SAUDI ARABIA Law and Practice Contributed by: Zain Satardien, Chadi Hourani and Hayel Hourani, Hourani & Partners
Tax Implications for Transaction Structures Tax considerations play a significant role in determin - ing the appropriate transaction structure in Saudi Ara - bia. For example, in asset deals, any gains realised by the seller from the sale of movable assets are gener - ally 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. 3.2 Regulation of Domestic M&A Transactions The Saudi Arabian competition framework is primar - ily governed by the Law of Competition (the “Com - petition Law”) and its associated regulations, which apply 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” where the combined worldwide annual turnover of all parties to the transaction exceeds SAR200 million in the preced - ing financial year, regardless of the level of turnover generated specifically in Saudi Arabia. The turnover test is applied on a group-wide basis and, in the case of JVs, looks at the parent groups behind the pro - posed joint venture. Transactions that create a full- function JV or otherwise confer control or decisive influence over an undertaking active in Saudi Arabia will therefore often trigger a filing, even where the tar - get has limited local revenues, provided the combined global turnover threshold is met. Merger Control Process and Timeframes The Competition Law mandates pre-approval for merger and acquisition transactions. Parties must
tively acquire assets and avoid inheriting liabilities associated with the target company. JVs JVs are a common alternative structure in Saudi Ara - bia, particularly when the transaction involves part - nerships 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 nec - essary to meet foreign ownership restrictions. Registered Commercial Agent Deals Entering the Saudi Arabian market through a commer - cial agent relationship is an approach commonly used where a foreign investor seeks to access Saudi Ara - bia’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 com - mercial agents or distributors. In terms of the Saudi Arabian Commercial Agencies Law, a non-Saudi per - son, whether natural or legal, may not operate as a Public merger and acquisition transactions and other capital market transactions in Saudi Arabia are gov - erned by the CMA’s Merger and Acquisition Regu - lations, 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-compli - ance. 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 Capi - tal Market Law also empowers the CMA to mandate corrective actions such as divestment or impose mon - etary sanctions. commercial agent in the Kingdom. Investments in Public Companies
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