Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

SAUDI ARABIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: March 22, 1961.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
Other security restrictionsIn accordance with UN Security Council Resolution No. 1373, assets suspected of being involved in financing terrorism could be frozen or seized.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Saudi Arabia is the Saudi Arabian riyal.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe exchange rate of the riyal is pegged to the dollar at the official rate of SRls 3.75 per $1 with a midpoint of SRls 3.745 per $1. 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.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsTransactions with, and use of the currency of, Israel are prohibited.
Payments arrangements
Regional arrangementsYes.
Administration of controlControls on payments and receipts, wherever applicable, are administered by the SAMA.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
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must be purchased from either the country of origin or an accredited bank; (2) copies of gold coins that have been withdrawn from circulation must be identical to the original issue coin in size, weight, design, appearance, and purity and must be stamped with the trademark of their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 less than 18 karats must be either reexported or melted down before being returned to the importing party.
Controls on exports and imports of banknotesNo.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Approval requiredYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
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 tariffsA 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.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesThe reexport of certain imported items benefiting from government subsidies is prohibited.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instrumentsUnder the regulations for the licensing of both bank-affiliated and nonbank brokerage and investment companies (released by the Capital Market Authority), four categories of companies are allowed to engage in brokerage and investment fund management: (1) local bank subsidiaries, (2) Saudi Arabian joint-stock companies, (3) subsidiaries of Saudi Arabian joint-stock companies that are engaged in the financial services business, and (4) subsidiaries of foreign financial institutions that are licensed under the Banking Control Law issued by Royal Decree No. M/5 dated 22/2/1386H (corresponding to June 11, 1966). As of end-2006, licenses are granted to more than 40 Saudi Arabian and foreign firms engaged in equity-market related activities.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsEffective March 25, 2006, resident foreigners may invest in shares of listed Saudi Arabian joint-stock companies. Previously, portfolio investment in shares of listed Saudi Arabian joint-stock companies was limited to Saudi Arabian nationals, Saudi Arabian corporations and institutions, and citizens of the GCC member countries. Nonresident foreigners continue to be subject to the previously existing limitations to invest indirectly through authorized mutual funds.
Sale or issue locally by nonresidentsNonresidents must seek permission of the minister of commerce and industry and Capital Market Authority to sell or issue securities within Saudi Arabia. There are no controls on the repatriation of proceeds from the sale of securities issued by nonresidents.
Purchase abroad by residentsResidents may purchase or sell nonresident securities via brokerage services offered by licensed brokerage firms.
Sale or issue abroad by residentsFor shares of Saudi Arabian joint-stock companies, the rules on the purchase locally by nonresidents apply.
Bonds or other debt securitiesThere are no controls on portfolio investment by foreigners in government 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 nonresidentsFor the sale of collective investment securities, where the underlying assets are shares of Saudi Arabian joint-stock companies, the 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 investment securities, where the underlying assets are shares of Saudi Arabian 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 tax rate of 20% on most foreign company profits, with two exceptions: (1) an 85% tax rate is applied on profits of investments in the oil and hydrocarbons sector and (2) a basic tax rate of 30% is applied on profits of investments in the natural gas sector as long as the internal rate of return (IRR) of the project does not exceed 8%. For investments with an IRR exceeding 8%, a sliding scale of higher tax rates applies, with a maximum rate of 85% for an IRR exceeding 20%. 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 oil; production of military equipment and uniforms; production of explosives for civil purposes; certain printing and publishing activities; certain telecommunications services; land and air transportation; real estate investments in Mecca and Medina; services involving fishing; distribution services including wholesale and retail trade and commercial agencies; and a few other sectors. In accordance with the Cooperative Insurance Companies Control Law, the SAMA accepts licensing applications from foreign insurance companies transacting insurance and reinsurance business in Saudi Arabia. Under the regulations, foreign insurance companies are allowed to own up to 49% of these local companies.
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 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.
References to legal instruments and hyperlinkswww.sagia.gov.sa.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Lending to nonresidents (financial or commercial credits)Saudi Arabian 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 Arabian banks to acquire shares in foreign companies.
In banks by nonresidentsThere is a limit of 40% of capital, and prior permission of the authorities is required.
Open foreign exchange position limitsOpen positions are monitored by means of prudential reports.
Provisions specific to institutional investorsForeign insurance companies may open branches in Saudi Arabia, subject to the Law on Supervision of Cooperative Insurance Companies and to the Insurance Implementing Regulations issued by the SAMA. These regulations impose certain restrictions on investments by insurance companies. However, the existing insurance companies have until March 2008 to bring their operations into conformity with these regulations. Effective February 25, 2006, the SAMA guidelines for Saudi Arabian branches of foreign insurance companies are in effect, requiring minimum levels of investment locally in riyals; maximum limits on investments in foreign equities and foreign bonds, both government and corporate; and adherence to Articles 59 and 61 of the Insurance Implementing Regulations.
Insurance companies
Limits (max.) on securities issued by nonresidentsThe limit is 20% unless approved by the SAMA. In addition, a limit of 10% applies to foreign-currency-denominated investments and 5% to foreign government bonds and bonds issued by foreign companies.
Limits (max.) on investment portfolio held abroadThe regulations related to nonresidents apply.
Limits (min.) on investment portfolio held locallyEffective February 25, 2006, the limit is 50% of total invested assets in riyals. Moreover, unless otherwise approved by the SAMA, insurance companies and branches are required to keep 20% of their investments in authorized banks and 20% in Saudi Arabian government bonds. These limits are 10% in authorized banks and 10% in Saudi Arabian government bonds for companies and branches engaged in protection and life insurance.
References to legal instruments and hyperlinkswww.sama.gov.sa/en/insurance; www.cma.org.sa/cma_en/default.aspx.
Changes during 2006
Capital transactions
Controls on capital and money market instrumentsMarch 25. Portfolio investment regulations for foreigners were modified to allow resident foreigners to invest in shares of listed Saudi Arabian joint-stock companies.
Provisions specific to the financial sector
Provisions specific to institutional investorsFebruary 25. The SAMA guidelines for Saudi Arabian branches of foreign insurance companies went into effect, requiring a minimum 50% of investments to be held in riyals, and 20% in authorized banks and 20% in Saudi Arabian government bonds. These limits are 10% in authorized banks and 10% in Saudi Arabian government bonds for companies and branches engaged in protection and life insurance.

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