Chapter

SAUDI ARABIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of January 31, 2004)
Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: March 22, 1961.
Exchange Arrangement
CurrencyThe currency of Saudi Arabia is the Saudi Arabian riyal.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementEffective January 1, 2003, the exchange rate of the riyal is pegged to the dollar at the rate of SRls 3.745 per $1. Previously, the riyal was pegged to the SDR at the rate of SRls 4.28225 per SDR 1, but a close relationship was maintained with the dollar. The riyal rate against the dollar is determined by the Saudi Arabian Monetary Agency (SAMA), and has been stable since June 1986. Banks are permitted to charge up to 0.125% above the official rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThe commercial banking sector has an active forward market to cover exchange risks for up to 12 months.
Arrangements for Payments and Receipts
Prescription of currency requirementsTransactions with, and use of the currency of, Israel are prohibited.
Payments arrangements
Regional arrangementsEffective January 1, 2003, the GCC Customs Union came into effect.
Administration of controlForeign exchange controls are administered by the SAMA.
International security restrictions
In accordance with UN sanctionsIn accordance with UN Security Council Resolution No. 1373, assets suspected of being involved in financing terrorism are liable to being frozen or seized.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeThe Precious Metals and Stones Law stipulates the following: (1) imported gold coins must be purchased from either the country of origin or an accredited bank; (2) copies of gold coins that have been withdrawn from circulation must be identical to the original issue coin in size, weight, design, appearance, and purity and must be stamped with the trademark of their manufacturer or importer (original issue gold coins are exempt from this requirement); (3) imported gold bullion must bear a stamp verifying its purity; and (4) imported gold bullion of 18 karats or less must either be reexported or melted down before being returned to the importing party.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Approval requiredYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Approval requiredYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listLimited import restrictions on a few commodities are maintained for religious, health, and security reasons.
Open general licensesYes.
Other nontariff measuresTrade with Israel is prohibited.
Import taxes and/or tariffsEffective January 1, 2003, in accordance with the GCC Customs Union, a maximum CET of 5% is applied on most dutiable goods. For a few goods, tariff rates of 12% and 20% apply. For tobacco products, the tariff is 100%. Imports from GCC members are exempt from duties.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesReexport of certain imported items benefiting from government subsidies is prohibited. Effective October 31, 2003, a ban on exports of beef and camel products was eliminated.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsPortfolio investment in shares of listed Saudi Arabian joint-stock companies is restricted to Saudi Arabian nationals, Saudi Arabian corporations and institutions, and citizens of the GCC. Indirect portfolio investment in shares issued by Saudi Arabian joint-stock companies is allowed for foreign investors through mutual funds managed by Saudi banks. There are no controls on portfolio investment in government securities.
Sale or issue locally by nonresidentsNonresidents must seek permission of the Minister of Commerce to sell or issue securities within the Kingdom. There are no controls on the repatriation of proceeds from the sale of securities issued by nonresidents. Residents may purchase or sell nonresident securities via brokerage services offered by domestic banks.
Sale or issue abroad by residentsFor the sale of collective investment securities, where the underlying assets are shares of Saudi joint-stock companies, the regulations governing shares or other securities of a participating nature apply.
Bonds or other debt securities
Sale or issue locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
On money market instruments
Sale or issue locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
On collective investment securities
Purchase locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
Sale or issue abroad by residentsIn the case of collective investments securities, where the underlying assets are shares of Saudi joint-stock companies, the regulations governing shares or other securities of a participating nature apply.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsThe regulations governing shares or other securities of a participating nature apply.
Controls on credit operations
Commercial credits
By residents to nonresidentsSaudi Arabian banks must seek permission from the SAMA.
To residents from nonresidentsThe SAMA’s permission is required for riyal-denominated loans made through Saudi Arabian banks.
Financial creditsThe SAMA’s permission is required for all financial credit operations.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsThe SAMA’s permission is required.
To residents from nonresidentsFinancial institutions that give guarantees to government projects must appear on the SAMA-approved list.
Controls on direct investment
Inward direct investmentApproved foreign investments in Saudi Arabia enjoy the same privileges as domestic capital. The foreign investment law allows foreign investors to make direct investments in most of the country’s economic sectors—with or without local participation—and provides for a 15% reduction in tax rates on foreign company profits exceeding SRls 100,000 (reducing the maximum to 30% from 45%). The tax rates were 20%, 25%, and 30% on various profit levels. On January 12, 2004, the 25% and 30% rates were eliminated, while tax rates of 30% and 80% were applied to investments in the natural gas and the oil and hydrocarbon sectors, respectively.
The Supreme Economic Council has issued a list of economic sectors that remain off limits to foreign investors. The list is reviewed regularly and includes projects related to exploration, drilling, and production of gas and oil; production of military equipment and uniforms; production of explosives for civil purposes; printing and publishing; telecommunications services; education services; insurance and insurance-related services; land and air transportation; real estate investments in Mecca and Medina; services involving fishing; distribution services including wholesale and retail trade and commission agencies; and a few other sectors.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsIn principle, the purchase of real estate is restricted to Saudi Arabian citizens, Saudi Arabian corporations, Saudi Arabian institutions, and citizens of the GCC. However, under the foreign investment law, foreign investors are allowed to own real estate as needed for their business, including housing for their staff. Nonresidents are allowed to purchase real estate for conducting real estate business in all cities, except for the holy cities of Mecca and Medina, provided that the investment in the real estate business is not less than SRls 30 million.
Controls on personal capital transactions
Transfer of gambling and prize earningsPrize earnings are transferable; gambling is prohibited.
Provisions specific to commercial banks and other credit institutions
Lending to nonresidents (financial or commercial credits)Saudi banks require the SAMA’s permission to lend to nonresidents, except for interbank transactions and commercial credits.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsFor interbank deposits originating from foreign banks, only domestic currency deposits are subject to the SAMA’s reserve requirement.
Investment regulations
Abroad by banksPrior SAMA approval is required for Saudi banks to acquire shares in foreign companies.
In banks by nonresidentsPrior permission of the authorities is required.
Open foreign exchange position limitsOpen positions are monitored via prudential reports.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2003
Exchange arrangementJanuary 1. The currency to which the riyal is pegged was changed to the dollar from the SRD.
Arrangements for payments and receiptsJanuary 1. The GCC Customs Union came into operation.
Imports and import paymentsJanuary 1. A common external tariff of 5% was established in accordance with the GCC Customs Union, and imports from GCC member states were made exempt from import duties.
Exports and export proceedsOctober 31. The ban on exports of beef and camel products was lifted.
Changes During 2004
Capital transactions
Controls on direct investmentJanuary 12. The tax rate on foreign company profits was reduced to 20% generally, and the tax rates were set at 30% and 85% for investments in natural gas and in the oil and hydrocarbon sectors, respectively.

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