• Saudi Arabia has been a member of the World Trade Organization (WTO) since December 11, 2005.
   
• The country's GCC membership means that it is part of a single market and customs union with a common external tariff. A tariff of only 5% is imposed on the majority of items imported to Saudi Arabia from non-GCC countries, and there is a single point of entry where tariffs are collected once imports enter the GCC.
   
• Overall, the average applied import tariff for goods entering Saudi Arabia is 3.4%. This is the second highest out of all six GCC states – tied with Qatar and just behind the UAE, which has an average applied tariff rate of 3.2%. On average Saudi Arabia has some of the highest import tariffs in the Middle East and North Africa region, and there are significant non-tariff barriers to trade in the country. Times and associated costs for border and documentary procedures in Saudi Arabia (especially imports) are some of the longest and highest in the GCC, reducing the country's competitiveness as a trading destination when compared with its regional peers.
   
• The Saudi Arabian government grants various subsidies and export incentives to a variety of industries, which reduces the competition of imports.
   
• For cultural and religious reasons, an import tariff of 200% is levied on cigarettes and tobacco products (GCC tariff).
   
• A VAT of 5% was introduced in January 2018.
   
• Saudi Arabia has a domestic metal manufacturing industry which is protected by tariff measures.
   
• For cultural and religious reasons, all imports of alcoholic beverages are banned.
   
• Various import bans exist on sensitive goods such as high energy air-conditioners, cars older than five years, and equipment used in water desalination processes.
• In order to import a wide variety of consumer goods (such as basic foodstuffs and packaged pharmaceutical products) to Saudi Arabia, special approval is required from the relevant government authority.

Sources: WTO – Trade Policy Review, Government websites, Fitch Solutions

Trade Updates

As Saudi Arabia's ties with the West cool, the kingdom is starting to pivot towards the East as part of its 'Vision 2030' plan. In February 2019, the crown prince commenced an Asian tour with the aim of strengthening economic, political and cultural ties.

Multinational Trade Agreements

Active

1. The GCC: Saudi Arabia is a founding member of the GCC – a political and economic organisation established on May 25, 1981. In January 2015, the GCC implemented a customs union and free trade agreement (FTA) that allows for the free movement of local goods among member states. Saudi Arabia's trade with these countries is tariff free. Other members of the GCC are Bahrain, Oman, Qatar and the UAE. This agreement helps member states to leverage one another's industrial capacity and logistics networks. The geographic proximity of these countries and their general adoption of free trade economic policies foster a competitive business environment. Only imports on certain sensitive goods from GCC countries face tariffs, and there is freedom of movement between GCC countries without customs or non-customs restrictions. In 2018, the GCC was the source market of 11.7% of Saudi Arabia's imports and the destination for 4.5% of Saudi Arabia's exports. Saudi Arabia negotiates FTAs through its GCC membership.
    
2. Greater Arab Free Trade Area (GAFTA): GAFTA came into force on January 1, 1998. In March 2001, it was decided to speed up the liberalisation process, and on January 1, 2005 the elimination of most tariffs among GAFTA members was enforced. The 17 members of GAFTA are Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, UAE and Yemen. GAFTA was declared within the Social and Economic Council of the Arab League as an executive programme to activate the Trade Facilitation and Development Agreement, and the elimination of most tariffs among GAFTA members. GAFTA saw tariffs between 17 Arab states rapidly decline from an average of 15% in 2002 to 6% in 2009. Trade liberalisation has been of great benefit to all member states and has aimed to reduce the cost of imports to Saudi Arabia; however, regional instability and domestic security concerns have diminished the effect of this agreement and have created trade barriers.
    
3. GCC-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): The GCC and the EFTA signed an FTA on June 22, 2009 which entered into force on July 1, 2014. The agreement covers the progressive elimination of tariffs in trade in services and manufactured goods as well as investment, and other trade-related issues, such as the protection of intellectual property, and is fully consistent with provisions of the WTO. In addition, bilateral arrangements on agricultural products between individual EFTA states and the GCC form part of the instruments establishing the free trade area between both sides. As a single entity, the EFTA is one of Saudi Arabia's largest import partners. Between 2014 and 2017, total trade between the GCC and EFTA grew by 22%.
    
4. GCC-Singapore FTA (GSFTA): The GSFTA became effective on September 1, 2013. The GSFTA eliminates most tariffs (99%) of Singapore's exports to the GCC. This is a comprehensive agreement covering trade in goods, rules of origin, customs procedures, trade in services and government procurement among others. Key sectors benefitting from the agreement include telecommunication, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron and steel-related industry. The recognition of the halal certification of Singapore's Majlis Ugama Islam Singapura will also pave the way for trade in halal-certified products to gain faster access to GCC countries, such as Saudi Arabia.

Signed But Not Yet In Effect

The Trade Preferential System of the Organization of the Islamic Conference (TPS-OIC): The agreement would see to the promotion of trade between member states by including most favoured nation principles, harmonising policy on rules of origin, exchanging trade preferences among member states, promoting equal treatment of member states and special treatment for least developed member states and providing for regional economic bodies made up of OIC nations to participate as a bloc. The agreement will cover all commodity groups. The OIC comprises 57 members, making the full realisation of such an agreement highly impactful, encompassing approximately 1.8 billion people. Although the framework agreement, the protocol on preferential tariff scheme and the rules of origin have been agreed on, a minimum of 10 members are required to update and submit their concessions list for the agreement to come into effect. As of July 2019, only seven nations had done so.

Under Negotiation

1. GCC-Australia FTA: Australia and the GCC commenced FTA negotiations in July 2007. Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services. Total trade between Australia and the GCC reached USD8.4 billion in 2017. The GCC is a key market for agricultural exports, such as livestock, meat, dairy products, vegetables, sugar, wheat and other grains. The agreement provides an opportunity to address a range of tariff and non-tariff barriers related to food exports that will benefit the food and drink sectors in Saudi Arabia. With a large proportion of world petroleum resources and a rapidly growing population, the GCC's prospects for continued trade growth are strong. The agreement will also help maintain a level playing field for automotive imports to the GCC market. These factors, along with a plurilateral FTA, will help sustain growth in Saudi Arabia's trade and investment relations with the country.
    
2. GCC-Mainland China FTA: The first-round negotiations of the GCC-Mainland China FTA commenced on April 27, 2005. Greater trade liberalisation will help develop the industrial and service sectors. Saudi Arabia mainly exports commodities, such as oil, to Mainland China, and imports electrical goods and machinery from Mainland China. Trade liberalisation with the GCC will help the group integrate and grow with mutual cooperation and comprehensive tariff reduction. In 2017, Mainland China accounted for 12% of the GCC's total global trade.
    
3. United States-Middle East Free Trade Area (US-MEFTA): In May 2003, the US-MEFTA initiative was proposed, with the eventual goal of establishing an FTA between the United States and a range of countries in the Middle East. The countries targeted to join the MEFTA are Algeria, Bahrain, Egypt, Iran, Iraq, Israel (and through Israel, the Palestinian Authority), Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia and Yemen. US-MEFTA includes a wide range of trade and investment issues, such as market access, intellectual property rights and labour and environmental issues. The initiative will help in growing commercial and investment opportunities by identifying and working to remove impediments to trade and investment flows between member states. This expands the scope of markets for businesses in Saudi Arabia to export products to and will significantly reduce trade costs. In July 2003, the United States and Saudi Arabia signed into force the Trade and Investment Framework Agreement, with the aim of regulating all commercial matters between member states.
    
4. India-GCC FTA: The agreement is expected to remove restrictive duties, push down tariffs on goods and pave the way for more intensive economic engagement between the nations. More than 50% of India's oil and gas comes from the GCC countries.
    
5. Japan-GCC FTA: This agreement will seek to reduce tariffs and liberalise services trade and investment. Japan mainly imports aluminium, natural gas, liquid natural gas and petroleum products from the GCC, while Japan mainly exports electronics, vehicles, machinery and other industrial products to the GCC.
6. Other: A number of other GCC FTAs are currently under negotiation. The countries engaged in negotiations include Pakistan, New Zealand, South Korea, the MERCOSUR bloc and Turkey.

Sources: WTO Regional Trade Agreements Database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 5%
• Corporate Income Tax: 20%

Sources: Saudi Arabia Ministry of Finance , General Authority of Zakat and Tax (GAZT), Fitch Solutions

Important Updates to Taxation Information

• Saudi Arabia has double taxation agreements (DTA) and Investment Promotion and Protection Agreement (IPPA) with Mainland China. The DTA with Hong Kong entered into force on September 1, 2018.
• VAT is expected to become one of the major sources of non-oil revenue in Saudi Arabia, according to the 2019 budget statement. Enterprises with taxable or expected sales of SAR1 million or more were required to register before December 20, 2017 and transfer VAT collected to the General Authority for Zakat and Tax. Enterprises with annual sales of SAR375,000 or more were required to register before December 20, 2018.

Business Taxes

Sources: Saudi Arabia Ministry of Finance , GAZT, Fitch Solutions
Date last reviewed: April 17, 2020

Localisation Requirements

The Saudi Arabian government has launched a local workforce hiring localisation policy called 'Saudisation', which is intended to boost the employment of Saudi nationals and reduce reliance on foreign labour. Foreign firms are, therefore, required to employ and train Saudi nationals. In line with Saudi Arabia's economic diversification strategy 'Vision 2030', the Saudi Arabian government has ramped up the enforcement of its 'Saudisation' policies in order to try and achieve its aim of 50% of all employment in the country's private sector to be occupied by Saudi Nationals. Employers must consider Saudi nationals for any positions before they hire a foreign worker. Before a company can apply for a work permit for a foreign national it wants to employ, it must advertise the job opening for two weeks on a government jobs portal.

Certain positions are reserved strictly for Saudi nationals and businesses must pay certain charges for every foreign national they hire. There are also specific 'Saudisation' targets set for specific firms or sectors, and if these are not complied with there is strong potential for businesses not to get the work permits of their foreign workers renewed or to be denied work permits for new foreign employees.

Obtaining Foreign Worker Permits for Skilled Workers

Applicants must have an offer of employment by an employer willing to sponsor their application and from there the applicant must provide proof of education qualifications and various medical records. Due to the Saudi Arabian government's drive to promote local employment these are becoming increasingly difficult to obtain, especially as the government is becoming stricter with the implementation of its policies. This could have negative repercussions for future foreign worker permit applications or renewals.

Visa/Travel Restrictions

All citizens of non-GCC states must apply for a visa before entering the country. However, in January 2020, the Saudi Commission for Tourism & National Heritage (SCTH) announced that visitors with United Kingdom, United States and Schengen-area country visas will be able to obtain a Saudi Arabia visitor visa at airport arrival halls, regardless of their citizenship. The only requirement is that the visitor must have previously used the visa to travel to any one of these countries before entering Saudi Arabia. In September 2019, Saudi Arabia also announced that it would begin offering visas for the first time to non-religious tourists from 49 countries. Holders of Israeli passports or holders of passports with an Israeli stamp are likely to be denied entry.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 17, 2020

Hong Kong’s Trade with Saudi Arabia

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	523.9
Commodity 2	Power generating machinery and equipment	351.3
Commodity 3	Miscellaneous manufactured articles	284.8
Commodity 4	Office machines and automatic data processing machines	146.9
Commodity 5	Articles of apparel and clothing accessories	63.8

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Power generating machinery and equipment	168.1
Commodity 2	Plastics in primary forms	160.3
Commodity 3	Miscellaneous manufactured articles	56.3
Commodity 4	Telecommunications and sound recording and reproducing apparatus and equipment	26.1
Commodity 5	Organic chemicals	21.1