Sources of Saudi Arabian Law

Saudi Arabia’s legal system is primarily based on Sharia principles as derived from the Holy Quran and Sunnah. In Islamic law there are four main schools of jurisprudence, namely: hanbali; hanafi; shafi; and maliki. The hanbali school of jurisprudence predominantly influences judicial decision-making in Saudi Arabia.

Saudi Arabian judges have significant and broad discretion due to varying interpretations of Sharia, which may lead to nuanced rulings on similar matters. While there is no doctrine of binding precedent, significant efforts are underway to codify elements of Sharia to standardise judgments, enhance outcome predictability and modernise the legal framework.

Statutory law enacted through Royal Decrees, Ministerial Decisions, Ministerial Resolutions, departmental circulars, and other pronouncements, supplement Sharia law in areas such as commercial law, investment law, and labour law. Key legislative examples include the Companies Law, the Commercial Transactions Law, the Capital Market Law and the Labour Law.

Regulatory agencies, such as the Ministry of Investment (the “MISA”) and the Capital Markets Authority (the “CMA”), oversee specific legal and regulatory functions.

Judicial Structure

There are a number of courts and judicial committees in Saudi Arabia which have jurisdiction with different types of claims. Disputes are generally heard before the general Islamic Law Courts of Saudi Arabia (the “Islamic Law Courts” or “General Courts”) unless jurisdiction for a particular type of dispute is awarded to another court or judicial committee. The Islamic Law Courts consider disputes in the light of Islamic law, and, within the different schools of Islamic jurisprudence, they generally follow the hanbali school of jurisprudence. Disputes of a general commercial nature are heard before the Commercial Courts. The judicial framework is tiered as follows.

• Sharia Courts: handle most civil and criminal cases of the Saudi Arabian legal system and apply Islamic law. The Sharia Courts are organised into several categories: Courts of the First Instance (Summary and General Courts), Courts of Cassation and the Supreme Judicial Council.
• Administrative Courts (Board of Grievances): supplementing the Sharia Courts is the Board of Grievances, which hears cases that involve the government, and resolves disputes involving the government and public law. The Board of Grievances is an independent administrative judicial body reporting directly to the King with its seat in the capital, Riyadh.
• Commercial Courts: established under the Commercial Courts Law to adjudicate disputes involving business and commercial transactions. These courts are designed to handle disputes that arise within commercial transactions and issues related to trade and business activities.
• Specialised committees: the Saudi Arabian court system also consists of various committees within government ministries that address specific areas of disputes, including banking disputes, securities conflicts, labour issues, and insurance disputes. For example, the Committee for Resolution of Securities Disputes (the “CRSD”) handles matters relating to capital markets and the General Secretariat of Zakat, Tax and Customs Committee handles matters related to zakat, tax and customs.

Previous decisions of the courts and judicial committees of Saudi Arabia are not considered to establish a binding precedent for decisions of later cases. However, there seems to be a gradual collation of decisions of these committees in order to achieve transparency and uniformity. Under Saudi Arabian law, only a court in its application of the law will finally determine the appropriate adjudicating forum for the dispute, notwithstanding the contractual election of the parties to the agreement.

Jurisdictional clauses that purport only to give certain parties the option to choose a forum for adjudication are unlikely to be upheld on grounds of unfairness. However, a specific provision in an agreement assigning jurisdiction to a particular court or judicial committee will strengthen the argument for the named court or judicial committee to assume jurisdiction over the agreement.

Proceedings in the courts and judicial committees of Saudi Arabia are conducted exclusively in Arabic. An action in the courts and judicial committees of Saudi Arabia may be brought on a document executed in a language other than Arabic if an Arabic translation thereof, certified by an authorised translator, is submitted to the courts or judicial committees. In this event, notwithstanding anything in a document or instrument, the Arabic text would prevail over the English text.

Foreign direct investment (FDI) in Saudi Arabia is regulated primarily by the MISA. Under the existing framework and legal provisions, FDI requires the review and approval of certain local authorities, and specific processes are in place to ensure compliance with Saudi Arabian laws and Vision 2030 objectives. Key regulatory institutions play pivotal roles in promoting economic stability, investment, and international standards, together, providing a robust regulatory landscape.

Regulatory Authorities and Their Jurisdiction

The MISA

All foreign entities intending to establish a business presence in Saudi Arabia must first obtain a foreign investment licence from the MISA. This applies to various business structures, including limited liability companies (LLCs) and joint stock companies (JSCs). The MISA licences activities based on the International Standard Industrial Classification (ISIC), to ensure that foreign entities operate within approved sectors. Certain sectors are restricted for FDI under a Negative List maintained by the MISA, including oil exploration, Hajj and Umrah services, and military manufacturing. However, the List will be updated under a new Investment Law, allowing exceptions with specific approvals.

Zakat, Tax, and Customs Authority (ZATCA)

The ZATCA oversees the tax regulatory framework for Saudi Arabia including zakat, corporate income tax, withholding tax (WHT), excise tax, customs duty, real estate transaction tax (RETT), VAT, double taxation agreements (DTAs), WTO laws, and transfer pricing regulations. The ZATCA is also instrumental in FDI tax and customs incentives related to for instance, Saudi Arabia’s regional headquarters (RHQ) programme, special economic zones (SEZs), and integrated logistics bonded zones (ILBZs).

CMA

The CMA regulates and develops the Saudi Arabian capital market by issuing required rules and regulations for implementing the provisions of the Saudi Arabian Capital Market Law, fostering transparency and disclosure standards in all listed companies, and protecting investors from illegal acts in the capital market. The CMA also oversees the Saudi Arabian Stock Exchange (the “Tadawul”) and supervises the issuance and trading of securities to promote fair markets. The CMA also licences and monitors financial intermediaries, including brokers and asset managers, ensuring their compliance with regulatory standards. In addition, the CMA plays a role in developing the Saudi Arabian capital market by supporting public offerings and enhancing market infrastructure.

Saudi Arabian Central Bank (SAMA)

The Saudi Arabian Central Bank, also known as SAMA, is a financially and administratively independent legal entity headquartered in Riyadh and reports directly to the King. Its operations are aimed at maintaining monetary stability, ensuring financial sector stability, and fostering economic growth for Saudi Arabia. SAMA is responsible for issuing, regulating, and safeguarding the Saudi Riyal, formulating and executing monetary policies, managing foreign currency reserves, and regulating the currency exchange market. SAMA also oversees and regulates banks, finance companies, credit bureaus, payment systems, and fintech platforms. It also implements measures to combat financial crimes, including money laundering.

General Authority for Competition (GAC)

The GAC has the authority to approve mergers or acquisitions after reviewing and examining the “economic concentration” aspect resulting from the transaction. Please see 3.2 Regulation of Domestic M&A Transactions for more information on the GAC.

Certain Sectors Subject to Additional Regulations in Saudi Arabia

Saudi Arabia’s regulatory framework also imposes specific restrictions and tailored requirements on key sectors to safeguard national interests, promote Vision 2030 priorities, and ensure strategic alignment with economic and cultural objectives. Some examples are set out below.

Commercial agencies

Under the Saudi Arabian Commercial Agencies Law, non-Saudi Arabian individuals and entities are prohibited from operating as commercial agents. This restriction mandates that only Saudi-owned companies, with 100% Saudi capital, may engage in commercial agency activities. Additionally, members of the board of directors and authorised signatories of these companies must be Saudi Arabian nationals, ensuring complete domestic control over the operations.

The Saudi Arabian Ministry of Commerce and Industry oversees this process and determines the specific timeframes and conditions for each agent.

Real estate

Ownership of real estate in the holy cities of Mecca and Medina is restricted to Saudi Arabian nationals and Gulf Cooperation Council (GCC) citizens only. This limitation extends to foreign companies or individuals, even when represented through local entities. However, foreign investors may engage in real estate projects outside these areas, subject to regulatory approval and oversight by local government entities. Real estate investment funds and trusts may offer alternative structures for foreign participation in this sector.

Strategic projects

Certain sectors deemed vital to national security and economic growth, including renewable energy, defence, and healthcare, are heavily regulated. These industries often require pre-approval from sector-specific regulatory bodies, such as the Ministry of Defence or the Ministry of Energy.

Saudi Arabia’s recent legal reforms aim to enhance its business environment and attract foreign investment. The new Investment Law, effective in 2025, replaces the MISA licensing system with a streamlined national registry, equalising treatment for foreign and domestic investors.

The new Companies Law, enacted in December 2022, modernises corporate governance and shareholder rights, introducing new corporate structures, formalising shareholder agreements (SHAs), and allowing flexibility in share classes for JSCs. It also strengthens shareholder protections including mechanisms for mergers, acquisitions, and remedies against mismanagement.

The Saudi Arabian Civil Transactions Law (the “CTL”) codifies over 700 articles to govern contracts, obligations, and property rights. Rooted in Sharia principles, the law prioritises fairness and practicality, applying retroactively to harmonise past and future agreements. Key provisions include prioritising intent over literal interpretation and ensuring debts remain until fully paid, bringing clarity and consistency to civil dealings.

Complementary initiatives, such as the RHQ programme and the Anti-Concealment Law, further strengthen the business landscape. The RHQ programme attracts multinational corporations with tax incentives and exclusive government contracting opportunities, while the Anti-Concealment Law ensures market transparency by targeting hidden economic arrangements. These reforms position Saudi Arabia as a central hub for international business in the MENA region.

Saudi Arabia offers a dynamic legal and regulatory environment for structuring business transactions, with the most common options being share acquisitions, asset acquisitions, and joint ventures (JVs). In some cases, a principal-agent relationship can also be considered.

These structures allow investors to design their entry into the Saudi Arabian market based on sectoral regulations, foreign ownership laws, and the unique needs of their business. The choice of structure for these transactions, whether a share purchase, asset purchase, or JV, depends on various legal, tax, and operational considerations.

Share Purchase Deals

The majority of private transactions in Saudi Arabia are structured as share purchase deals, in which the buyer acquires the share capital of the target company from the seller for an agreed consideration under a share purchase agreement. This approach is preferred for its simplicity and continuity of business and avoids the need to transfer or reapply for licences, permits, or employment sponsorships. However, one of the key considerations in share acquisitions is the potential assumption of existing liabilities, including tax and labour considerations. As such, due diligence is critical to identifying these risks, as they may influence the valuation and final structure of the transaction.

Asset Purchase Deals

Asset purchases involve acquiring specific assets and liabilities from the target company. An asset purchase is often used when the buyer wishes to exclude certain liabilities or focus on particular business operations, such as acquiring a single factory or line of business. For foreign investors interested in acquiring specific business lines, assets, or intellectual property (IP), asset acquisitions may be a preferred option. Unlike share acquisitions, asset deals allow buyers to selectively acquire assets and avoid inheriting liabilities associated with the target company.

JVs

JVs are a common alternative structure in Saudi Arabia, particularly when the transaction involves partnerships between Saudi Arabian and foreign entities or when a foreign investor seeks to enter a regulated sector or leverage local expertise. The JV structure also allows parties to share resources, expertise, and risk. In regulated sectors, a JV structure may be necessary to meet foreign ownership restrictions.

Registered Commercial Agent Deals

Entering the Saudi Arabian market through a commercial agent relationship is an approach commonly used where a foreign investor seeks to access Saudi Arabia’s growing consumer base with speed, efficiency, and no direct presence. This arrangement is governed by the Commercial Agencies Law, which mandates that only Saudi Arabian nationals or entities wholly owned by Saudi Arabian nationals can act as commercial agents or distributors. In terms of the Saudi Arabian Commercial Agencies Law, a non-Saudi person, whether natural or legal, may not operate as a commercial agent in the Kingdom.

Investments in Public Companies

Public merger and acquisition transactions and other capital market transactions in Saudi Arabia are governed by the CMA’s Merger and Acquisition Regulations, which were substantially updated in 2017. These Regulations prioritise disclosure, transparency, procedural compliance, fairness, equitable treatment for shareholders, investor protection, and the integrity of financial markets in Saudi Arabia.

Compliance and Penalties

The CMA imposes strict penalties for non-compliance. For example, failing to notify the CMA or obtain transaction approval from the CMA may result in fines calculated based on a percentage of annual revenue or profits gained through non-compliance. The Capital Market Law also empowers the CMA to mandate corrective actions such as divestment or impose monetary sanctions.

Tax Implications for Transaction Structures

Tax considerations play a significant role in determining the appropriate transaction structure in Saudi Arabia. For example, in asset deals, any gains realised by the seller from the sale of movable assets are generally subject to corporate income tax at 20% under Saudi Arabian tax law, and the transfer of assets may be subject to VAT, unless considered as “out of scope” of VAT based on a transfer of a going concern (TOGC). Real estate will also be subject to RETT unless an exemption is applicable. Share deals may also trigger capital gains upon sale of shares, or RETT where the company is regarded as a “property company” under the RETT Law.

The Saudi Arabian competition framework is primarily governed by the Law of Competition (the “Competition Law”) and its associated regulations, which applies to both domestic transactions, and cross-border transactions that have a nexus to Saudi Arabia. The GAC serves as the regulatory body responsible for overseeing compliance, ensuring market fairness, and addressing anti-competitive practices. Transactions that lead to “economic concentration” and exceed specified market thresholds must secure approval from the GAC prior to completion.

Thresholds Triggering Merger Control Notifications

Merger control under the Competition Law requires mandatory notification to the GAC for transactions constituting an “economic concentration” if the following cumulative thresholds are met:

• combined annual turnover of the parties exceeds SAR200 million globally;
• annual turnover of the target entity(ies) exceeds SAR40 million worldwide; or
• combined annual turnover of the parties within Saudi Arabia exceeds SAR40 million.

Notably, transactions resulting in a JV or substantial market influence within Saudi Arabia may also require filings, depending on the “economic concentration” and turnover thresholds. In cases where a new JV is formed, a filing would be necessary where the worldwide turnover of the parties exceeds SAR200 million, and if the JV is a “full function” JV.

Merger Control Process and Timeframes

The Competition Law mandates pre-approval for merger and acquisition transactions. Parties must submit their notification at least 90 calendar days prior to the completion of the transaction. This timeframe may not be extended unless the GAC explicitly requires additional information or documentation. The suspensory nature of this regime prohibits parties from completing the transaction until approval is granted to avoid associated penalties.

Exemptions and Special Circumstances

Certain transactions are exempt from merger control notification requirements under the Competition Law.

Anti-Competitive Practices

The Competition Law prohibits a wide array of anti-competitive behaviours that harm consumer welfare or market efficiency, including price-fixing; collusion; market allocation; abuse of dominance; and exclusionary conduct obstructing market access, etc.

Penalties for Non-Compliance

The GAC imposes penalties for violations of merger control obligations. These include fines of up to 10% of the total annual sales value or SAR10 million when sales cannot be determined. Alternatively, the GAC may impose fines up to three times the profit derived from the violation. Violators may also face annulment of their transactions, mandatory divestiture or other corrective orders.

Additional Approvals

Additionally, certain industries require specific regulatory review and approval due to their strategic importance. For example, transactions in the telecommunications sector are subject to oversight by the Communications, Space, and Technology Commission (the “CSTC”), which governs matters related to public telecommunications networks, satellite communications, and related infrastructure. Similarly, transactions in the energy and utilities sector may require approval from entities such as the Electricity and Co-Generation Regulatory Authority (the “ECRA”), ensuring compliance with national policies and security considerations.

Saudi Arabia has recently established a robust corporate governance framework aiming to align with international best practices. The regulatory framework governing corporate governance is multifaceted, encompassing statutory laws, sector-specific guidelines, and adherence to Sharia principles.

Corporate Governance Under the Saudi Arabian Companies Law

One of the most significant changes introduced by the new Companies Law has been the codification of the fiduciary duties of company managers and their accountability for any breach of those duties. A whole standalone chapter in the law is dedicated to this, aimed at encouraging healthy corporate governance practices more closely aligned to international standards.

Board of Directors’ Responsibility Under the Companies Law

The Companies Law outlines detailed responsibilities and requirements for the board of directors in companies. It mandates that JSCs have a board of directors consisting of at least three members, and that the board has a balanced mix of executive, non-executive, and independent directors. The Companies Law and its Implementing Regulations codify the fiduciary responsibilities of managers and board members, ensuring they act in the company’s best interest. They are required to act objectively, with impartiality and diligence, ensuring the company’s growth, continuity, and maximisation of value for shareholders. Managers and directors must avoid conflicts of interest, disclose potential conflicts transparently, and refrain from exploiting their position for personal gain.

See 4.2 Relationship Between Companies and Minority Investors for further discussions.

Transparency and Disclosure Requirements

Listed companies are required to publish financial statements that comply with International Financial Reporting Standards (IFRS). These statements must be audited and made available on the Tadawul website. Listed companies are obligated to disclose any material developments that may affect their financial position or stock performance, such as mergers, acquisitions, or significant legal actions.

Corporate Forms in Saudi Arabia

Businesses can operate through various corporate forms under the Saudi Arabian framework. The key forms available under the Companies Law are as follows.

General partnership

A general partnership requires a minimum of two partners. All partners share equal responsibility for management unless otherwise stipulated in the memorandum of association. The liability of the partners is joint and several, extending to the full extent of their personal assets.

Limited partnership

This structure involves at least one general partner and one limited partner. General partners bear unlimited liability and are responsible for the partnership’s management, while limited partners are only liable to the extent of their capital contributions and are restricted to internal management roles. This structure is suitable for investors seeking limited exposure to liabilities.

Single shareholder limited liability company (LLC)

A single shareholder LLC is a versatile option allowing sole ownership. The shareholder’s liability is limited to the extent of their capital contribution, and the company must have at least one manager. This structure offers simplicity and control for individual investors or small-scale businesses.

LLCs

LLCs are the most commonly used corporate structure for private companies in Saudi Arabia. They require between two and 50 shareholders and at least one manager. Shareholders’ liability is limited to their capital contributions, offering significant risk protection. LLCs provide operational flexibility while maintaining limited liability for all participants.

JSC

A JSC is a corporate entity suitable for larger businesses, particularly those intending to raise capital through public or private offerings. It requires a minimum of two shareholders (one if the share capital exceeds SAR5 million) and at least three directors. Shareholder liability is limited to the value of their subscribed shares. JSCs must maintain a minimum share capital of SAR500,000.

Simplified joint stock company (SJSC)

The SJSC is designed to meet the needs of start-ups and venture capital initiatives. It requires a minimum of two shareholders and one director. There is no minimum share capital requirement, and liability is limited to the value of subscribed shares.

Branch

A branch is considered a part of its parent entity and does not have a separate legal personality in Saudi Arabia. It does, however, have to follow the Companies Law insofar as it would apply to it.

Public companies are primarily regulated by the Companies Law, the Capital Market Law, and the Corporate Governance Regulations (the “CGR”) issued by the CMA. These laws and regulations establish protections for minority shareholders to ensure their rights are upheld within public companies. Generally, the CGR provides the following rights to all shareholders.

• Right to receive profits either in cash or through the issuance of shares.
• Guaranteed right to company assets upon liquidation according to their share.
• The right to participate in general or special shareholder assemblies and deliberations, and vote on their resolutions.
• The right to freely dispose of their shares in line with the provisions of the Companies Law, the Capital Market Law, and their Implementing Regulations.
• The right to enquire and request access to the company’s books, documents, and information regarding its activities, operations, and investment strategies. This is subject to ensuring no prejudice to the company’s interests or breach of applicable laws. The board must provide shareholders with complete, clear, accurate, and non-misleading information at appropriate times, ensuring the information is regularly updated.
• The right to monitor the company’s performance and the activities of its board of directors. The board is responsible for fostering effective communication with shareholders, aligning the company’s strategic objectives and interests with shareholder input.
• The chairman and CEO must inform board members of shareholders’ opinions and facilitate discussions regarding these views.
• The right to hold board members accountable, initiate liability lawsuits against them, and appeal for nullification of resolutions made by the general or special shareholders assemblies.
• Pre-emptive rights to subscribe to new shares issued for cash unless otherwise stipulated in the company’s by-laws or suspended by the extraordinary general assembly.
• Have their names recorded in the company’s shareholders register.
• Request a copy of the company’s articles of association and by-laws unless these documents are published on the company’s website.
• The right to nominate and elect members of the board of directors.

Whether public or private companies, minority shareholders generally have the following protections as well.

• Under the Saudi Arabian Companies Law, SHAs are permitted and may be incorporated into the articles of association or by-laws of a company. The articles or by-laws can specify that SHAs prevail in cases of conflict, although enforceability is subject to compliance with Saudi Arabian law.
• Minority shareholders have the right to participate in general assemblies, vote on significant decisions, and elect board members.
• Shareholders holding at least 5% of the company’s capital may also convene an extraordinary general assembly.
• JSCs may recognise drag-along and tag-along rights, enabling minority shareholders to participate or exit in major transactions involving the majority shareholders.
• JSCs can issue multiple classes of shares with varying rights and privileges.
• Shareholders generally have pre-emptive rights to subscribe to newly issued shares, preventing dilution of their equity unless otherwise agreed.
• Shareholders have the right to inspect company records and obtain critical financial and operational data to monitor company performance.
• Minority shareholders may challenge related-party transactions, conflicts of interest, breaches of fiduciary duties, and other forms of managerial misconduct.

Derivative actions may be brought in the company’s name for breaches affecting the company’s interests.

For a general discussion on FDI obligations please see 1.1 Legal System and 1.2 Regulatory Framework for FDI.

Additionally, both foreign investors and Saudi Arabian entities involved in FDI are subject to disclosure and reporting obligations at various stages of the investment life cycle, encompassing acquisition, holding, and disposal. Certain disclosure requirements are summarised below.

• Foreign investors acquiring a controlling interest in a Saudi Arabian entity must disclose their holdings to the MISA.
• Foreign investors must submit periodic reports to the MISA, including information such as the financial performance of the investment, updates on business activities, and compliance with national and sector-specific regulations.
• Foreign investors disposing of their ownership stakes must notify the MISA and relevant authorities such as the ZATCA in advance.
• Real-time reporting of material events impacting shareholding structures or corporate governance is required.
• FDI transactions must comply with Saudi Arabia’s Anti-Money Laundering Regulations, ensuring that investments are not linked to illicit activities.

The Tadawul is the principal equity market in Saudi Arabia, complemented by the Nomu – Parallel Market, which provides a less regulated environment to encourage small and medium-sized enterprises (SMEs) to access public capital. As of 2023, the Tadawul ranks as the largest stock exchange in the MENA region and one of the top exchanges globally by market capitalisation, hosting some of the Kingdom’s largest companies, including Saudi Aramco. Saudi Arabia’s capital markets offer a diverse range of funding mechanisms. In recent years, the Kingdom has experienced a surge in IPO activity, underscoring its position as a regional leader in public offerings.

For in-depth discussions on the CMA and law, see 3. Mergers and Acquisitions,4. Corporate Governance and Disclosure/Reporting and 5.2 Securities Regulation.

The CMA is the principal regulator of the securities markets and governs public offerings, securities trading, and the obligations of listed companies. These include specific rules which govern:

• IPOs, rights issues, and the obligations of listed companies;
• Merger and Acquisition Regulations, which provide a framework for mergers, takeovers, and other corporate transactions;
• Rules for Qualified Foreign Financial Institutions Investment in Listed Securities, which outlines the conditions under which foreign institutional investors may access Saudi Arabian capital markets; and
• Listing Rules, which detail the Tawadul’s requirements for companies seeking to list on the Tadawul or Nomu.

The CMA Rules also cover corporate governance, financial disclosure, and the minimum requirements for IPOs.

Foreign investment through funds in Saudi Arabia is governed by the CMA Investment Fund Regulations, which establish comprehensive guidelines for public and private funds. These Regulations ensure compliance with governance standards, operational transparency, and fiduciary responsibilities.

Fund Management and Fiduciary Responsibilities

Fund managers must be authorised persons licensed by the CMA to manage public or private funds. They are required to implement effective risk assessment procedures, ensure transparency, and act with fiduciary duty toward unitholders. Custodians must be appointed to safeguard fund assets. The Regulations mandate that fund managers prepare financial statements in Arabic, which must be audited according to the standards issued by the Saudi Arabian Organisation of Certified Public Accountants (the “SOCPA”). Fund managers must disclose conflicts of interest in fund documentation and annual reports, key investment strategies and practices in the terms and conditions, and fees, commissions, and management costs.

See 3.2 Regulation of Domestic M&A Transactions.

Merger control in Saudi Arabia is generally governed by the Competition Law, and its Implementing Regulations, which aims to protect fair competition and prevent monopolistic practices that could harm consumer interests. The Competition Law mandates the notification of “economic concentration” transactions when specific thresholds are met set out in more detail under 3.2 Regulation of Domestic M&A Transactions.

Enforcement and Penalties

Failure to notify a notifiable transaction or comply with conditions imposed by the GAC can result in significant fines. The GAC may impose penalties, including up to 8% of the infringing party’s annual income or require divestiture of assets or termination of control. The GAC also retains discretion to review unnotified transactions and impose corrective measures.

The GAC investigates potential anti-competitive effects arising from a merger or acquisition transaction, with the factors considered varying based on the type of combination.

The GAC assesses potential concerns such as:

• whether the transaction could increase prices or reduce output unilaterally due to diminished competition;
• the potential for the transaction to facilitate collusion or co-ordinated behaviour among competitors;
• evaluating the merged entity’s market share and market concentration;
• analysing whether new competitors could feasibly enter the market to mitigate anti-competitive effects;
• assessing whether significant buyers have the ability to resist price increases or reduced output;
• the degree of competition in the market and the likelihood of entry or expansion by other firms;
• foreclosure of access to key suppliers or customers, potentially excluding rivals;
• the ability of the merged entity to control prices, output, or innovation;
• creation of barriers to entry through control of essential resources or distribution channels;
• whether the transaction may create portfolio effects that could harm competition, such as leveraging dominance in one market to gain an unfair advantage in another; and
• potential efficiencies generated by the transaction, such as cost savings or innovation benefits, and whether these outweigh potential harms.

The GAC has the authority to impose remedies and commitments on parties involved in “economic concentration” transactions to address potential anti-competitive effects while preserving the pro-competitive benefits of the merger. Remedies may be either structural or behavioural to prevent harm to market competition and consumer interests.

Structural remedies often involve the divestiture of specific assets, business units, or shareholdings to reduce market concentration or eliminate overlaps between merging entities. Behavioural remedies, on the other hand, may include commitments to provide non-discriminatory access to essential infrastructure, maintain existing supply agreements, or refrain from exclusive dealing practices that could foreclose competitors.

See 6.1 Applicable Regulator and Process Overview, 6.2 Criteria for Review and 6.3 Remedies and Commitments.

The GAC’s decision to block or otherwise challenge FDI either before or after the investment is binding and final unless overturned through an appeal. The ultimate decision-making authority rests with the GAC’s board of directors, which evaluates recommendations from technical committees. If an investor disagrees with a GAC decision, they may pursue an appeal under Saudi Arabia’s judicial system. The appeal must be filed within the time limits specified by Saudi Arabian procedural laws.

See 1.2 Regulatory Framework for FDI and 2.1 Recent Developments and Market Trends.

The MISA and other relevant authorities evaluate FDI applications using several key criteria, focusing on strategic alignment, economic impact, and regulatory compliance. The considerations include:

• economic contribution: FDI must align with Saudi Arabia’s Vision 2030, emphasising job creation, knowledge transfer, and diversification of the economy;
• sector-specific restrictions: investments in restricted sectors require additional scrutiny;
• ownership structure: MISA assesses whether the investment structure adheres to local laws, including the use of special purpose vehicles (SPVs) or JVs with Saudi Arabian partners;
• sensitive industries considerations; and
• control and influence: for partnerships and JVs, authorities evaluate whether the foreign investor will exercise control or decisive influence over the Saudi Arabian entity.

Different analyses may apply for:

• partnerships and JVs;
• acquisitions by foreign government-affiliated entities; and
• non-controlling minority investments, with the latter often subject to less stringent review provided no significant control or influence is involved.

See 6.3 Remedies and Commitments.

See 6.3 Remedies and Commitments.

Sanctions and Anti-Money Laundering (AML) Regimes

Saudi Arabia enforces a robust anti-money laundering (AML) and anti-terrorism financing (CTF) framework, primarily governed by:

• the Anti-Money Laundering Law;
• Regulations issued by SAMA; and
• Regulations issued by the CMA.

Foreign Exchange Regulations

Saudi Arabia imposes minimal restrictions on foreign exchange transactions, allowing the free movement of funds under the following conditions:

• foreign investors can repatriate profits, dividends, and capital gains without prior approval, provided taxes are settled; and
• all foreign exchange transactions must comply with SAMA Regulations, which require documentation for significant transfers to ensure transparency and mitigate illicit financial activities.

Customs and Trade Regulations

Import and export activities are governed by the GCC Common Customs Law under the ZATCA. Companies must be registered with the ZATCA to import and export goods, comply with applicable regulations and account for payment of customs duties and import VAT. Importers may also be required to comply with Saudi Arabian technical standards issued by the Saudi Arabian Standards, Metrology, and Quality Organisation (the “SASO”) and Saudi Arabian Food and Drug Authority (the “SFDA”).

Saudi Arabia generally operates a two-tier tax system. The nature of taxation of a corporation is dependent upon the nationality and residency of its ultimate shareholders.

Taxation Framework

Resident companies owned by Saudi Arabian/GCC nationals are subject to zakat at approximately 2.5% on the higher of their annual net profits adjusted for zakat purposes, or the zakat base. Where a Saudi Arabian company is owned by non-Saudi Arabian/non-GCC national shareholders only, it is subject to corporate income tax at a 20% rate applicable on the profits adjusted for corporate income tax purposes. Where a Saudi Arabian company has both Saudi Arabian/GCC and non-Saudi Arabian/non-GCC shareholders, it is subject to both zakat and corporate income tax on a proportionate basis. Saudi Arabian branches of foreign companies are normally subject to 20% corporate income tax (regardless of the GCC/non-GCC profile of their parent company).

Zakat

Zakat is an Islamic religious levy imposed on wealth and is calculated at 2.5% of the zakat base. Where a Saudi Arabian resident company is fully owned by Saudi Arabian or GCC nationals, it will be subject to zakat at approximately 2.5%.

The net assessable funds for zakat purposes generally and broadly comprise Saudi Arabian/GCC shareholder’s share of equity components such as share capital, retained earnings, reserves etc, provisions and long-term financing, less fixed assets, long-term eligible investments, and accumulated losses, plus/minus adjusted net income for the year.

Corporate Income Tax

Corporate income tax is levied at a rate of 20% on the tax-adjusted profits of a resident capital company that are attributable to the percentage of shares held by non-Saudi Arabian/non-GCC shareholders. The tax-adjusted profits which are subject to corporate income tax are calculated based on the accounting result of the relevant financial year as per the financial statements and subject to certain adjustments for non-deductible expenses and/or exempt income. In addition, under Saudi Arabian regulations, certain income items are deemed exempt for corporate income tax purposes. For example, capital gains arising from the disposal of securities available on the stock market in Saudi Arabia are exempt from corporate income tax, dividends received by a resident company from a Saudi Arabian resident entity is exempt, provided that:

• the entity holds at least a 10% stake in the distributing entity; and
• the entity has held the participation for a period exceeding one year.

Value Added Tax

The Unified VAT Agreement for the Cooperation Council for the Unified Arab States of the Gulf (the “Unified VAT Agreement”) was approved by Royal Decree No M/51, dated 03/04/1438 H. Under the provisions of the Unified VAT Agreement, Saudi Arabia issued the VAT Law under Royal Decree No M/113 and its corresponding Implementing Regulations were subsequently issued by the board of directors of the ZATCA by Resolution No 3839 (the “VAT Implementing Regulations”).

To determine whether a person is required or eligible to register, the person must first establish whether they carry on an economic activity. It will be presumed by the ZATCA that a legal person that regularly makes supplies of goods or services carries on an economic activity.

RETT

Saudi Arabia introduced a 5% RETT in Saudi Arabia upon disposal of real estate or fixtures on land. According to the RETT Law, RETT is applicable on the total value of any real estate disposal transaction. This includes sale, trade off, gifts, wills, exchange, lease, financial lease, transferring shares in real estate companies, and acknowledging right of use/transfer of usufruct for a period of more than 50 years. The legislation also allows for exemptions on RETT.

Transfer Pricing Requirements

On 15 February 2019, the ZATCA published the Transfer Pricing By-Laws (“the TP By-Laws”). The TP By-Laws introduced requirements for the Organisation for Economic Cooperation and Development’s three tiers of documentation, namely master file, local file, and country-by-country report, as well as an annual disclosure form for controlled transactions. The TP By-Laws should apply to companies that are subject to corporate income tax (ie to companies that are wholly or partly owned by non-GCC investors). The TP By-Laws also apply to permanent establishments of Saudi Arabian non-residents. The TP By-Laws apply prospectively to controlled transactions during the financial year ending 31 December 2018. Transfer pricing requirements now also apply to zakat payers. While there are no specified transfer pricing penalties, non-compliance with the TP By-Laws could expose the companies to penalties and fines under the Corporate Income Tax Law or zakat provisions.

Payments made by a Saudi Arabian resident entity or Saudi Arabian permanent establishment to a non-resident entity for services performed, interests paid, royalties and dividends, are generally subject to WHT in Saudi Arabia. WHT rates vary and are governed by the rates provided in either the Income Tax Law or under the numerous DTAs that Saudi Arabia has entered into. Under the Saudi Arabian Income Tax Law, WHT rates vary between 5% and 20% based on the type of service and whether the beneficiary is a related party.

In order to utilise the benefits under DTAs, the specific DTA between Saudi Arabia and the country of the service provider should be reviewed. Generally, the following rates are applicable on payments made to non-residents:

• dividends: 5%;
• royalties: 15%;
• interest: 5%;
• management fees: 20%; and
• fees for technical services: these range between 5% and 15%, depending on the specific nature of the technical service provided or whether the service provider is a related or non-related party to the payer.

Where a Saudi Arabian entity will make payments to non-resident entities, the entity will be required to submit WHT returns to the ZATCA to report and pay the relevant WHT.

To optimise tax efficiency and mitigate tax burdens, foreign investors can explore the following strategies.

Utilising DTAs

Saudi Arabia has entered into numerous DTAs with other countries to prevent double taxation and reduce WHT rates.

Tax Structuring

Investors could consider strategic corporate structuring tailored to Saudi Arabia’s tax regime and incentives, including corporate income tax, WHT, and zakat obligations.

Leveraging SEZs

Saudi Arabia’s SEZs, such as the King Abdullah Economic City (KAEC) offer various fiscal incentives, including reduced corporate income tax rates or full exemptions for qualifying activities within the zone.

Efficient Debt Structuring

Carefully structuring loans and financing arrangements can optimise the tax impact of interest payments.

Advance Tax Rulings and Pricing Arrangements

Foreign investors may seek advance tax rulings from the ZATCA to confirm the tax treatment of specific transactions or payments.

RHQ and SEZ Synergies

Investors combining the RHQ benefits with SEZ incentives may enjoy compounded savings, such as reduced operational costs, enhanced tax exemptions, and greater workforce flexibility.

VAT on TOGC

A TOGC may qualify for VAT exemption under certain conditions.

Exemptions Under the RETT Law

The RETT regime in Saudi Arabia applies a 5% tax on the transfer of real estate. However, several exemptions are available that investors can strategically utilise.

Capital gains derived by foreign investors in Saudi Arabia are generally subject to corporate income tax, with limited exemptions available. Capital gains from the disposal of shares or assets in Saudi Arabia are taxed at the standard corporate income tax rate of 20%, unless an applicable exemption applies.

Capital gains from share transfers in a listed company are generally exempt from tax. However, this exemption does not apply if the shares are held in an unlisted company or if the conditions for qualified foreign investor status are not met. Gains from intra-group transfers of assets or shares as part of corporate restructuring are exempt, provided the restructuring meets the criteria set out under the regulations. Importantly, where the transfer is not to a Saudi Arabian entity, the exemption will not apply.

Indirect disposals may also be subject to capital gains tax if the transaction results in the transfer of ownership or control over Saudi-sourced assets through the disposal of shares or interests in an offshore holding entity.

Saudi Arabia does not have specific general anti-avoidance rules. However, rules are embedded within the broader tax and zakat framework. These rules focus on preventing abusive tax arrangements that lack genuine commercial substance and are primarily structured to evade taxes. Saudi Arabia is also a signatory to the multilateral instrument (MLI), which includes anti-abuse provisions, such as the principal purpose test (PPT), which denies treaty benefits if the principal purpose of a transaction is to obtain a tax advantage.

Labour and employment in Saudi Arabia is mainly governed by the Saudi Arabian Labour and Workmen’s Law (the “LWL”) and its Implementing Regulations (“IRs”). The LWL is generally an employee-friendly law and there is a duty on employers to have sound procedures and mechanisms in place to maintain compliance, conduct investigations, employee disciplinary procedures, and employment termination.

The rights and duties of employment under the LWL and its IRs generally apply equally regardless of nationality. Hiring, dismissals, salary, benefits, leave, working hours, disciplinary rules, severance pay, and the like, all apply equally regardless of nationality. One key difference is that only Saudi Arabian nationals may work on an open-ended employment contract without a fixed end date. Non-Saudis must have a valid work permit (iqama) in order to work which is only issued and valid for one year.

The LWL and IRs generally set out strict disciplinary and termination procedures.

Pension Requirements

The General Organisation for Social Insurance (the “GOSI”) is the pension scheme for Saudi Arabian nationals. Every company needs to maintain its own GOSI account and make sure all employees are registered in the system. Pension contributions have to be paid on a monthly basis from the company’s bank account in Saudi Arabia by using the SADAD system (a Saudi-based electronic payment system used by all banks and governmental entities), and the invoice/payment number will be the company’s membership number in the GOSI.

Severance Pay

Employees are entitled to an end of service gratuity (EOSG) payment, which is payable at the end of the employment relationship. If it is the employer ending the employment relationship, the EOSG is calculated by adding half a month’s wage for each of the first five years and one month’s wage for each of the subsequent years.

Saudisation

Saudisation or nitaqat is a colloquial term used to describe Saudi Arabia’s overall policy objectives for addressing the employment of Saudi Arabian citizens and increasing the technical and professional skills of Saudi Arabian employees, as well as in the small business sector for Saudi-owned companies and local entrepreneurs. This policy is implemented, enforced, and regulated by several government programmes and policies, and is reflected in nearly every facet of the public and private sectors. On a day-to-day basis, the most common encounter with Saudisation is via the GOSI and the Ministry of Human Resources and Social Development (the “MHRSD”). All companies are required to open a file with these departments and keep these files up to date with respect to employees as they join and leave the company, and much of Saudisation is enforced via the GOSI and the MHRSD accordingly.

The Saudisation programme labels companies as platinum, green (high, medium and low), or red based on a formula involving set variables, which are the number of employees; the size of the company; and the activities of the company. Failure to hire the required percentages of Saudi employees under the nitaqat programme may result in the levying of fines by the Saudi Arabian authorities.

Common Compensation Frameworks

The Saudi Arabian LWL sets out minimum standards for wages, benefits, and work conditions. Compliance with statutory requirements is mandatory. However, employers often offer additional benefits to attract and retain talent.

The basic salary forms the core component of an employee’s compensation and is specified in employment contracts. It must comply with applicable minimum wage requirements. Allowances are also widely provided for housing, transportation, and other necessities. These allowances are influenced by the cost of living and industry norms. They often make up a significant portion of an employee’s total remuneration. The Saudi Arabian LWL also requires overtime to be compensated.

Profit-sharing and performance bonuses are widely used as well. While these are discretionary, they are typically defined in employment contracts or company policies. Although less common than in other jurisdictions, equity-based compensation (eg, stock options, restricted stock units) is increasingly offered by multinational corporations, start-ups, and publicly traded companies.

Some employers offer additional retirement plans or end of service rewards as part of executive packages or private sector agreements to enhance employee retention. Employees are entitled to a severance payment upon termination, which is calculated on the basis of their final salary and length of service.

The Saudi Arabian LWL mandates that employees’ seniority, salaries, and benefits must remain unaffected during mergers, acquisitions, or ownership transitions. The successor employer inherits all obligations tied to existing employment contracts. Business ownership transfers do not constitute employment terminations. Employees retain all accrued entitlements, such as EOSG, without interruption. Any disruption in benefits or entitlements could lead to disputes or regulatory penalties.

Saudi Arabia’s IP laws comprise a comprehensive framework benchmarked to international standards, including treaties under the World Intellectual Property Organisation (WIPO). The Saudi Arabian Authority for Intellectual Property (the “SAIP”) is the primary institution dedicated to protecting and enforcing IP rights in Saudi Arabia, and overseeing all aspects of IP regulation, enforcement, and awareness.

Key legal instruments include the Patent Law, the Trade Mark Law, and the Copyright Law, among others. The regulatory structure aims to offer robust IP protections for foreign investors, offering assurance that their innovative assets will be safeguarded within Saudi Arabia.

Importance in Screening FDI

IP is a significant factor in Saudi Arabia’s FDI screening process, particularly for sectors reliant on innovation and proprietary technologies. The SAIP’s mandate includes ensuring compliance with IP laws during the establishment of foreign entities in the Kingdom. Investors must demonstrate adherence to local IP regulations, including registering relevant IP assets and ensuring no infringement upon pre-existing rights.

The FDI screening process involves collaboration between the MISA and the SAIP. Investors in IP-intensive sectors may be subject to heightened scrutiny, with the following considerations forming part of the review process.

• Investors must establish ownership or legal rights to any IP being introduced into Saudi Arabia. Licensing arrangements, particularly those involving technology transfer, are closely evaluated.
• Registration of IP rights in Saudi Arabia is mandatory to secure legal protections. For example, foreign patents or trade marks must be filed through the SAIP or the GCC Patent Office.
• Certain industries, such as defence, healthcare, and telecommunications, are subject to additional scrutiny to ensure compliance with national security and public health priorities.
• Investments involving IP must not contravene Saudi Arabian competition laws, such as those concerning market monopolisation or restrictive licensing terms.

Registration of IP Assets

Trade marks, patents, and copyrights must be registered locally to secure enforceability.

Patents

Patents are granted for inventions demonstrating novelty, inventive step, and industrial applicability. This includes products, processes, or their improvements. Patent protection lasts 20 years from the filing date, subject to annual maintenance fees. Under specific circumstances, such as public health or national emergencies, compulsory licences may be issued. Patent disputes are resolved through the SAIP committees or referred to specialised courts.

Trade Mark Laws

Saudi Arabia implements the GCC Trade Mark Law, offering protection for trade marks, including traditional marks (such as names, logos, symbols), and non-traditional marks (sounds, colours, and smells). Initial registration is valid for ten years, renewable indefinitely in ten-year increments. Trade mark infringement can result in fines up to SAR1 million, imprisonment, or both, with repeat offences attracting double penalties.

Copyright Law

Saudi Arabia’s Copyright Law covers literary, artistic, and scientific works, including software, audio-visual creations, and architectural designs. The duration of protection for individuals is the lifetime of the author plus 50 years and for corporate works is 50 years from the first publication date. Copyright infringement may result in fines up to SAR250,000, temporary closure of offending establishments, and confiscation of infringing goods and materials.

Industrial Designs and Trade Secrets

Protection is also offered for aesthetic and ornamental product designs under the Saudi Arabian Patent Law with a ten-year term of protection from the filing date. Protection for trade secrets is indefinite as long as reasonable efforts are made to maintain confidentiality.

Saudi Arabia is regarded as a jurisdiction that has made significant strides in strengthening its IP framework in recent years. With the alignment of its IP laws with international standards, Saudi Arabia has demonstrated its commitment to fostering a robust and enforceable IP regime. The overall legal framework aims to provide a strong level of protection for IP.

Saudi Arabia’s Personal Data Protection Law (the “PDPL”) aligns its data protection framework with international best practices. With a grace period until 14 September 2024, the PDPL establishes stringent requirements for processing, transferring, and securing personal data. Enforced by the Saudi Arabian Data and Artificial Intelligence Authority (the “SDAIA”), the PDPL is supplemented by detailed regulations and guidelines that further refine its implementation.

Data Protection Scope and Applicability

The PDPL applies to any processing of personal data concerning Saudi Arabian residents, regardless of where the processing entity is located. This extraterritorial reach ensures comprehensive protection of personal data both domestically and internationally.

Cross-Border Data Transfers

Data transfers to countries deemed “adequate” by the SDAIA are permissible without additional safeguards. However, as of now, no adequacy list has been published.

In the absence of meeting the “adequacy” requirements of the recipient’s jurisdiction, the personal data can still be transferred offshore if the conditions listed below are adhered to and the nature of the transfer fits into an exemption category, such as:

• infrequency: where the personal data transfers of a limited number of data subjects are intermittent, even if it occurs infrequently over a long period of time;
• temporality: where the personal data transfers of a limited number of data subjects occur only for a brief period of time, even if there are frequent transfers occurring over that brief period;
• central operations: where the personal data transfer is part of the central operations of a multinational corporation; and
• service or benefit: where the purpose of the personal data transfer is to provide a service or benefit to the data subject.

Appointment of Data Protection Officers (DPOs)

A DPO is mandatory for entities that:

• regularly monitor data subjects or process sensitive data as a core activity; and
• handle personal data on a large scale (eg, public entities). DPOs, either internal or external, must be equipped with the resources and independence to fulfil their role. Their responsibilities include ensuring compliance, conducting awareness programmes, and liaising with the SDAIA.

Penalties for Non-Compliance

Non-compliance with the PDPL could result in significant penalties.