services are now fully automated as of March 31, 2019, and a number of guides are now available online, including the investor guide (https://www.jic.gov.jo/en/investor-guide/ ).
The World Bank Group in its Doing Business report mapped out the registration requirements in Jordan and provided a detailed summary of procedures, time, cost, and legal requirements to incorporate and register a new firm in Jordan. The report compared regulations relevant to the life cycle of a small- to medium-sized domestic business in 188 economies. In the 2019 report, Jordan ranked 104 out of 190, with 12 days needed to complete registration (Link).
Outward Investment
Jordan does not have a mechanism in place to specifically incentivize outward investment.
In addition to the United States, Jordan has signed bilateral investment treaties with 57 countries including the European Union, Singapore, and Canada. Jordan's bilateral investment treaty with the United States entered into effect in 2003 and provides reciprocal protection of Jordanian and U.S. individual and corporate investments.
The U.S. Congress enacted the Qualifying Industrial Zone (QIZ) initiative in 1996 to support the Middle East peace process. Goods produced in the 13 designated QIZs in Jordan can be imported into the United States tariff and quota free under the agreement if at least 35 percent of the product's content comes from the QIZ, Israel, or West Bank/Gaza. Of that 35 percent, a minimum 11.7 percent of value must be added in the QIZ, eight percent in Israel, and 15.3 percent in a Jordanian QIZ, Israel, or the West Bank/Gaza. The QIZs have attracted over USD 1 billion dollars in capital investments, generated around USD 9.2 billion dollars in exports to the U.S. between 2006 and 2013, and currently employ more than 47,000 workers; about one-quarter of whom are Jordanians. The bulk of QIZ exports continue to be garments.
The U.S.-Jordan Free Trade Agreement (FTA), which entered into force in 2001 and came into full effect in January 2010, does not supersede or eliminate the QIZ initiative. Nevertheless, exports under QIZ requirements considerably shrank as exporters took advantage of the FTA's broader mandate. FTA rules of origin simply require 35 percent Jordanian content without other restrictions.
While the United States remains one of Jordan's top trading partners and largest export market, Jordan maintains an active trade relationship with neighboring countries and has been actively pursuing enhanced trade arrangements globally. Jordan is a member of the Greater Arab Free Trade Area (GAFTA), which has been in force since 1998. The GAFTA reached full trade liberalization of goods in 2005 through full exemption of customs duties and charges for all 17 Arab member states, with the exception of gradual reductions for Sudan and Yemen. Jordan has also signed trade preference agreements and bilateral free trade agreements with various Arab neighbors, including Egypt, Syria, Morocco, Tunisia, the UAE, Algeria, Lebanon, the Palestinian Authority, Kuwait, Sudan, and Bahrain.
An economic association agreement between Jordan and the European Union (EU) entered into force in 2002 to establish free trade over a twelve-year period. This agreement calls for the free movement of capital as well as cooperation on development and political issues. Jordan also signed a Free Trade Area Agreement in 2001 with the European Free Trade Association (EFTA) states (Iceland, Liechtenstein, Norway, and Switzerland); this agreement completed the transitional period in 2014. In 2016, Jordan and the European Union agreed on new rules of origin designed to facilitate Jordanian exports to the EU manufactured with set percentages of Syrian labor content. Jordan and the EU are discussing potential revisions to this agreement.
With respect to other agreements, Jordan signed a Free Trade Agreement with Singapore in 2004. In addition to enhancing bilateral trade ties, the agreement aimed to create new export opportunities for Jordanian products worldwide through the possibility of diagonal accumulation of origin with countries that have concluded free trade agreements with both Jordan and Singapore. That same year, Jordan completed the Agadir trade agreement with Egypt, Morocco, and Tunisia, and upgraded its trade agreement with Israel to take advantage of accumulation of content provisions in the European Union's Pan Euro-Mediterranean trade rules of origin. Jordan signed a Free Trade Agreement with Canada in 2009 which came into effect in October 2012. The FTA with Canada eliminates all non-agricultural tariffs and most agricultural tariffs. A similar agreement with Turkey was also signed in November 2009 and entered into effect on March 1, 2011; in early 2018 Jordan announced its intention to suspend this agreement within six months. Jordan has also signed with Iraq a number of Memoranda of Understanding for bilateral cooperation in various sectors such as education, health, energy, transportation, and trade.
Jordan concluded double taxation avoidance agreements with 31 countries including the United Arab Emirates, Qatar, Bahrain, Egypt, Algeria, Tunisia, in addition to Canada, the United Kingdom, France, Turkey, UAE, and others. Jordan signed its first double taxation agreement in 1981 with Romania, and the latest with Saudi Arabia in 2018. The terms of each agreement vary to match the priorities of each signatory, but often include income tax, corporate tax, capital gain, social service tax, and gains generated by the alienation of movable and immovable property.
Jordan does not have a double taxation agreement with the United States.
Transparency of the Regulatory System
Legal, regulatory and accounting policies, applicable to both domestic and foreign investors, are transparent and promote competition. However, historically red tape and bureaucratic procedures, particularly at the local government level, presented problems for foreign and domestic investors.
The government is gradually implementing policies to improve competition and foster transparency in implementation. These reforms aim to change an existing system influenced in the past by family affiliations and business ties. The Jordan Investment Commission (JIC), through its Fast Track Investment Window, introduced a number of measures to streamline the investment process. All laws and regulations are usually published on the website of the Legislative and Opinion Bureau for public commenting, in addition to executive branch consultations, with the legislative branch and key stakeholders.
Most economic regulations are available on the Jordan Investment Commission website (https://www.jic.gov.jo/ar/investment-regulations-2/ ), or on the Ministry of Industry and Trade and Supply website (https://www.mit.gov.jo/Default). All regulations are published in the Official Gazette (http://pm.gov.jo/newspaper ) or the Legislative and Opinion Bureau (http://www.lob.jo/ ).
The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide (https://www.jic.gov.jo/en/services-guide/ ). Guides are currently available in Arabic.
Jordan is committed to its fiscal transparency policy, therefore the Ministry of Finance (MoF) publishes a monthly "General Government Finance Bulletin" and that includes detailed information on government's debt obligations. (www.mof.gov.jo/Portals/0/Mof_content/النشرات والبيانات المالية/نشرة مالية الحكومة/2016/Arabic PDF December 2016.pdf ).
Investment Window
Jordan Investment Commission
Telephone: +962 (6) 5608400/9 Ext: 120
Amman 11821 Jordan
E-mail: info@jic.gov.jo
International Regulatory Considerations
Jordan recognizes and accepts most U.S. standards and specifications. However, Jordan has occasionally required additional product standards for imports. Some of these measures have been viewed as barriers to trade, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale.
As a member country of the WTO, Jordan is obliged to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Jordan is a signatory of the WTO Trade Facilitation Agreement. As of March, 2018, Jordan had implemented 81.5 percent of its commitments. Jordan submitted its notifications for Category A before the agreement came into force, and is currently in the final review for categories B and C.
Legal System and Judicial Independence
Jordan has a mixed legal system based on civil law, Sharia Law (Islamic Law), and customary law. The Constitution establishes the judiciary as one of three separate and independent branches of government. Jordanian commercial laws do not make a distinction between Jordanian and non-Jordanian investors. However, plaintiffs complain of judicial backlogs and subsequent delays in legal proceedings. Jordan has introduced economic judicial chambers, established under the Amman First Instance Court and Amman Appeal Court under the provisions of the Law of Formation of the amended Courts No. 30 of 2017. These chambers specialize in the adjudication of certain commercial and investment disputes mentioned in Article 4 of the Courts Formation Law.
Laws and Regulations on Foreign Direct Investment
Jordan's Investment Law governs local and foreign investment. The law consolidated three entities – the Jordan Investment Board, the Jordanian Development Zones Commission, and the Free Zones Corporation – into the Jordan Investment Commission. The law incorporates a statement of investors' rights and a legal framework for the newly established Investment Window, which is located at the Investment Commission's headquarters.
The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide (https://www.jic.gov.jo/en/services-guide/ ). Guides are currently available in Arabic. The commission is working to amend the bylaw that regulates non-Jordanian investments to increase investors' confidence and attract more foreign investment.
In September 2017, Parliament passed the Monitoring and Inspection of Economic Activities Law No. 33 / 201, and amendments to Jordan's Companies Law No. 34 /2017. This law governs the requirements to establish venture capital companies for the purpose of direct investment, or for creating funds, to contribute or invest in high-growth companies that are not listed in the stock market.
In 2018, Jordan passed the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital Bylaw in addition to a new Income Tax Law, a number of related bylaws are in the pipeline.
There is no systematic or legal discrimination against foreign participation with respect to ownership and participation in Jordan's major economic sectors other than the restrictions outlined in the governing regulations. In fact, many Jordanian businesses actively seek engagement with foreign partners as a way to increase their competitiveness and access to other international markets. The government's efforts have made Jordan's official investment climate welcoming; however, some U.S. investors have reported hidden costs, citing bureaucratic red tape, vague regulations, and conflicting jurisdictions.
Competition and Anti-Trust Laws
The Jordanian parliament passed amendments to Competition Law No. 33/2004 in 2011 to strengthen the local economic environment and attract foreign investment by providing incentives to improve market competitiveness, protect small and medium enterprises from restrictive anticompetitive practices, and give consumers access to high quality products at competitive prices. The Competition Directorate at the Ministry of Industry, Trade, and Supply conducts market research, examines complaints, and reports violators to the judicial system.
Expropriation and Compensation
Article 11 of the Jordanian Constitution stipulates that expropriations are prohibited unless specifically deemed to be in the public interest. In cases of expropriation, the law mandates provision of fair compensation to the investor in convertible currency.
ICSD and New York Conventions
Since 1972, Jordan has been a contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention). Only a small number of cases between foreign investors and the Jordanian government have been brought before ICSID tribunals. Jordan is also a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).
In January 2018, the Parliament passed amendments to Arbitration Law 2017, which aims to facilitate the use of arbitration as an alternative to dispute settlement procedures.
Under domestic law, foreign investors may seek third party arbitration as a means of settling disputes. Jordan abides by WTO dispute settlement mechanisms, and dispute settlement mechanisms under the U.S.-Jordan FTA are consistent with WTO commitments. Article IX of the United States-Jordan Bilateral Investment Treaty (BIT) establishes procedures for dispute settlements between Jordanians and U.S. persons.
Investment disputes are treated as any other commercial or civil dispute in the Jordanian judicial system. Investment agreements with the Jordanian government as a party generally contain a dispute resolution clause that would refer cases to arbitration in Jordan. On average, it takes three to four years for cases that go through the local court system to reach a verdict. Cases settled through arbitration take between 12 to 18 months. The main challenge regarding litigating cases is being able to conduct proper process of service upon all concerned parties. Another challenge is the lack of specialized investment and commercial courts, limiting judges' capacity to adequately review cases.
International Commercial Arbitration and Foreign Courts
Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.
Bankruptcy Regulations
The Commercial Code, Civil Code, and Companies Law collectively govern bankruptcy and insolvency proceedings. In December 2017, the cabinet endorsed a bankruptcy bylaw which stipulates procedures for optional and compulsory liquidation, along with the mechanism, liquidation plan, and required documentation and reporting. In 2018, Parliament passed the Insolvency Law, which allows individuals and companies to offset their financial position through a debt management plan. The law helps the insolvent entity to continue its economic activity, rather than directly resorting to bankruptcy.
Investment Incentives
Under Investment Law No. 30/2014, the Council of Ministers, upon the recommendation of the Investment Council, may offer investment incentives in accordance with the law and governing regulations for projects outside the Development and Free Zones. The Investment Council and Investment Commission can also offer certain exemptions for projects in the following sectors:
Hospitals and specialized medical centers
Hotel and touristic facilities
Tourism-related entertainment and recreation
Contact and communication centers
Scientific research centers and medical laboratories
Technical and media production
Such incentives include customs exemptions, refunding of the general tax for production inputs, and no sales tax. JIC can provide investors with further information on these exemptions (https://www.jic.gov.jo/en/incentives-outside-the-dz-and-fz/ ). Automatic exemptions are also granted for specific services whether purchased locally or imported. The Income and Sales Tax Department will refund the general tax levied within 30 days from submitting a written request in accordance with the terms and conditions determined by the Regulations Governing Investment Incentives (Number 33 of 2015).
A number of non-automatic exemptions are granted for production requirements and assets of economic, industrial, or handicrafts activities of dual-use. Such exemptions are subject to administrative procedures and approvals obtained from the Jordan Investment Commission Technical Committee and are governed by the previously referenced regulation.
Article 8-A of the 2014 Investment Law allows the cabinet to grant additional advantages, exemptions, or incentives to any economic activities in the Kingdom. Under this article, the cabinet granted additional incentives to the ICT, tourism, and transport sectors in 2016, as published in the Official Gazette.
Net profits generated from most exports were exempt from income tax until December 2018. The new Income Tax Law No. 38 (2018) imposed taxes on income generated from exports, in accordance with WTO agreements.
Foreign Trade Zones/Free Ports/Trade Facilitation
Investments in special economic zones and development zones receive a minimum 30 percent income tax waiver depending on the zone. Additional incentives are also provided for projects under the Industrial Estate Corporation and the Aqaba Special Economic Zone.
The country is divided into three development areas: Zones A, B, and C. Investments in Zone C, the least developed areas of Jordan, receive the highest level of incentives while those in Zone A receive the lowest level. All agricultural, maritime, transport and railway investments are classified as Zone C, irrespective of location. Hotel and tourism-related projects along the Dead Sea, leisure and recreational compounds, and convention and exhibition centers receive Zone A designations. Qualifying Industrial Zones (QIZs) are zoned according to their geographical location unless granted an exemption. The three-zone classification scheme does not apply to nature reserves and environmental protection areas.
Jordan's 2014 investment law merged the Development and Free Zones Commission (DFZC) into the newly formed Jordan Investment Commission, an independent governmental body responsible for creating, regulating, and monitoring Jordan's free trade zones, industrial estates, and development zones. The development areas are the King Hussein Bin Talal Development Area (KHBTDA) in Mafraq, the Ma'an Development Area, the Irbid Development Area (IDA), the Dead Sea Development Zone, the Jabal Ajloun Development Zone, and the King Hussein Business Park Development Zone. The Investment Law assigns the Jordan Industrial Estates Corporation (JIEC) and the Development and Free Zones Corporation (DFZC) as main developers of industrial estates and development and free zones, under the supervision of the Investment Commission.
As part of Jordan's efforts to foster economic development and enhance its investment climate, the government has created four industrial estates in Amman, Irbid, Karak, and Aqaba, in addition to several privately-run industrial parks, including al-Mushatta, al-Tajamouat, al-Dulayl, Cyber City, al-Qastal, Jordan Gateway, and al-Hallabat. These estates provide basic infrastructure for a wide variety of manufacturing activities, reducing the cost of utilities and providing cost-effective land and buildings. Investors in the estates continue to receive incentives until their contracts expire, and receive various additional exemptions, such as a two-year exemption on income and social services taxes, complete exemptions from building and land taxes, and exemptions or reductions on most municipalities' fees.
Besides the six public free zones in Zarqa, Sahab, Karak, Karama, Mowaqaar, and Queen Alia Airport, Jordan has over 37 designated private free zones administered by private companies under the DFZC's supervision. The free zones are outside of the jurisdiction of Jordan Customs and provide a duty and tax-free environment for the storage of goods transiting Jordan.
Jordan has announced plans for new specialized development zones in a number of governorates including two solar parks in Ma'an and Ajloun, and four new industrial parks in Salt, Madaba, Tafileh, and Jarash.
The Aqaba Special Economic Zone (ASEZ) is an independent economic zone not governed by the Investment Commission or the articles in the Investment Law governing investments in free zones or development zones. It offers special tax exemptions, a flat five percent income tax, and facilitates customs handling at Aqaba Port. In recent years, ASEZ has attracted projects, mainly in hotel and property development sectors, valued at over USD 8 billion. The government continues to implement development projects aimed at attracting commerce and tourism through the Port of Aqaba. The Aqaba New Port project, initiated in 2010, became operational November 2018 at 40 percent of its design capacity, and is expected to reach 60 percent of operational capacity by June 2019. The new port, 20 km south of the previous port, added four new terminals and expanded general ship berthing and marine services, in addition to adding dedicated terminals for liquefied natural gas, phosphates, and propane.
Investors, either foreign or domestic, face specific requirements in trade, services, and industrial projects in free zones. Industrial projects must be related to one of the following industries:
New industries that depend on advanced technology;
Industries that require locally available raw material and/or locally manufactured parts;
Industries that complement domestic industries;
Industries that enhance labor skills and promote technical know-how; or,
Industries that provide consumer goods and that contribute to reducing market dependency on imported goods.
For further details, please visit:
Jordan Investment Commission (http://www.jic.gov.jo/)
Jordan Industrial Estate Corporation (http://www.jiec.com)
Aqaba Special Economic Zone (http://www.aqabazone.com/)
Performance and Data Localization Requirements
Jordan has a well-educated and trained labor force of 2.5 million people, of which approximately 700,000 are registered foreign workers. Unofficial indicators speculate that unregistered foreign workers are nearly double this number. Most foreign laborers are employed in construction, agriculture, and domestic housekeeping sectors. Approximately 70,000 also work in the QIZs as textile workers.
The Ministry of Labor regulates foreign worker licensing, licensing fees, prohibited sectors, and employer liability. Along with the Ministry of Interior, the Ministry of Labor is responsible for approving the hiring of professional foreign workers by private businesses.
To date, Jordan has no forced localization policy, but does mandate local-employment quotas depending on the sector.
Jordan does not have requirements for foreign IT providers to turn over source code or provide access to surveillance.
The legal system reliably facilitates and protects the acquisition and disposition of property rights. Foreign ownership of land and assets is governed by The Leasing of Immovable Assets and Their Sale to Non-Jordanian and Judicial Persons Law No. 47/2006. Under Article 3 of the law, if the buyer's country of residence has a reciprocal relationship with Jordan, foreign nationals are afforded the right of ownership of property within urban borders in Jordan for residential purposes. According to the law, foreign nationals may rent immovable assets for business or accommodation purposes, provided that the plot of land does not exceed 10 acres and the lease is for no more than three years in duration. Interest in real property is recognized and enforced once recorded in a legal registry.
A new Property law was passed by the lower house on March 5, 2019, and went to the Senate for final review and approval. The new law aims to consolidate 13 laws governing property ownership in one legislation, and addresses issues such as zoning, and the facilitation of ownership and leases for foreign investors.
All land plots in Jordan are titled and registered with the Jordanian Land and Survey Department; any land not titled as private property is considered government property.
According the Ease of Doing Business report of 2019, Jordan ranked 72 out of 190 countries in "Registering Property."
Jordan has passed several laws in compliance with international commitments to protect intellectual property rights (IPR). Laws consistent with Trade Related Aspects of Intellectual Property Rights (TRIPS) now protect trade secrets, plant varieties, and semiconductor chip designs. Copyrights are registered with The Ministry of Culture's National Library Department, and patents are registered with the Registrar of Patents and Trademarks at the Ministry of Industry and Trade. Jordan is a signatory to the Patent Cooperation Treaty and the Madrid Protocol, and accordingly, amended its patent and trademark laws in 2007 to enable ratification of the agreements. Jordan is a signatory to World Intellectual Property Organization (WIPO) treaties on both copyrights and on performances and phonograms, and it has been developing updated laws for copyrights, trademark standards, and customs regulations to meet international standards. Jordanian firms are able to seek joint ventures and licensing agreements with multinational partners.
In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through https://ippd-eservice.mit.gov.jo/ .
Jordan's record on IPR enforcement has improved in recent years, but more effective enforcement mechanisms and legal procedures are still needed. In particular, a large portion of pirated videos and software remain in the marketplace. Enforcement action against audio/video and software piracy is more frequent and enforcement capability is improving. Since 2000, 6,011 violations of Jordan's current copyright law have been referred to the judiciary, including 218 cases in 2018 and 174 cases in 2017. Trademark violations have also been problematic.
The U.S. Patent and Trademark Office has an Intellectual Property Attaché for the Middle East and North Africa region based in the U.S. Embassy in Kuwait City, Kuwait. Please see: https://www.uspto.gov/learning-and-resources/ip-policy/intellectual-property-rights-ipr-attach-program/ip-attach-kuwait for contact information.
For additional information about national laws and points of contact at local IP offices, please see WIPO's country profiles at http://www.wipo.int/directory/en/
Capital Markets and Portfolio Investment
There are three key capital market institutions: the regulator, Jordan Securities Commission (JSC); the Amman Stock Exchange (ASE); and the custodian for all transaction contracts, clearings, and settlements, Securities Depository Center (SDC). The ASE launched an Internet Trading Service in 2010, providing an opportunity for investors to engage in securities trading regardless of geographic location.
Jordan's market is among the most open among its regional competitors, as there are no caps in place for foreign ownership. At the end of 2018, non-Jordanian ownership in companies listed on the ASE represented 51.7 percent of the total market value (37.3 percent Arab investors and 14.4 percent for non-Arab investors); Jordanian ownership in the financial sector was 56.5 percent, 18.3 percent in the services sector, and 61.4 percent in the industrial sector. Investors, both foreign and domestic, are permitted to open margin accounts and to engage in short selling (commercial banks hold securities for their clients in a sub-account format).
In spite of recent reforms and technological advances, the ASE suffers from intermittent liquidity problems and low trading activity. The ASE's market capitalization has grown and shrunk rapidly and repeatedly since 2003. Jordan's financial market reached its height in 2007-2008, where average trading volumes topped USD 118 million daily. Following the global economic downturn, the market declined precipitously, with market capitalization falling from USD 41 billion in 2007 to USD 22.7 billion as of Dec 31, 2018.
By the end of 2018, the ASE price index had dropped 1908.8 points (10 percent) compared to its level at the end of 2017. In 2018, trading volume totaled USD 3.3 billion, a decline of 21 percent over 2017, with only 1.4 billion shares traded compared to 1.7 billion in 2017. The number of listed companies stood at 195 at the end of 2018 compared to 224 at the end of 2016.
At the same time, the net profits of 193 out of the 195 companies listed in the First and the Second Markets increased by USD 509.8 million in 2018 (according to preliminary financial statements provided to the ASE) reaching USD 1.153 billion, an increase of 44.7 percent over 2017.
Money and Banking System
Jordan has 25 banks, including commercial banks, Islamic banks, and foreign bank branches. Jordan does not distinguish between investment banks and commercial banks. Due to strict regulations on lending, particularly mortgage lending, and limited integration with global financial markets, the banking sector's indicators remain strong. Banks continue to be profitable and well capitalized with deposits being the primary funding base. Liquidity ratios and provisioning remain high, while non-performing loan ratios modestly decreased over the past couple of years. Jordan's rate of non-performing loans, as a percentage of all bank loans, was 4.2 percent in 2017, and reached 4.6 percent in the first half of 2018.
The banking law also does not discriminate between local and foreign banks. However, the minimum capital requirements differ with JD 50 million (USD 70.6 million) required for foreign banks and JD 100 million (USD 141 million) for local banks.
Banking Law No.28 / 2000 protects depositors' interests, diminishes money market risk, guards against the concentration of lending, and includes articles on electronic banking practices and money laundering. The CBJ set up an independent Deposit Insurance Corporation (DIC) in 2000 that insures deposits up to JOD 50,000 (USD 71,000). The DIC also acts as the liquidator of banks as directed by the CBJ.
In January 2017, the CBJ and the 25 banks operating in the kingdom agreed to establish the "Jordan Payments and Clearing Company", a private shareholding company based in Amman. The company began operations in 2018, with an aim to establish and develop digital retail and micro payments along with the investment in the innovative technology and digital financial services.
There is no legal impediment to applying block-chain technologies in banking transactions. The Central Bank actively supports the technology and is running two pilot projects deploying block-chain technologies: the Mobile Payment System (JoMoPay), and another for the verification of bank documents.
Foreign Exchange and Remittances
The Central Bank of Jordan (CBJ) supervises and licenses all currency exchange businesses. These entities are exempt from paying commissions on exchange transactions and therefore enjoy a competitive edge over banks.
The Jordanian Dinar (JD or JOD) is fully convertible for all commercial and capital transactions. Since 1995, the JD has been pegged to the U.S. dollar at an exchange rate of JD 1 to USD 1.41.
Other notable foreign exchange regulations include:
Non-residents are allowed to open bank accounts in foreign currencies. These accounts are exempted from all transfer-related commission fees charged by the CBJ.
Banks are permitted to purchase unlimited amounts of foreign currency from their clients in exchange for JODs on a forward basis. Banks are permitted to sell foreign currencies in exchange for JODs on a forward basis for the purpose of covering the value of imports.
There is no restriction on the amount of foreign currency that residents may hold in bank accounts, and there is no ceiling on the amount residents may transfer abroad. Banks do not require prior CBJ approval for a transfer of funds, including investment-related transfers.
Remittance Policies
Jordanian law entitles foreigners to remit abroad all returns, profits, and proceeds arising from the liquidation of investment projects. Non-Jordanian workers are permitted to transfer their salaries and compensation abroad.
Jordan does not have a sovereign wealth fund.
A number of state-owned enterprises (SOEs) exist in Jordan. Currently, 17 SOEs of different sizes and mandates are fully owned by the government, five of which were established in 2016 and are not yet operational. Assets of wholly-owned SOEs exceed USD 11 billion in 2018, and the SOEs employ around 3,000 individuals.
Most of the operational SOEs are small in terms of the size of operations, assets, number of employees, and income. The largest SOEs are: National Electrical Power Company (NEPCO), Samra Electric Power Company, the Yarmouk Water Company, and Aqaba Development Corporation (ADC).
Jordan's economy is private sector led, accounting for 71 percent of GDP and 75 percent of net cumulative investment. SOEs in Jordan exercise delegated governmental powers and operating in fields that are not yet open for investment, such as managing the transmission and distribution of electrical power and water. Other activities include logistics, mining, storage and inventory management of strategic products, in addition to economic development activities. The government supports these companies as necessary, for example, the government has issued and guaranteed Treasury bonds for NEPCO since 2011 to ensure continuous power supply for the country.
SOEs generally compete on largely equal terms with private enterprises with respect to access to markets, credit, and other business operations. The law does not provide preferential treatment to SOEs, and they are held accountable by their Board of Directors, typically chaired by the sector-relevant Minister and the Audit Bureau.
The government, enterprises and NGOs are progressively taking initiatives to incorporate Responsible Business Conduct into their practices.
Jordan is not a party to the Government Procurement Agreement.
Privatization Program
Over the last fifteen years, the Jordanian government has engaged in a wide-scale privatization program, including in the telecom, energy, and transportation sectors. The few remaining government assets not privatized, including Jordan Silos and Supply Company, have elicited little private sector interest.
Government is following a Public Private Partnership (PPP) model for new projects rather that full privatization. Currently the PPP law is under review to make it easier for local and foreign investors to participate in bids.
There is general awareness of responsible business conduct among both manufacturers and consumers in Jordan, with many local and multinational companies voluntarily developing and adopting corporate social responsibility (CSR) programs. CSR efforts predominantly focus on improving infrastructure in adjoining communities or providing better access to educational opportunities.
The amended companies' law regulates the work of companies through applying the rules of company governance and enhancing the monitoring authorities of shareholders at public liability companies.
The American Chamber of Commerce published in 2016 a framework code of conduct for the private sector, Jordan Integrity and Anti-Corruption Commission (JIACC) approved and embedded as part of the governance chapter in the amended companies' law. In addition, there have been programs released and revised by the Jordanian government such as the Golden List Program. The Customs Department released and revised a Golden List Program, which encourages good corporate citizenship amongst trading companies and international best practice for trade across borders.
Jordan was the first Middle-Eastern country to sign and ratify the United Nations Convention against Corruption (UNCAC) in 2005 and has initiated several reforms in similar spirit over the last two decades; including a code of conduct for the public sector in 2006. Furthermore, the government drafted an action plan to address corruption with Jordan's National Integrity System (NIS), developed in 2012.
Jordanian Anti-Corruption law defines corruption as any act that violates official duties, all acts related to favoritism and nepotism that could deprive others from their legitimate rights, economic crimes, and misuse of power. However, the use of family, business, and other personal connections to advance personal business interests is endemic and regarded by many Jordanians as part of the culture. In 2006, Parliament approved an Illicit Gains Law, which officially required public office holders and specified government officials to declare their assets. The 2018 amendments to the Illicit Gain Law expanded the employees subject to the financial disclosure requirement to include heads and members of ad hoc municipal councils, executive directors of municipalities and heads and members of governorate councils. The Law necessitates the prime minister, Cabinet members and senior employees to provide their own financial disclosures and those of their spouses and minor children.
In 2006, Parliament also enacted an Anti-Corruption Law that created the Anti-Corruption Commission (ACC) to investigate allegations of corruption. In 2016, the Integrity and Anti-Corruption Commission ("IACC") came into force by Law No. 13/2016 ("IACC Law"). Two Authorities were merged into one, cancelling of the Bureau of Ombudsman Law No. 11 of 2008 and the Anti-Corruption Law No. 62/2006.
The IACC received 790 new investigation files on corruption in 2018, of which 173 cases were referred to the Public Prosecutor in the commission, 342 files were saved because neither corruption offenses were found and therefore no administrative action required to correct / rectify the situation, and 275 files still are under investigation.
In 2018, the government issued the Code of Governance Practices of Policies and Legislative Instruments in Government Departments, to improve the predictability of legal and regulatory framework governing the business environment.
A new Audit Bureau Law was enacted in October 2018 to strengthen the Bureau performance, capacity and independence in line with INTOSAI standards.
Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.
Jordan is not a party to the OECD Convention on Combatting Bribery.
H.E. Mohannad Hijazi
Jordan Integrity and Anti-Corruption Commission (JIACC)
P.O. Box 5000, Amman, 11953, Jordan
Contact at "watchdog" organization:
Sawsan Gharaibeh
swmkgf@gmail.com
And/ Or
Abeer Mdanat
Rasheed Coalition
P.O. Box 582662, Amman, 111585, Jordan
amdanat@rasheedti.org
While politically motivated violence is rare in Jordan, the threat of terrorism remains high. Terrorist organizations, including the self-proclaimed Islamic State of Iraq and Syria (ISIS), its affiliates, and sympathizers, have successfully conducted attacks in Jordan and continue to plot assaults in the country. Jordan's prominent role in the Defeat-ISIS Coalition and its shared borders with Iraq and Syria maintains potential for future terrorist incidents. Within the last year, Jordanian authorities have disrupted terrorist plots. Visitors should consult current State Department public announcements at www.travel.state.gov before traveling to Jordan.
Peaceful protests occur frequently, but are usually limited to a few hundred (and often only a few dozen) participants. Most demonstrations focus on frustration with perceived economic inequality and corruption or on the Israeli-Palestinian conflict and the status of Jerusalem. Protests in June 2018 led to the dismissal of the prime minister and his cabinet. Protestors state they will continue to gather periodically until the government takes concrete action on their concerns.
According to the Department of Statistics annual report for 2018, the total population of Jordan is 10.3 million, of which 69 percent are Jordanians (6.6 million) and approximately 30 percent are non-Jordanians, including 1.3 million Syrian refugees. UNHCR has registered 659,063 Syrian refugees in Jordan.
Approximately 70 percent of the population is estimated to be under the age of 30. Literacy rates are 95.4 percent for men and 91.1 percent for women. Jordan has a generally well-educated labor force of about 1.8 million Jordanians. According to the Department of Statistics, official unemployment in 2018 reached 18.7percent.
Certain types of work are restricted to Jordanians only. However, employers may request the Ministry of Labor to review applications for foreign workers in restricted sectors if local expertise cannot be found; these requests have generally been approved. Local labor requirement in development and free zones varies based on the type of economic activity.
Labor unions serve primarily as intermediaries between workers and the Ministry of Labor (MOL) and may engage in collective bargaining on behalf of workers. The 17 recognized unions are all members of the General Federation of Jordanian Trade Unions. Estimates put union membership at less than 10 percent of the labor force. Additionally, there are 40 active professional associations, including many that have mandatory membership, in addition to 15 Independent Unions covering the rest of the professions and trades. According to official figures, about 30 percent of the total labor force, including government workers, belongs to either a union or a professional association. There is a labor mechanism in place for labor dispute resolution beginning with labor inspector mediation. If mediation fails, the Minister of Labor reviews the case, followed by the Conciliation Council, then finally by the Labor Court under the Magistrate and Penalty Court to resolve the case within seven days.
The labor law does not require employers to include retirement plans in employment packages. However, if the employer agreed to provide retirement benefits when the worker was contracted, the employer must fulfill that commitment. The law addresses layoffs to include require ministerial notification and guarantee of legitimate and entitled benefits and severance, but also allows firing without prior notice on certain conditions. Companies with the appropriate justification may obtain permission from the Ministry of Labor (MOL) to reduce their staff as a result of business restructuring. The social security system provides up to six months of unemployment benefits.
In 2017, Jordan introduced amendments to the labor law regarding flexible work hours and the provision of daycare; the amendments were passed by the lower house in March 2019, and are currently pending Senate approval. The amendments establish flexible work hour as agreements to be negotiated between employers and employees, but does not mandate them as an employee right. The current law governing daycare requires a businesses with at least 20 female employees with children between the age of one day and four years, to make daycare services available to the employees. The proposed amendments will require employers with employees, regardless of gender, that cumulatively have 15 or more children under the age of five years, to provide a suitable child care facility for them.
The government has been reforming and strengthening its legal framework and labor inspections since 2006. In 2010, Jordan fully implemented its Free Trade Agreement (FTA) with the United States, which requires Jordan to continuing making improvements on labor rights issues.
The Better Work Jordan program (BWJ), funded by the U.S. Department of Labor (USDOL), was launched in 2008 as a joint project between the Ministry of Labor, the International Labor Organization (ILO), and the International Finance Corporation to improve garment sector labor standards and conditions, and raise compliance levels through public reporting and technical assistance. In 2016, USDOL removed the Jordanian garment industry from its "List of Goods Produced by Child Labor or Forced Labor." As of December 2018, 86 garment factories were enrolled in the BWJ program. Following its successes, BWJ is expanding its mandate to cover manufacturing and industrial sectors in order to facilitate their obligations to the European Union's under newly relaxed rules-of-origin trade agreement requirements. At the end of 2018, 12 companies qualified to benefit from the simplified rules-of-origin initiative.
Investments in Jordan are eligible for Overseas Private Investment Corporation (OPIC) insurance and private financing. Projects require a minimum of 25 percent U.S. equity in order to qualify. Over the past several years, OPIC backed significant investments in Jordanian private equity ventures and in mortgage financing, with over USD 1 billion in investments in Jordan. OPIC is also active in financing projects in Jordan's burgeoning renewable energy sector. In 2011, OPIC signed a USD 250 million loan guarantee program and established, the Jordan Loan Guarantee Facility (JLGF) in partnership with USAID, as an inclusive finance activity aimed at improving access to finance for small and medium sized enterprises in Jordan. OPIC previously extended a USD 250 million loan to support the USD 1 billion Disi water project to bring water to Amman from the Disi aquifer in the south.
Jordan is a member of the Multilateral Investment Guarantee Agency (MIGA), a World Bank agency which guarantees investment against non-commercial risks such as civil war, nationalization, and policy changes. The program covers investments in Jordan irrespective of the investor's nationality in addition to Jordanian investments abroad.
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $40,824 2017 $40,068 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2017 $232 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Host country's FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2017 $72% 2017 83.7% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx
* Source for Host Country Data: Central Bank of Jordan, data published Q2 2018.
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries Amount 100% All Countries Amount 100% All Countries Amount 100%
USA 4,489 64% West Bank 225 33% USA 4337 69%
West Bank 976 13% USA 152 22% West Bank 751 12%
Luxemburg 373 5% Lebanon 128 19% Luxemburg 346 5%
Ireland 175 3% UK 53 8% Ireland 166 3%
UK 171 2% Cayman Island 46 7% Germany 153 2%
Source: http://data.imf.org/regular.aspx?key=60587812
Shaden Al-Majali
Senior Economic Specialist
Al Umawyeen Street-Amman
+962 (6) 590-6317
MajaliSA@state.gov
During 2018, the Saudi Arabian government (SAG) continued to pursue its ambitious series of socio-economic reforms, collectively known as "Vision 2030." Aimed at diversifying the Saudi economy away from oil revenues and creating more private sector jobs for a growing population, Vision 2030 contemplates the development of new economic sectors and a significant transformation of the economy. Spearheaded by Crown Prince Mohammed bin Salman, the reform program seeks to expand and sharpen the country's knowledge base, technical expertise, and commercial competitiveness.
To help accomplish these goals, Saudi Arabia seeks increased foreign investment and international participation in the Saudi private sector. To this end, the SAG took a number of steps in 2018 to improve the investment climate in the Kingdom. During 2018, the SAG established and reinforced a variety of institutions that facilitate investment in new segments of economic activity, such as the entertainment sector. These efforts led to the April 2018 opening of the first cinema in the Kingdom in over 35 years. Furthermore, as of June 2018, women are permitted to drive in the Kingdom, thereby facilitating increased female workforce participation and increased access to Saudi human capital resources. Improvements to infrastructure, such as the USD 23 billion Riyadh metro and the new Jeddah airport, also progressed during 2018 and will facilitate future economic activity. Additionally, the incorporation of Saudi Arabia's Tadawul Stock Exchange into the FTSE Russell Emerging Market Index in March 2019 resulted in sizeable foreign capital infusions into the Kingdom, which increased international interest in Saudi markets and economic sectors.
However, a number of high-profile SAG actions led to a negative impact on the investment climate in the Kingdom during 2018. Principal among these actions was the killing of journalist Jamal Khashoggi by Saudi government personnel on October 2, 2018, in Istanbul, Turkey. Subsequently, several U.S. and international investors withdrew or indefinitely put on hold plans to invest in the Kingdom. Other SAG actions in 2018 gave rise to additional investor concerns over rule of law, business predictability, and political risk in Saudi Arabia, such as the Kingdom's public dispute with Canada, the reported exclusion of German firms from certain Saudi government tenders, the arrest of prominent women's rights activists, the continued detention and prosecution of prominent Saudi businessmen under the anti-corruption campaign launched in November 2017, and the continuation of the diplomatic rift with Qatar.
In addition, U.S. and international stakeholders have continued to claim violations of their intellectual property rights in Saudi Arabia. U.S. and international pharmaceutical companies allege the SAG violated their intellectual property rights and the confidentiality of their trade data by licensing local firms to produce competing generic pharmaceuticals. Industry attempts to engage the SAG on these issues have not led to satisfactory outcomes for the companies. Furthermore, during 2018, an illicit satellite and online provider of sports and entertainment content known as "beoutQ" became widely available in the Kingdom. Despite SAG assurances of a crackdown on this unprecedented case of satellite piracy, as of February 2019, beoutQ set-top boxes were openly sold in public markets in Riyadh and the pirated satellite signal continued to beam U.S. and international-sourced entertainment and sports content.
Lastly, economic pressures to generate non-oil revenue and provide more jobs for Saudi citizens have prompted the SAG to implement measures that may weaken the country's investment climate. In particular, increased fees for expatriate workers and their dependents, as well as "Saudization" polices requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities and may lead to a decrease in domestic consumption levels.
World Bank's Doing Business Report 2019 92 of 190 http://www.doingbusiness.org/en/rankings
U.S. FDI in partner country ($M USD, stock positions) 2017 $11,085 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $20,090 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD
Policies Toward Foreign Direct Investment
Attracting foreign direct investment remains a critical component of the SAG's broader Vision 2030 program to diversify an economy overly dependent on oil and to create employment opportunities for a growing youth population. As such, the SAG seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and increases Saudi's non-oil exports. The government encourages investment in nearly all economic sectors, with priority given to transportation, health/biotechnology, information and communications technology (ICT), media/entertainment, industry (mining and manufacturing), and energy.
Saudi Arabia's economic reform programs are opening up new areas for potential investment. For example, in a country where most public entertainment was once forbidden, the SAG now regularly sponsors and promotes entertainment programming, including live concerts, dance exhibitions, sports competitions, and other public performances. Significantly, the audiences for many of those events are now gender-mixed, representing a larger consumer base. In addition to the reopening of cinemas in April 2018, the SAG hosted its first Formula E race in December 2018 in Riyadh, as well as the Saudi International Golf Tournament in Jeddah in early 2019 (a leg of the PGA European Tour).
The SAG is proceeding with "economic cities" and new "giga-projects" that are at various stages of development and welcomes foreign investment in them. These projects are large-scale and self-contained developments in different regions focusing on particular industries, e.g., technology, energy, tourism, and entertainment. Principal among these projects are:
Qiddiya, a new, large-scale entertainment, sports, and cultural complex near Riyadh;
King Abdullah Financial District, a USD 10 billion commercial center development in Riyadh;
Red Sea Project, a massive tourism development on the western Saudi coast, which aims to create 70,000 jobs and attract one million tourists per year.
Amaala, a wellness, healthy living, and meditation resort on the Kingdom's northwest coast, projected to include more than 2,500 luxury hotel rooms and 700 villas.
NEOM, a new USD 500 billion project to build a futuristic "independent economic zone" in northwest Saudi Arabia;
The Saudi Arabian General Investment Authority (SAGIA) governs and regulates foreign investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy. Established originally as a regulatory agency, SAGIA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guides and a catalogue of current investment opportunities on its website (www.sagia.gov.sa ).
Despite Saudi Arabia's overall welcoming approach to foreign investment, some structural impediments remain. Foreign investment is currently prohibited in 11 sectors, including:
Oil exploration, drilling, and production;
Catering to military sectors;
Security and detective services;
Real estate investment in the holy cities, Makkah and Medina;
Tourist orientation and guidance services for religious tourism related to Hajj and Umrah;
Recruitment offices;
Printing and publishing (subject to a variety of exceptions);
Certain internationally classified commission agents;
Services provided by midwives, nurses, physical therapy services, and quasi-doctoral services;
Fisheries; and
Poison centers, blood banks, and quarantine services.
(The complete "negative list" can be found at www.sagia.gov.sa .)
In addition to the negative list, older laws that remain in effect prohibit or otherwise restrict foreign investment in some economic subsectors not on the list, including some areas of healthcare. In 2018, Saudi Arabia began to allow foreign ownership in businesses providing services relating to road transportation, real estate brokerage, labor recruitment, and audiovisual display. At the same time, SAGIA has demonstrated some flexibility in approving exceptions to the "negative list" exclusions.
Foreign investors must also contend with increasingly strict localization requirements in bidding for certain government contracts, labor policy requirements to hire more Saudi nationals (usually at higher wages than expatriate workers), an increasingly restrictive visa policy for foreign workers, and gender segregation in business and social settings (though gender segregation is becoming more relaxed as the SAG introduces socio-economic reforms).
Additionally, in a bid to bolster non-oil income, the government implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures. The government implemented a value-added tax (VAT) in January 2018 at a rate of five percent, in addition to excise taxes implemented in June 2017 on cigarettes (at a rate of 100 percent), carbonated drinks (at a rate of 50 percent), and energy drinks (at a rate of 100 percent). In January 2018, the government also implemented new fees for expatriate employers ranging between USD 80 and USD 107 per employee per month, as well as increasing levies on expatriates with dependents amounting to a USD 54 monthly fee for each dependent. These expatriate fees are scheduled to increase every year through 2020. On January 1, 2018, the SAG also reduced previous subsidies on electricity and gasoline, which resulted in a doubling of residential electricity rates and an increase in price of gasoline by more than 80 percent.
Saudi Arabia fully recognizes rights to private ownership and the establishment of private business. As outlined above, the SAG excludes foreign investors from some economic sectors and places some limits on foreign control. With respect to energy, Saudi Arabia's largest economic sector, foreign firms are barred from investing in the upstream hydrocarbon sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. There is significant foreign investment in these sectors. ExxonMobil, Shell, China's Sinopec, and Japan's Sumitomo Chemical are partners with Saudi Aramco (the SAG's state-owned oil firm) in domestic refineries. ExxonMobil, Chevron, Shell, and other international investors have joint ventures with Aramco and/or the Saudi Basic Industries Corporation (SABIC) in large-scale petrochemical plants that utilize natural-gas feedstock from Aramco's operations. In Saudi Arabia's Eastern Province, the Dow Chemical Company and Aramco are partners in a USD 20 billion joint venture to construct, own, and operate the world's largest integrated petrochemical production complex.
With respect to other non-oil natural resources, the national mining company, Ma'aden, has a USD 12 billion joint venture with Alcoa for bauxite mining and aluminum production and a USD 7 billion joint venture with the leading American fertilizer firm Mosaic and SABIC to produce phosphate-based fertilizers.
Joint ventures almost always take the form of limited-liability partnerships, to which there are some disadvantages. Foreign partners in service and contracting ventures organized as limited-liability partnerships must pay, in cash or in kind, 100 percent of their contribution to authorized capital. SAGIA's authorization is only the first step in setting up such a partnership.
Professionals, including architects, consultants, and consulting engineers, are required to register with, and be certified by, the Ministry of Commerce and Investment (MCI), in accordance with the requirements defined in the Ministry's Resolution 264 from 1982. These regulations, in theory, permit the registration of Saudi-foreign joint-venture consulting firms. As part of its WTO accession commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. The requirement that law firms and engineering consulting firms must have a Saudi partner was rescinded in 2017. Foreign engineering consulting companies must have been incorporated for at least 10 years and have operations in at least four different countries to qualify. However, offices practicing accounting and auditing, architecture, or civil planning, or providing healthcare, dental, or veterinary services must still have a Saudi partner, and the foreign partner's equity cannot exceed 75 percent of the total investment.
In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair and computer reservation systems; wholesale, retail, and franchise distribution services (traditionally subject to minimum 25 percent local ownership and minimum 20 million Saudi riyal (USD 5.3 million) foreign investment); both basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, for example, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom, thereby removing the former 25 percent local ownership requirement. While some companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over USD 50 million during the first five years and ensure that 30 percent of all products sold are manufactured locally – have proven difficult to meet and precluded many investors from taking full advantage of the reform.
Saudi Arabia completed its second WTO trade policy review in late 2015, which included investment policy (https://www.wto.org/english/tratop_e/tpr_e/tp433_e.htm ).
In addition to applying for a license from SAGIA as described above, foreign and local investors must register a new business via the MCI, which has begun offering online registration services for limited liability companies at: http://www.mci.gov.sa/en . Though users may submit articles of association and apply for a business name within minutes on MCI's website, final approval from the ministry often takes a week or longer. Applicants must also complete a number of other steps in order to start a business, including obtaining a municipality (baladia) license for their office premises and registering separately with the Ministry of Labor and Social Development, Chamber of Commerce, Passport Office, Tax Department, and the General Organization for Social Insurance. From start to finish, registering a business in Saudi Arabia takes a foreign investor on average three to five months from the time an initial SAGIA application is complete, placing the country at 141 of 190 countries in terms of ease of starting a business, according to the World Bank (2019 rankings). With respect to foreign direct investment, the investment approval by SAGIA is a necessary, but not sufficient, step in establishing an investment in the Kingdom. There are a number of other government ministries, agencies, and departments regulating business operations and ventures.
Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom. The SAG established the Small and Medium Enterprises General Authority in 2015 to facilitate the growth of the SME sector. In 2016, the SAG released a new Companies Law designed in part to promote the development of the SME sector. The law allows one person, rather than the previous minimum of two, to form a corporation, though in very limited cases. It also substantially reduced the minimum capital and number of shareholders required to form a joint stock company (from five previously to two).
Saudi Arabia does not restrict domestic investors from investing abroad. Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments. The SAG is attempting to transform its Public Investment Fund (PIF), traditionally a holding company for government shares in state-controlled enterprises, into a major international investor and sovereign wealth fund. In 2016, the PIF made its first high-profile international investment by taking a USD 3.5 billion stake in Uber. The PIF has also announced a USD 400 million investment in Magic Leap, a Florida-based company that is developing "mixed reality" technology, and a USD 1 billion investment in Lucid Motors, a California-based electric car company. Saudi Aramco and SABIC are also major investors in the United States. In 2017, Aramco acquired full ownership of Motiva, the largest refinery in the United States, in Port Arthur, Texas. SABIC has announced a multi-billion dollar joint venture with ExxonMobil in a petrochemical facility in Texas.
Saudi Arabia has signed bilateral trade and investment agreements with over 20 countries. The United States and Saudi Arabia signed a Trade and Investment Framework Agreement (TIFA) in 2003, building upon a bilateral agreement on secured private investment with the United States that has been in place since February 1975. The United States and Saudi Arabia last held TIFA consultations in May 2018 in Washington, D.C.
Saudi Arabia is a founding member of the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates. While still under development, the GCC Customs Union formally ensures the free movement of labor and capital within the bloc. (Note: On June 5, 2017, Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt announced they were severing diplomatic relations with Qatar. The land border between the Kingdom and Qatar remains closed and there are no direct flights between the two countries.)
The GCC currently maintains free trade agreements (FTA) with Lebanon, Singapore, the European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein), and the Greater Arab Free Trade Area of 18 Arab countries. The GCC is in the process of negotiating additional FTAs with China, the European Union, New Zealand, and several other trade partners.
Saudi Arabia does not have a bilateral taxation treaty with the United States, though the country maintained double taxation agreements with more than 43 countries as of March 2019.
The corporate tax treatment in Saudi Arabia of foreign and domestic companies is imbalanced and favors Saudi companies and joint ventures with Saudi participation. The SAG imposes a flat 20 percent corporate tax rate on foreign investors. Saudi investors do not pay corporate income tax but are subject to a 2.5 percent tax, or "zakat," on net current assets.
Saudi Arabia received the lowest score possible (zero out of five) in the World Bank's 2018 Global Indicators of Regulatory Governance Report, which places the Kingdom in the bottom 13 countries among 186 countries surveyed (http://rulemaking.worldbank.org/ ). Few aspects of the SAG's regulatory system are entirely transparent, although Saudi investment policy is less opaque than other areas. Bureaucratic procedures are cumbersome but can generally be overcome with persistence. Foreign portfolio investment in the Saudi stock exchange is well-regulated by the Capital Markets Authority (CMA), with clear standards for interested foreign investors to qualify to trade on the local market. The CMA is progressively liberalizing requirements for "qualified foreign investors" to trade in Saudi securities. Insurance companies and banks whose shares are listed on the Saudi stock exchange are required to publish financial statements according to International Financial Reporting Standards (IFRS) accounting standards. All other companies are required to follow accounting standards issued by the Saudi Organization for Certified Public Accountants.
Stakeholder consultation on regulatory issues is inconsistent. Some Saudi organizations are scrupulous about consulting businesses affected by the regulatory process, while others tend to issue regulations with no consultation at all. Proposed laws and regulations are not always published in draft form for public comment. An increasing number of government agencies, however, solicit public comments through their websites. The processes and procedures for stakeholder consultation are not generally transparent or codified in law or regulations. There are no private-sector or government efforts to restrict foreign participation in the industry standards-setting consortia or organizations that are available. There are no informal regulatory processes managed by NGOs or private-sector associations.
Saudi Arabia uses technical regulations developed both by the Saudi Arabian Standards Organization (SASO) and by the Gulf Standards Organization (GSO). Although the GCC member states continue to work toward common requirements and standards, each individual member state, and Saudi Arabia through SASO, continues to maintain significant autonomy in developing, implementing, and enforcing technical regulations and conformity assessment procedures in its territory. More recently, Saudi Arabia has moved toward adoption of a single standard for technical regulations. This standard is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs).
Saudi Arabia's exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access barriers for industrial and consumer products exported from the United States. The United States government has engaged Saudi authorities on the principles for international standards per the WTO Technical Barriers to Trade Committee Decision and encouraged Saudi Arabia to adopt standards developed according to such principles in their technical regulations, allowing all products that meet those standards to enter the Saudi market. Several U.S.-based standards organizations, including SDOs and individual companies, have also engaged SASO, with mixed success, in an effort to preserve market access for U.S. products, ranging from electrical equipment to footwear.
A member of the WTO, Saudi Arabia notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
The Saudi legal system is derived from Islamic law, known as sharia. Saudi commercial law, meanwhile, is still developing. In 2016, Saudi Arabia took a significant step in improving its dispute settlement regime with the establishment of the Saudi Center for Commercial Arbitration (see "Dispute Settlement" below). Through its Commercial Law Development Program, the U.S. Department of Commerce provides capacity-building programs for Saudi stakeholders in the areas of contract enforcement, public procurement, and insolvency.
The Saudi Ministry of Justice oversees the sharia-based judicial system, but most ministries have committees to rule on matters under their jurisdictions. Judicial and regulatory decisions can be appealed. Many disputes that would be handled in a court of law in the United States are handled through intra-ministerial administrative bodies and processes in Saudi Arabia. Generally, the Saudi Board of Grievances has jurisdiction over commercial disputes between the government and private contractors. The Board also reviews all foreign arbitral awards and foreign court decisions to ensure that they comply with sharia. This review process can be lengthy, and outcomes are unpredictable.
The Kingdom's record of enforcing judgments issued by courts of other GCC states under the GCC Common Economic Agreement, and of other Arab League states under the Arab League Treaty, is somewhat better than enforcement of judgments from other foreign courts. Monetary judgments are based on the terms of the contract – i.e., if the contract is calculated in U.S. dollars, a judgment may be obtained in U.S. dollars. If unspecified, the judgment is denominated in Saudi riyals. Non-material damages and interest are not included in monetary judgments, based on the sharia prohibitions against interest and against indirect, consequential, and speculative damages.
As with any investment abroad, it is important that U.S. investors take steps to protect themselves by thoroughly researching the business record of a proposed Saudi partner, retaining legal counsel, complying scrupulously with all legal steps in the investment process, and securing a well-drafted agreement. Even after a decision is reached in a dispute, enforcement of a judgment can still take years. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.
ICSID Convention and New York Convention
The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. Saudi Arabia is also a member state of the International Center for the Settlement of Investment Disputes Convention (ICSID), though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis. Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.
The use of any international or domestic dispute settlement mechanism within Saudi Arabia continues to be time-consuming and uncertain, as all outcomes are subject to a final review in the Saudi judicial system and carry the risk that principles of sharia law may potentially supersede a judgment or legal precedent. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.
Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially supersede any foreign judgments or legal precedents. Even after a decision is reached in a dispute, effective enforcement of the judgment can take a long period of time. In several cases, disputes have caused serious problems for foreign investors. For instance, Saudi partners and creditors have blocked foreigners' access to or right to use exit visas, forcing them to remain in Saudi Arabia against their will. In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication of the case. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.
In recent years, the SAG has demonstrated a commitment to improving the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms. Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take too long to litigate. In 2012, the SAG updated certain provisions in Saudi Arabia's domestic arbitration law, paving the way for the establishment of the Saudi Center for Commercial Arbitration (SCCA) in 2016. Developed in accordance with international arbitration rules and standards, including those set by the American Arbitration Association's International Centre for Dispute Resolution and the International Chamber of Commerce's International Court of Arbitration, the SCCA offers comprehensive arbitration services to firms both domestic and international. The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. However, it is currently too early to assess the quality and effectiveness of SCCA proceedings, as the SCCA is still in the early stages of operation. Awards rendered by the SCCA can be enforced in local courts, though judges remain empowered to reject enforcement of provisions they deem noncompliant with sharia law.
In December 2017, the United Nations Commission on International Trade Law (UNCITRAL) recognized Saudi Arabia as a jurisdiction that has adopted an arbitration law based on the 2006 UNCITRAL Model Arbitration Law. While Saudi Arabia adopted this law in 2012, UNCITRAL did not consider it as a model law jurisdiction due to the SAG's reference to sharia's supremacy over UNCITRAL-adopted provisions. After discussions between UNCITRAL representatives and Saudi judges, during which the Saudi judges clarified that sharia would not affect the enforcement of foreign arbitral awards, UNCITRAL added Saudi Arabia to the list of model law jurisdictions. The potential impact of the decision is that foreign investors and companies in Saudi Arabia have slightly more certainty that their arbitration agreements and awards will be enforced, as in other UNCITRAL countries. Whether (and how) Saudi courts will apply this latest interpretation of the relationship between foreign arbitral awards and sharia law remains to be seen.
In January 2019, the Saudi government established the Foreign Trade General Authority (FTGA), which aims to strengthen Saudi Arabia's non-oil exports and investment, increase the private sector's contribution to foreign trade, and resolve obstacles encountered by Saudi exporters and investors. The new authority will also monitor the Kingdom's obligations under international trade agreements and treaties, negotiate and enter into new international commercial and investment agreements, and represent the Kingdom before the World Trade Organization. The Governor of the Foreign Trade General Authority will report to the Minister of Commerce and Investment.
Until the FTGA becomes operational (possibly later in 2019), MCI and SAGIA remain the primary Saudi government entities responsible for formulating policies regarding investment activities, proposing plans and regulations to enhance the investment climate in the country, and evaluating and licensing investment proposals.
Despite the list of activities excluded from foreign investment (see "Policies Toward Foreign Direct Investment"), foreign minority ownership in joint ventures with Saudi partners may be allowed in some of these sectors. Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities. They are allowed to transfer money from their enterprises out of the country and can sponsor foreign employees, provided that "Saudization" quotas are met (see "Labor Section" below). Minimum capital requirements to establish business entities range from zero to 30 million Saudi riyals (USD 8 million), depending on the sector and the type of investment.
SAGIA offers detailed information on the investment process, provides licenses and support services to foreign investors, and coordinates with government ministries to facilitate investment. According to SAGIA, it must grant or refuse a license within five days of receiving an application and supporting documentation from a prospective investor. SAGIA has established and posted on-line its licensing guidelines, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the bureaucratic licensing process.
SAGIA licenses foreign investments by sector, each with its own regulations and requirements: (i) services, which comprise a wide range of activities including, IT, healthcare, and tourism; (ii) industrial, (iii) real estate, (iv) public transportation, (v) entrepreneurial, (vi) contracting, (vii) audiovisual media, (viii) science and technical office, (ix) education (colleges and universities), and (x) domestic services employment recruitment. SAGIA also offers several special-purpose licenses for bidding on and performance of government contracts. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at SAGIA's discretion. Depending on the type of license issued, foreign firms may also require the approval of relevant competent authorities, such as the Ministry of Health or the Saudi Commission for Tourism and National Heritage.
An important SAGIA objective is to ensure that investors do not just acquire and hold licenses without investing, and SAGIA sometimes cancels licenses of foreign investors that it deems do not contribute sufficiently to the local economy. SAGIA's periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.
SAGIA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment. These agreements permit SAGIA to facilitate the granting of visas, establish SAGIA branch offices at Saudi embassies in different countries, prolong tariff exemptions on imported raw materials to three years and on production and manufacturing equipment to two years, and establish commercial courts. To make it easier for businesspeople to visit the Kingdom, SAGIA can sponsor visa requests without involving a local company. Saudi Arabia has implemented a decree providing that sponsorship is no longer required for certain business visas. While SAGIA has set up the infrastructure to support foreign investment, many companies report that despite some improvements, the process remains cumbersome and time-consuming.
SAGIA and the Ministry of Commerce and Investment review transactions for competition-related concerns. Concerns have arisen that allegations of price fixing for certain products, including infant nutrition products, may have been used on occasion as a pretext to control prices. The Ministry of Commerce and Investment has looked to the GCC's reference pricing approach on subsidized products to assist the SAG in determining market-price suggested norms.
Saudi competition law prohibits certain vertically-integrated business combinations. Consequently, companies doing business in Saudi Arabia may find it difficult to register exclusivity clauses in distribution agreements, but are not necessarily precluded from enforcing such clauses in Saudi courts.
The Embassy is not aware of any cases in Saudi Arabia of expropriation from foreign investors without adequate compensation. Some small- to medium-sized foreign investors, however, have complained that their investment licenses have been cancelled without justification, causing them to forfeit their investments.
Potential investors should note that the "Resolving Insolvency" indicator most negatively affects Saudi Arabia's World Bank "Doing Business" ranking.
However, in February 2018, the SAG announced the approval of new bankruptcy legislation, which became effective in August 2018. According to the SAG, the new bankruptcy law seeks to "further facilitate a healthy business environment that encourages participation by foreign and domestic investors, as well as local small and medium enterprises." The new law clarifies procedural processes and recognizes distinct creditor classes (e.g., secured creditors). The new law also includes procedures for continued operation of the distressed company via financial restructuring. Alternatively, the parties may pursue an orderly liquidation of company assets, which would be managed by a court-appointed licensed bankruptcy trustee. Saudi courts have begun to accept and hear cases under this new legislation.
SAGIA advertises a number of financial advantages for foreigners looking to invest in the Kingdom, including the lack of personal income taxes and a corporate tax rate of 20 percent on foreign companies' profits. SAGIA also lists various SAG-sponsored, regional, and international financial programs to which foreign investors have access, such as the Arab Fund for Economic and Social Development, the Arab Trade Financing Program, and the Islamic Development Bank.
The Saudi Industrial Development Fund (SIDF), a government financial institution established in 1974, supports private-sector industrial investments by providing medium- and long-term loans for new factories and for projects to expand, upgrade, and modernize existing manufacturing facilities. The SIDF offers loans of 50 percent to 75 percent of a project's value, depending on the project's location. Foreign investors that set up manufacturing facilities in developed areas (Riyadh, Jeddah, Dammam, Jubail, Mecca, Yanbu, and Ras Al-Khair), for example, can receive a 15-year loan for up to 50 percent of a project's value; investors in the Kingdom's least developed areas can receive a 20-year loan for up to 75 percent of the project's value. The SIDF also offers consultancy services for local industrial projects in the administrative, financial, technical and marketing fields. (The SIDF's website is at https://www.sidf.gov.sa/en/Pages/default.aspx .)
The SAG offers several incentive programs to promote employment of Saudi nationals. The Saudi Human Resources Development Fund (HRDF) (https://www.hrdf.org.sa/), for example, will pay 30 percent of a Saudi national's wages for the first year of work, with a wage subsidy of 20 percent and 10 percent for the second and third year of employment, respectively (subject to certain limits and caps).
American and other foreign firms are able to participate in SAG-financed and/or -subsidized research-and-development programs. Many of these programs are run though the King Abdulaziz City for Science and Technology (KACST), which funds many of the Kingdom's R&D programs.
Saudi Arabia does not operate free trade zones or free ports. However, as part of its Vision 2030 program, the SAG has announced it will create special zones with special regulations to encourage investment and diversify government revenues. The SAG is discussing the establishment of special regulatory zones in certain areas, including at the NEOM giga-project, and the King Abdullah Financial District project in Riyadh.
Saudi Arabia has established a network of "economic cities" as part of the country's efforts to diversify away from oil. Overseen by SAGIA, these four economic cities aim to provide a variety of advantages to companies that choose to locate their operations within the city limits, including in matters of logistics and ease of doing business. The four economic cities are: King Abdullah Economic City near Jeddah, Prince AbdulAziz Bin Mousaed Economic City in north-central Saudi Arabia, Knowledge Economic City in Medina, and Jazan Economic City near the southwest border with Yemen. The cities are in various states of development, and their future development potential is unclear, given competing Vision 2030 economic development projects.
The Saudi Industrial Property Authority (MODON) oversees the development of 35 industrial cities, including some still under development. MODON offers incentives for commercial investment in these cities, including competitive rents for industrial land, government-sponsored financing, export guarantees, and certain customs exemptions. (MODON's website is at https://www.modon.gov.sa/en/Pages/default.aspx .)
The Royal Commission for Jubail and Yanbu (RCJY) was formed in 1975 and established the industrial cities of Jubail, located in eastern Saudi Arabia on the Gulf coast, and Yanbu, located in north western Saudi Arabia on the Red Sea coast. A significant portion of Saudi Arabia's refining, petrochemical, and other heavy industries are located in the Jubail and Yanbu industrial cities. The RCJY's mission is to plan, promote, develop, and manage petrochemicals and energy intensive industrial cities. In connection with this mission, RCJY promotes investment opportunities in the two cities and can offer a variety of incentives, including tax holidays, customs exemptions, low cost loans, and favorable land and utility rates. More recently, the RCJY has assumed responsibility for managing the Ras Al Khair City for Mining Industries (2009) and the Jazan City for Primary and Downstream Industries (2015). (The RCJY's website is at https://www.rcjy.gov.sa).
The government does not impose systematic conditions on foreign investment. For example, there are no requirements to locate in a specific geographic area (except for some restrictions on the distribution of retail outlets and the location of industrial activities). Investors are not required to export a certain percentage of output. There is no requirement that the share of foreign equity be reduced over time. Investors are not required to disclose proprietary information to the SAG as part of the regulatory approval process, except where issues of health and safety are concerned.
Although investors have not been required heretofore to purchase from local sources, the situation is changing. In line with its bid to diversify the economy and provide more private sector jobs for Saudi nationals, the SAG has embarked upon a broad effort to source goods and services domestically and is seeking commitments from investors to do so. In 2017, the Council of Economic and Development Affairs (CEDA) established the Local Content and Private Sector Development Unit (NAMAA in Arabic) to promote local content and improve the balance of payments. NAMAA is responsible for monitoring and implementing regulations, suggesting new policies, and coordinating with the private sector on all local content matters.
Government-controlled enterprises are also increasingly introducing local content requirements for foreign firms. Aramco's "In-Kingdom Total Value Added" program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco's percentage of locally-manufactured energy-related goods and services to 70 percent by 2021.
In the defense sector, Saudi Arabia's military is in the process of reforming its procurement processes and policies to incorporate new ambitious goals of Saudi employment and localized production. The SAG has shifted over the last two years away from offsets in favor of "localization" of purchases of goods and services and "Saudization" of the labor force. Previously, the government required offsets in investments equivalent to up to 40 percent of a program's value for defense contracts, depending on the value of the contract. The SAG is currently mandating increasingly strict localization requirements for government contracts in the defense sector. The SAG's Vision 2030 program calls for 50 percent of defense materials to be produced and procured locally by 2030, and simultaneously seeks comparable increases in the number of Saudis employed in this sector.
The government encourages recruitment of Saudi employees through a series of incentives (see section 11 on "Labor Policies" for details of the "Saudization" program) and limits placed on the number of visas for foreign workers available to companies. The Saudi electronic visitor visa system defaults to five-year visas for all U.S. citizen applicants. "Business visas" are routinely issued to U.S. visitors who do not have an invitation letter from a Saudi company; the visa applicant must provide evidence that he or she is engaged in legitimate commercial activity. "Commercial visas" are issued by invitation from Saudi companies to applicants who have a specific reason to visit a Saudi company.
In the fall of 2016, the SAG implemented a series of significant visitor fee increases for expatriates whose countries do not have reciprocity agreements with Saudi Arabia, doubling the cost of a single-entry business visit visa to USD 533. (U.S. citizens are exempt from such increases on the basis of reciprocity.) The SAG also imposed higher exit and reentry visa fees for all foreign workers residing in the Kingdom, including U.S. citizens. Furthermore, in January 2018, the SAG implemented new fees for expatriate employers ranging between USD 80 and USD 107 per employee per month and increased levies on expatriates with dependents to a USD 54 monthly fee for each dependent (see section 11 on "Labor Policies"). In January 2019, fees on expatriate employees increased to between USD 133 to USD 160 per month, and levies on expatriate dependents increased to USD 80 per month. These fees are scheduled to increase again in 2020, but no additional increases are planned at this time.
There are no requirements for foreign IT providers to turn over source code or provide access to encryption. Other than a requirement to retain records locally for ten years for tax purposes, there is no requirement regarding data storage or access to surveillance.
The Saudi legal system protects and facilitates acquisition and disposition of all property, consistent with Islamic practice of upholding private property rights. Non-Saudi corporate entities are allowed to purchase real estate in Saudi Arabia in accordance with the foreign-investment code. Other foreign-owned corporate and personal property is protected by law. Saudi Arabia has a system of recording security interests, and plans to modernize its land registry system. Saudi Arabia ranked 24th out of 190 countries for ease of registering property in the 2019 World Bank Doing Business Report.
In 2017, the Saudi Ministry of Housing implemented an annual vacant land tax of 2.5 percent of the assessed value on vacant lands in urban centers in an attempt to spur development. Additionally, in January 2018, in an effort to increase Saudis' access to finance and stimulate the mortgage and housing markets, Saudi Arabia's central bank lifted the maximum loan-to-value rate for mortgages for first-time homebuyers to 90 percent from 85 percent, and increased interest payment subsidies for first-time buyers. This further liberalized stringent down-payment requirements that prevailed up to 2016, when the central bank raised the maximum loan-to-value rate from 70 percent to 85 percent.
In the last two decades, Saudi Arabia undertook a comprehensive revision of its laws governing intellectual property rights (IPR) to bring them in line with the WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs); the changes were promulgated in coordination with the World Intellectual Property Organization (WIPO). The SAG updated its Trademark Law (2002), Copyright Law (2003), and Patent Law (2004) with the dual goals of TRIPs compliance and effective deterrence against IPR violations.
Saudi Arabia was included on USTR's Special 301 "Priority Watch List" in April 2019 following an increase in the number of stakeholder complaints about the protection of IPR in the Kingdom, particularly with respect to pharmaceuticals, rampant digital and signal piracy, software, and counterfeit goods.
Recent steps by the Saudi Food and Drug Authority (SFDA) to license locally-manufactured, cheaper generic versions of patent-pending drugs within their five year regulatory data protection period have created significant concern among U.S. industry stakeholders, who allege commercial loss resulting from this abrogation of their patent and data protection rights. Additionally, in 2017, the SFDA granted a license to a local generic pharmaceutical manufacturer for an innovative treatment developed by a U.S. pharmaceutical company that had filed for patent protection with the GCC patent office. According to the U.S. pharmaceutical and biologics industry, the SFDA's failure to recognize the patent and protect the data constitutes a serious breach of intellectual property rights.
During 2018, an illicit broadcast and streaming service called "beoutQ" became widely available in Saudi Arabia. beoutQ is suspected of satellite and online piracy, as well as supporting piracy devices and related services, such as apps that allow access to unlicensed movies and television productions, including sports events.
U.S. software firms report that the Saudi government continues to use unlicensed and "under-licensed" (in which an insufficient number of licenses is procured for the total number of users) software on government computer systems in violation of their copyrights. Other concerns include the lack of seizure and destruction of counterfeit goods in enforcement actions by MCI, and limits on the ability of MCI to enter facilities suspected of involvement in the sale or manufacture of counterfeit goods, including facilities located in residential areas.
The Saudi government is in the process of reorganizing its IPR agencies and centralizing responsibility for all IPR matters in the new Saudi Authority for Intellectual Property (SAIP). SAIP's Board of Directors held its first meeting in March 2018 under the chairmanship of the Minister of Commerce and Investment. SAIP also signed a Memorandum of Understanding in September 2018 with the U.S. Patent and Trademark Office. SAIP's objective is to ensure the unification and integration of IPR in Saudi Arabia. SAIP is expected to prepare a new national IPR strategy and oversee its implementation.
Resources for Rights Holders
Embassy point of contact:
Brian Barone
Economic Officer
+966 11 488-3800 Ext. 4140
Email: BaroneBA@state.gov
Regional IPR Attache:
Pete C. Mehravari
U.S. Intellectual Property Attache for Middle East and North Africa
U.S. Embassy Kuwait | U.S. Department of Commerce
Office: +965 2259-1455
Email: Peter.mehravari@trade.gov
Saudi Arabia's financial policies generally facilitate the free flow of private capital, while currency can be transferred in and out of the Kingdom without restriction. Saudi Arabia maintains an effective regulatory system governing portfolio investment in the Kingdom. The Capital Markets Law, passed in 2003, allows for brokerages, asset managers, and other nonbank financial intermediaries to operate in the Kingdom. The law created a market regulator, the Capital Market Authority (CMA), which was established in 2004, and opened the Saudi stock exchange (Tadawul) to public investment.
Prior to 2015, the CMA only permitted foreign investors to invest in the Saudi stock market through indirect "swap arrangements," through which foreigners had accumulated ownership of one per cent of the market. In June 2015, the CMA opened the Tadawul to "qualified foreign investors," but with a stringent set of regulations that only large financial institutions could meet. Since 2015, the CMA has progressively relaxed the rules applicable to qualified foreign investors, easing barriers to entry and expanding the foreign investor base. The CMA adopted regulations in 2017 permitting corporate debt securities to be listed and traded on the exchange; in March 2018, the CMA authorized government debt instruments to be listed and traded on the Tadawul. The Tadawul was incorporated into the FTSE Russell Emerging Markets Index as of March 2019, resulting in an initial foreign capital injection of approximately USD 700 million. This was the first of five staged capital infusions over the next 12 months totaling USD 6.8 billion. Separately, the USD 11 billion infusion into the Tadawul from integration into the MSCI Emerging Markets Index will take place in two tranches beginning in May 2019.
The banking system in the Kingdom is generally well-capitalized and healthy. The public has easy access to deposit-taking institutions. The legal, regulatory, and accounting systems used in the banking sector are generally transparent and consistent with international norms. The Saudi Arabian Monetary Authority (SAMA), the central bank, which oversees and regulates the banking system, generally gets high marks for its prudential oversight of commercial banks in Saudi Arabia. SAMA is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.
The SAG has authorized increased foreign participation in its banking sector over the last several years. SAMA has granted licenses to a number of foreign banks to operate in the Kingdom, including Deutsche Bank, J.P. Morgan Chase N.A., and Industrial and Commercial Bank of China (ICBC). A number of additional, CMA-licensed foreign banks participate in the Saudi market as investors or wealth management advisors. Citigroup, for example, returned to the Saudi market in early 2018 under a CMA license.
Credit is normally widely available to both Saudi and foreign entities from commercial banks and is allocated on market terms. The Saudi banking sector has one of the world's lowest non-performing loan (NPL) ratios, in the range of 1.5 per cent for 2017. In addition, credit is available from several government institutions, such as the SIDF, which allocate credit based on government-set criteria rather than market conditions. Companies must have a legal presence in Saudi Arabia in order to qualify for credit. The private sector has access to term loans, and there have been a number of corporate issuances of sharia compliant bonds, known as sukuk.
There is no limitation in Saudi Arabia on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs, other than certain withholding taxes (withholding taxes range from five percent for technical services and dividend distributions to 15 percent for transfers to related parties, and 20 percent or more for management fees). Bulk cash shipments greater than USD 10,000 must be declared at entry or exit points. Since 1986, when the last currency devaluation occurred, the official exchange rate has been fixed by SAMA at 3.75 Saudi riyals per U.S. dollar. Transactions typically take place using rates very close to the official rate.
Saudi Arabia is one of the largest remitting countries in the world, with roughly 75 percent of the Saudi labor force comprised of foreign workers. Remittances totaled approximately USD 39 billion in 2018. There are currently no restrictions on converting and transferring funds associated with an investment (including remittances of investment capital, dividends, earnings, loan repayments, principal on debt, lease payments, and/or management fees) into a freely usable currency at a legal market-clearing rate. There are no waiting periods in effect for remitting investment returns through normal legal channels.
The Ministry of Labor and Social Development is progressively implementing a "Wage Protection System" designed to verify that expatriate workers, the predominant source of remittances, are being properly paid according to their contracts. Under this system, employers are required to transfer salary payments from a local Saudi bank account to an employee's local bank account, from which expatriates can freely remit their earnings to their home countries.
In 2017, SAMA enhanced and updated its previous Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing. The enhanced guidelines have increased alignment with the Financial Action Task Force (FATF) 40 Recommendations, the nine Special Recommendations on Terrorist Financing, and relevant UN Security Council Resolutions. Saudi Arabia is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). In 2015 Saudi Arabia obtained observer status to the FATF and is seeking full membership in the organization.
The Public Investment Fund (PIF, www.pif.gov.sa ) is the Kingdom's officially designated sovereign wealth fund. While PIF lacks many of the attributes of a traditional sovereign wealth fund, it has evolved into the SAG's primary investment vehicle.
Established in 1971 to channel oil wealth into economic development, the PIF has historically been a holding company for government shares in partially privatized state-owned enterprises (SOEs), including SABIC, the National Commercial Bank, Saudi Telecom Company, and others. Crown Prince Mohammed bin Salman is the chairman of the PIF and announced his intention in April 2016 to build the Fund into a USD 2 trillion global investment fund, relying in part on proceeds from a potential initial public offering of up to five percent of Saudi Aramco shares.
Since that announcement, the PIF has made a number of high-profile international investments, including a USD 3.5 billion investment in Uber, a commitment to invest USD 45 billion into Japanese SoftBank's VisionFund, a commitment to invest USD 20 billion into U.S. Blackstone's Infrastructure Fund, a USD 1 billion investment in U.S. electric car company Lucid Motors, and a partnership with cinema company AMC to operate movie theaters in the Kingdom. Under the Vision 2030 reform program, the PIF is financing a number of strategic domestic development projects, including: "NEOM," a new USD 500 billion project to build an "independent economic zone" in northwest Saudi Arabia; "Qiddiya," a new, large-scale entertainment, sports, and cultural complex near Riyadh; "the Red Sea Project", a massive tourism development on the western Saudi coast; and "Amaala," a wellness, healthy living, and meditation resort also located on the Red Sea.
As of early 2019, the PIF had an investment portfolio valued at approximately USD 250-260 billion, mainly in shares of state-controlled domestic companies. In an effort to rebalance its investment portfolio, the PIF has divided its assets into six investment pools comprising local and global investments in various sectors and asset classes: Saudi holdings; Saudi sector development; Saudi real estate and infrastructure development; Saudi giga-projects; international strategic investments; and an international diversified pool of investments. The PIF has ambitions to achieve USD 600 billion in assets under management by 2020.
In practice, SAMA's foreign reserve holdings also operate as a quasi-sovereign wealth fund, accounting for the majority of the SAG's foreign assets. SAMA invests the Kingdom's surplus oil revenues primarily in low-risk liquid assets, such as sovereign debt instruments and fixed-income securities. SAMA's foreign reserves stood at approximately USD 497 billion at the end of 2018. Total reserves increased by approximately USD 165 million in 2018, after falling USD 39.4 billion and USD 80.6 billion in 2017 and 2016, respectfully. SAMA's foreign reserve holdings peaked at USD 746 billion in mid-2014.
Though not a formal member, Saudi Arabia serves as a permanent observer to the International Working Group on Sovereign Wealth Funds.
SOEs play a leading role in the Saudi economy, particularly in water, power, oil, natural gas, petrochemicals, and transportation. Saudi Aramco, the world's largest producer and exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 100 percent SAG-owned, and its revenues typically contribute the majority of the SAG's budget. Five of the eleven representatives on Aramco's board of directors are from the SAG, including the chairman and vice chairman. The SAG announced a plan for an initial public offering (IPO) of up to five percent of Aramco shares in 2018, but the IPO has been delayed. The SAG claims the company is valued at USD 2 trillion, which would make a five percent IPO the largest in history. Saudi Aramco has announced it will acquire SABIC, Saudi Arabia's leading petrochemical company, which is 70 percent owned by the SAG. Five of the nine representatives on SABIC's board of directors are from the SAG, including the chairman and vice chairman. The SAG is similarly well-represented in the leadership of other SOEs. The SAG either wholly owns or holds controlling shares in many other major Saudi companies, such as the Saudi Electricity Company, Saudi Arabian Airlines (Saudia), the Saline Water Conversion Company, Ma'aden (mining), and the National Commercial Bank and other leading financial institutions.
Saudi Arabia has undertaken a limited privatization process for state-owned companies and assets dating back to 2002. The process, which is open to domestic and foreign investors, has resulted in partial privatizations of state-owned enterprises in the banking, mining, telecommunications, petrochemicals, water desalination, insurance, and other sectors.
As part of Vision 2030 reforms, the SAG has announced its intention to privatize additional sectors of the economy. Privatization is a key element underpinning the Vision 2030 goal of increasing the private sector's contribution to GDP from 40 percent to 65 percent by 2030. In April 2018, the SAG launched a Vision 2030 Privatization Program that aims to: strengthen the role of the private sector by unlocking state-owned assets for investment, attract foreign direct investment, create jobs, reduce government overhead, improve the quality of public services, and strengthen the balance of payments. (The full Privatization Program report is available online at http://vision2030.gov.sa/en/ncp .) The program report references a range of approaches to privatization, including: full and partial assets sales, initial public offerings, management buy-outs, public-private partnerships (build-operate-transfer models), concessions, and outsourcing. The SAG aims to create 10,000-12,000 jobs and generate USD 9-USD 11 billion in non-oil revenue by 2020 through the Privatization Program. While the Privatization report outlines the general guidelines for the Program, it does not include an exhaustive list of assets to be privatized. The report does, however, reference education, healthcare, transportation, renewable energy, power generation, waste management, sports clubs, grain silos, and water desalination facilities as prime areas for privatization or public-private partnerships.
In 2017, Saudi Arabia established the National Center for Privatization and Public Private Partnerships, which will oversee and manage the Privatization Program. (The Center's website is at http://www.ncp.gov.sa/en/pages/home.aspx .) The NCCP's mandate is to introduce privatization through the development of programs, regulations, and mechanisms for facilitating private sector participation in entities now controlled by the government.
There is a growing awareness of corporate social responsibility (CSR) in Saudi Arabia. The King Khalid Foundation issues annual "responsible competitiveness" awards to companies doing business in Saudi Arabia for outstanding CSR activities.
Foreign firms have identified corruption as a barrier to investment in Saudi Arabia. Saudi Arabia has a relatively comprehensive legal framework that addresses corruption, but many firms perceive enforcement as selective. The Combating Bribery Law and the Civil Service Law, the two primary Saudi laws that address corruption, provide for criminal penalties in cases of official corruption. Government employees who are found guilty of accepting bribes face 10 years in prison or fines of up to one million riyals (USD 267,000). Ministers and other senior government officials appointed by royal decree are forbidden from engaging in business activities with their ministry or organization. Saudi corruption laws cover most methods of bribery and abuse of authority for personal interest, but not bribery between private parties. Public officials are not subject to financial disclosure laws. Some officials have engaged in corrupt practices with impunity, and perceptions of corruption persist in some sectors.
On November 4, 2017, King Salman issued a royal decree forming a new Supreme Anti-Corruption Committee. The SAG subsequently detained approximately 200 government officials, businesspersons, and royal family members as part of the anti-corruption campaign. The royal decree exempted committee members – which included the Crown Prince, attorney general, chairman of the National Anticorruption Commission ("Nazaha"), chief of the General Audit Bureau, chairman of the Saudi Monitoring and Investigation Commission, and head of the State Security Presidency – from "all laws, regulations, instructions, orders, and decisions" that would impede anticorruption efforts. Some of the detainees reportedly negotiated financial settlements in exchange for their release. In January 2018, the attorney general announced that the SAG had collected more than USD 100 billion in various types of assets, including real estate, commercial entities, securities, cash, and other assets as part of its anti-corruption campaign. In January 2019, the Saudi government announced the end of the anti-corruption campaign.
The Supreme Anti-Corruption Committee, National Anticorruption Commission/Nazaha, the Public Prosecutor's Office, and the Control and Investigation Board are units of the government with authority to investigate reports of criminal activity, corruption, and "disciplinary cases" involving government employees. These bodies are responsible for investigating potential cases and referring them to the administrative courts.
Nazaha, established in 2011, is responsible for promoting transparency and combating all forms of financial and administrative corruption. Nazaha's ministerial-level director reports directly to the King. Nazaha refers cases of possible public corruption to the Public Prosecutor's Office. Some evidence suggests the organization has not shied away from prosecuting influential players whose indiscretions may previously have been ignored. In 2016, for example, it referred the Minister of Civil Service for investigation over allegations of abuse of power and nepotism. In November 2016, Nazaha announced it found irregularities in the appointment of the minister's son to the Ministry of Municipal and Rural Affairs. The Commission regularly publishes news of its investigations on its website (http://www.nazaha.gov.sa/en/Pages/Default.aspx ).
The Control and Investigation Board is responsible for investigating financial and administrative malfeasance, and the Public Prosecutor's Office has the lead on all criminal investigations. The General Auditing Bureau is also charged with combating corruption, as is the Human Rights Commission, which responds to and researches complaints of corruption.
SAMA, the central bank, oversees a strict regime to combat money laundering. Saudi Arabia's Anti-Money Laundering Law provides for sentences up to 10 years in prison and fines up to USD 1.3 million. The Basic Law of Governance contains provisions on proper management of state assets and authorizes audits and investigation of administrative and financial malfeasance.
The Government Tenders and Procurement Law regulates public procurements, often a source of corruption. The law provides for public announcement of tenders and guidelines for the award of public contracts. Saudi Arabia is an observer of the WTO Agreement on Government Procurement (GPA). Although Saudi Arabia committed to initiate negotiations for accession to the WTO GPA when it became a WTO Member in 2005, it has not yet begun those negotiations.
Saudi Arabia ratified the UN Convention against Corruption in April 2013 and signed the G20 Anti-Corruption Action Plan in November 2010.
Globally, Saudi Arabia ranks 58th out of 180 countries in Transparency International's Corruption Perceptions Index 2018.
The National Anti-Corruption Commission's address is:
National Anti-Corruption Commission
P.O. Box (Wasl) 7667, Al Olaya – Ghadir District
Riyadh 2525-13311
The Kingdom of Saudi Arabia
E-mail: info@nazaha.gov.sa
Nazaha accepts complaints about corruption through its website http://www.nazaha.gov.sa or mobile application.
Saudi Arabia is a monarchy ruled by King Salman bin Abdulaziz Al Saud. The King's son, Crown Prince Mohammed bin Salman, has assumed a central role in government decision-making. The Department of State regularly reviews and updates a travel advisory to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. As of March 2019, the Travel Advisory for Saudi Arabia urges U.S. citizens to exercise increased caution when traveling to Saudi Arabia due to terrorism and the threat of missile and drone attacks on civilian targets. The Travel Warning notes that terrorist groups continue plotting possible attacks in Saudi Arabia and that terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets/shopping malls, and local government facilities. In the past, terrorists have targeted both Saudi and Western government interests, mosques and other religious sites (both Sunni and Shia), and places frequented by U.S. citizens and other Westerners. Additionally, Houthi rebel groups operating in Yemen have fired missiles and rockets into Saudi Arabia, targeting populated areas and civilian infrastructure, and have publicly stated their intent to continue to do so. Missile attacks have targeted major cities such as Riyadh and Jeddah, Riyadh's international airport, Saudi Aramco facilities, and vessels in Red Sea shipping lanes. The Houthi rebel groups are also in possession of unmanned aerial systems (drones), which they have used to target civilian infrastructure and military facilities in Saudi Arabia. U.S. citizens living and working on or near such installations, particularly in areas near the border with Yemen, are at heightened risk of missile and drone attack.
Please visit https://travel.state.gov/ for further information, including the latest Travel Advisory.
The Ministry of Labor and Social Development sets labor policy and, along with the Ministry of Interior, regulates recruitment and employment of expatriate labor, which makes up a majority of the private-sector workforce. About 75 percent of total jobs in the country are held by expatriates, who number roughly 12.6 million out of a total population of approximately 33.4 million. The largest groups of foreign workers come from India, Pakistan, Bangladesh, Egypt, the Philippines, and Yemen. Saudis occupy about 96 percent of government jobs, but only about 25 percent of the total jobs in the Kingdom. Over one-third of Saudi nationals are employed in the public sector.
Saudi Arabia's General Authority for Statistics estimates unemployment at 6.0 percent for the total population and 12.8 percent for Saudi nationals (Q3 2018 figures), but these figures mask a high youth unemployment rate, a Saudi female unemployment rate of 30.9 percent, and low Saudi labor participation rates (42.0 percent overall;19.7 percent for women). With approximately 60 percent of the Saudi population under the age of 30, job creation for new Saudi labor market entrants will prove a serious challenge for a number of years.
The SAG encourages Saudi employment through "Saudization" policies that place quotas on employment of Saudi nationals in certain sectors, coupled with limits placed on the number of visas for foreign workers available to companies. In 2011, the Ministry of Labor and Social Development laid out a sophisticated plan known as Nitaqat, under which companies are divided into categories, each with a different set of quotas for Saudi employment based on company size. Reforms enacted in 2017 refine the program to incentivize further the employment of women, individuals with disabilities, and managerial and high-wage positions. Each company is determined to be in one of four strata based on its actual percentage of Saudi employees, with platinum and green strata for companies meeting or exceeding the quota for their sector and size, and yellow and red strata for those failing to meet it. Expatriate employees in red and yellow companies can move freely to green or platinum companies, without the approval of their current employers, and green and platinum companies have greater privileges with regard to securing and renewing work permits for expatriates.
Over the past few years, the SAG has taken additional measures to strengthen the Nitaqat program and expand the scope of Saudization to require the hiring of Saudi nationals. The Ministry of Labor and Social Development has mandated that certain job categories in specific economic sectors only employ Saudi nationals, beginning with mobile phone stores in 2016. The ministry has since broadened the policy to include car rental agencies, retail sales jobs in shopping malls, and other sectors. The ministry has likewise mandated that only Saudi women can occupy retail jobs in certain businesses that cater to female customers, such as lingerie and cosmetics shops. In 2017, the Ministry of Labor and Social Development began to phase in rules forbidding employment of foreigners in retail sales positions in 12 sectors, including: watches, eyewear, medical equipment and devices, electrical and electronic appliances, auto parts, building materials, carpets, cars and motorcycles, home and office furniture, children's clothing and men's accessories, home kitchenware, and confectioneries. Because many retail shops in sectors subject to Saudization are owned and operated by expatriates, these policies have resulted in numerous store closures across the country. Many elements of Saudization and Nitaqat have garnered criticism from the private sector, but the SAG claims these policies have substantially increased the percentage of Saudi nationals working in the private sector over the last several years, despite near-record unemployment levels.
In 2017, the Ministry of Labor and Social Development and the Ministry of Interior launched the latest phase of an ongoing campaign to deport illegal and improperly documented workers. Furthermore, in January 2018, the SAG implemented new fees for expatriate employers (ranging between USD 80 and USD 107 per employee per month), as well as increased levies on expatriates with dependents (a USD 54 monthly fee for each dependent). In January 2019, fees on expatriate employees increased to between USD 133 to USD 160 per month, and levies on expatriate dependents increased to USD 80 per month. These fees are scheduled to increase again in 2020, but no additional increases are planned at this time. The combination of Saudization and Nitaqat policies, new expatriate fees, increased visa and entry/exit permit fees, the new VAT, and other measures that have raised the cost of living, has prompted approximately 1.5 million expatriates to depart the Kingdom over the past two years. These measures have also significantly increased labor costs for employers, both Saudi and foreign alike.
Saudi Arabia's labor laws forbid union activity, strikes, and collective bargaining. However, the government allows companies that employ more than 100 Saudis to form "labor committees" to discuss work conditions and grievances with management. In 2015, the SAG published 38 amendments to the existing labor law with the aim of expanding Saudi employees' rights and benefits. Domestic workers are not covered under the provisions of the latest labor law; separate regulations covering domestic workers were issued in 2013, stipulating employers provide at least nine hours of rest per day, one day off a week, and one month of paid vacation every two years.
Saudi Arabia has taken significant steps to address labor abuses, but weak enforcement continues to result in credible reports of employer violations of foreign employee labor rights. In some instances, foreign workers and particularly domestic staff encounter employer practices (including passport withholding and non-payment of wages) that constitute trafficking in persons. The Department's annual Trafficking in Persons Report details concerns about labor law enforcement within Saudi Arabia's sponsorship system is available at: https://www.state.gov/trafficking-in-persons-report/
Overtime is normally compensated at time-and-a-half rates. The minimum age for employment is 14. The SAG does not adhere to the International Labor Organization's convention protecting workers' rights. Non-Saudis have the right to appeal to specialized committees in the Ministry of Labor and Social Development regarding wage non-payment and other issues. Penalties issued by the ministry include banning infringing employers from recruiting foreign and/or domestic workers for a minimum of five years.
The U.S. Overseas Private Investment Corporation (OPIC) ceased operating in Saudi Arabia in 1995 due to the SAG's failure to take steps to adopt and implement laws that extend internationally recognized workers' rights to its labor force. Saudi Arabia has been a member of the Multilateral Investment Guarantee Agency since April 1988.
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $686,738 2017 $686,738 www.worldbank.org/en/country
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2017 $11,085 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Host country's FDI in the United States ($M USD, stock positions) N/A N/A 2017 $14,055 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2017 32.8% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx
* Source for Host Country Data: Saudi General Authority for Statistics
According to the 2018 UNCTAD World Investment Report, Saudi Arabia's total FDI inward stock was $232.2 billion and total FDI outward stock was $79.6 billion (in both cases, as of 2017).
Detailed data for inward direct investment (below) is as of 2010, which is the latest available breakdown of inward FDI by country.
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment* Outward Direct Investment
Total Inward $169,206 100% Data not available
Kuwait $16,761 10%
France $15,918 9%
Japan $13,160 8%
United Arab Emirates $12,601 7%
China, P.R.: Mainland $9,035 5%
"0" reflects amounts rounded to +/- USD 500,000.
*Source: IMF Coordinated Direct Investment Survey (2010 – latest available complete data)
All Countries $156,967 100% All Countries $95,897 100% All Countries $61,069 100%
United States $55,449 35.3% United States $42,602 44.4% United States $12,847 21.0%
Japan $15,730 10.0% Japan $11,406 11.9% U.A.E. $5,522 9.0%
U.K. $9,934 6.3% China P.R. $6,980 7.3% U.K. $5,061 8.3%
China P.R. $7,435 4.7% U.K. $4,874 5.1% Japan $4,324 7.1%
France $6,119 3.9% Korea DPR $3,487 3.6% Germany $2,890 4.7%
Source: IMF's Coordinated Portfolio Investment Survey (CPIS); data as of December 2017.
Economic Section and Foreign Commercial Service Offices
Phone: +966 11 488-3800
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