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March 2015: New Changes at the Conditions/Structures for Practicing Contracting in Saudi Arabia

Guiding Principle

The Saudi Arabian General Investment Authority (SAGIA) has issued a new edition of its guide for obtaining a foreign investment license in Saudi Arabia on March 2015. Amongst others, several changes were implemented regulating the conditions for practicing contracting by foreign investors in the Kingdom. The Contracting Sector is one of the prominent sectors in Saudi Arabia that attracts large percentage of the foreign investment. Accordingly, SAGIA is always keen to develop the relevant conditions aiming to raise the quality of the executed projects.

A. Foreign Investment Guide

The Saudi Arabian General Investment Authority (SAGIA) issued a new edition of its investment guide on March 2015. SAGIA issues/amends this guide infrequently, being one of its tasks as stipulated in Article 14 of the Implementing Regulation of the Saudi Foreign Investment Law[1]. The guide includes the procedures for obtaining the investment license and the necessary information for non-Saudi investors in addition to the granted incentives, benefits and guarantees.

In this context, new conditions/structures were imposed/introduced for practicing contracting by foreign investors in the Kingdom..

B. Contracting Market in Saudi Arabia

The Contracting Sector,  being one of the prominent sectors in Saudi Arabia that attracts large percentage of the foreign investment to the Kingdom was recently estimated to be valued up to USD 300 billion. This estimation takes into account the diversity of the size of the infrastructure projects to be implemented in 2015. Other enhancements to the estimate is the entrance of the newly established Ministry of Housing to this field through constructing the housing units,  as well as train projects and the development of many airports.

C. New Conditions for Contracting

In an effort to constantly, raise the quality of the projects executed in Saudi Arabia. SAGIA works frequently on developing the conditions for practicing contracting.

The new May 2015 edition of SAGIA’s investment guide includes the following conditions and new structures for foreign investors desiring to practice or currently practicing contracting:

1. Temporary License to Apply for Governmental Tenders

As per the new guidelines, entities – meeting certain conditions – desiring to be qualified by SAGIA to apply for tenders of the government projects are able to present an application to procure a temporary license, which enables them to apply for the tenders of government projects.

The issued license is valid for one year; thereafter the entity shall obtain a further temporary license valid for the whole period of the contract if the project was awarded to them.

2. Three Years Temporary Contra-cting Investment License

On the other hand, entities, desiring to enter the market through a permanent subsidiary, shall initially obtain a temporary contracting license valid for three years.

After the lapse of the initial period of three years, the subsidiary shall either renew the license for a further period of three years or transfer the license to a permanent license renewable annually. The license may be transferred to a permanent license after obtaining a classification certificate from the Saudi Ministry of Municipal and Rural Affairs or after meeting certain financial and technical requirements as follows:

  • Having no less than four managers at the subsidiary;
  • Having no less than twelve engineers, at least 50% of them are Saudi nationals;
  • Having heavy equipment no less than seven equipment;
  • Executing five projects with financial value no less than Saudi Riyals 50 million[2] during the first three years;
  • The total value of the assets are no less than Saudi Riyals 10 million;
  • The total income is no less than Saudi Riyals 20 million for the last financial year.
April, 2015 Hany Kenawi
Meyer-Reumann & Partners, Riyadh Office

[1]        The Saudi Arabian Foreign Investment Statute (law), promulgated by the Royal Decree No. M/1 dated 05.01.1421 A.H. corresponding to 10.04.2000 G, published at the official gazette “Um Al-Qura” No. 3792 dated 01.02.1421 A.H. corresponding to 05.05.2000 G, in force as of 01.03.1421 A.H. corresponding 03.06.2000 G, abbreviation (“SA-FIL”).

[2]        €1 = S.R. 4.16, for updated rates kindly visit http://www.xe.com/

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