SAUDI ARABIA Law and Practice Contributed by: Faisal Daudpota, Daudpota International (in alliance with Khalil Aljehani Law Firm)
tax on qualifying income and 0% withholding tax for up to 30 years; and • standard regime – mainland companies are gener - ally subject to 20% corporate tax (or 2.5% Zakat for GCC-owned entities), with provisions to deduct operating expenses and vessel depreciation from taxable income. 9. Implications of Non-Performance, IMO 2020, Trade Sanctions and International Conflict 9.1 Force Majeure and Frustration Under the Civil Transactions Law (2023) and Sharia principles (specifically Jawaih), non-performance is excused as force majeure only if an event is external, unforeseeable and renders performance impossible rather than just difficult or expensive: • qualifying events – valid grounds include severe natural disasters (Jawaih), government bans or port closures, acts of war or piracy, and major non- negligent infrastructure failures; • excluded scenarios – routine port congestion, predictable weather and subcontractor defaults typically do not qualify as force majeure; and • protocol – to invoke this defence, the affected party must provide prompt notification to the coun - terparty immediately following the event. 9.2 Enforcement of the IMO 2020 Rule Limiting the Sulphur Content of Fuel Oil Saudi Arabia has incorporated and implemented the IMO 2020 sulphur content regulations. • Implementation status: According to Circular No 21 of 2019, the Saudi Ports Authority (MAWANI) mandated compliance with the MARPOL Annex VI Regulation 14, requiring that from 1 January 2020, all international (Saudi/non-Saudi) ships entering Saudi Arabian territorial waters must use fuel oil with a sulphur content not exceeding 0.50% mass by mass (m/m). • Limits: The limit is 0.50% m/m for vessels oper - ating in Saudi territorial waters and calling at its ports, unless they are fitted with an approved exhaust gas cleaning system (EGCS/scrubber). A
ban on the carriage of non-compliant fuel oil (fuel with sulphur content >0.50%) came into force on 1 March 2020, unless scrubbers are installed. • Responsible authority: The Saudi Ports Authority (MAWANI) is responsible for enforcing these limits. • Enforcement actions: While specific, detailed public reports of recent punitive actions were not highlighted in the search results, the regulatory framework in place empowers the authorities to take actions against ships that fail to comply with the 0.50% sulphur limit or fail to manage non- compliant fuel correctly. The region has seen active measures to prepare for and enforce these regula - tions, including restrictions on the discharge of wash water from scrubbers in some Middle East - ern ports. 9.3 Trade Sanctions Legal Basis Instead of a single sanctions law, Saudi Arabia enforc - es sanctions through a combination of Royal Orders, Ministerial Decrees, and specialised legislation on anti-terrorism and anti-money laundering. Enforcement The State Security Presidency and Ministry of Inte - rior collaborate with international bodies (like the UN Security Council) to target terrorism financing and money laundering. Penalties typically include asset freezes, criminal prosecution and travel bans. International Alignment While the Kingdom does not officially adopt all uni - lateral Western sanctions (eg, US/EU), its financial system strictly adheres to international compliance standards. Regarding the Ukraine conflict, Saudi Arabia has not sanctioned Russia but maintains high scrutiny on secondary sanction risks within its bank - ing sector. 9.4 International Conflict International conflicts like Houthi attacks in the Red Sea have significant commercial and legal implications in Saudi Arabia, causing shipping reroutes, increased insurance premiums and potential contractual dis - putes. Key impacts include invoked force majeure, frustration of contracts and rising war risk premiums, leading to higher logistics costs and delays.
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