April 15, 2018

SAGIA Adopts the ISIC Classification on Foreign Investment Licenses

As part of the National Transformation Plan and Vision 2030, the government authorities in the Kingdom of Saudi Arabia are collectively working on improving the investment environment by applying international commercial standards. The Saudi Arabian General Investment Authority has recently announced the adoption of International Standard Industrial Classification of all economic activities for the issuance of Foreign Investment Licenses. This article outlines the objectives and scope of these new standards for the Kingdom of Saudi Arabia.

The Saudi government authorities are collectively working on improving the investment environment by applying international commercial standards

The Saudi Arabian General Investment Authority (SAGIA) has recently adopted the International Standard Industrial Classification of all economic activities (ISIC) for the issuance of new Foreign Investment Licenses (FIL). The implementation of the ISIC was announced by Mr. Ibrahim Saleh Al Suwail, the Deputy Governor of SAGIA, on 1 January 2018 and came into effect at the beginning of 2018.  As part of the National Transformation Plan (NTP) and Vision 2030, the government authorities in the Kingdom of Saudi Arabia (KSA) are collectively working on improving the investment environment by applying international commercial standards to facilitate the current operations of businesses and attract more foreign investments in the KSA market 

SAGIA and the General Authority for Statistics (GAFS) have created and organised the National Classification for Economic Activities in accordance with the fourth edition of the ISIC and the applied investment regulations in the KSA (KSA ISIC Standards), with the aim to collect reports on these economic activities and produce data to be shared at the national and international levels. The GAFS and SAGIA are hoping that the KSA ISIC Standards will assist in providing a comprehensive range of activities for foreign investments and accurate statistical data in connection with the production, employment, wages, budgets and assets of operating businesses in the market.

The KSA ISIC Standards outlines the approved and restricted activities to be provided by foreign investments. Here are some of the key details to take into consideration.    

Objectives

The main objectives of applying the ISIC classification on all FILs include the following:

  1. providing wide range of business activity choices;
  2. having clear and specific licensing standards by SAGIA on an international level;
  3. monitoring the licensed business activities through the ISIC codes;
  4. monitoring the performance of companies in order to support, strengthen and increase their growth in the market;
  5. implementing international standards adopted and recognised by various countries around the world;
  6. assisting SAGIA and the GAFS in collecting the required reports and statistical data for the purposes of improving the KSA investment environment; and
  7. applying unified standard licensing system to be followed by all the competent KSA government authorities.

Scope

The KSA ISIC Standards will be applied on all foreign investments entering the KSA market for the first time and the newly issued FILs for current businesses in Saudi Arabia. However, companies with previously issued FILs (prior to the implementation of the KSA ISIC Standards) will not be required to amend or modify the same and should carry their operations according to the formerly licensed activities.

KSA ISIC Standards Codes

The ISIC classifies and subdivides the activities into four structural levels as follows:

  1. Level one: identifies the name of the section;
  2. Level two: identifies the division of the activity;
  3. Level three: identifies the group of the activity; and
  4. Level four: identifies the class of the activity.

Accordingly, the selected activities for each FIL should fall within the same section, division, group and class. In cases where the activities are not classified under one section, the foreign investor may request to combine the activities provided that:

  1. they all must be classified under the same area of practice; and

  2. the requested activities must be recorded in the foreign investor's certificate of incorporation that granted him the right to engage in its line of business in the originating jurisdiction.

KSA ISIC Standards & Investment Market

New investors planning to enter the KSA market will now be able to consider the available set of commercial activities under the KSA ISIC Standards, and modeling them to fit their potential operations in the KSA.  Whereas in the past, the licensed activities were subject to SAGIA's internal non-transparent licensing procedures.

For further details regarding the implication of the KSA ISIC Standards on your current or potential investments in the KSA, please do not hesitate to contact us.