Entering a New Era of Regulation: An Interpretation of Saudi Arabia's Cryptocurrency Policies

  1. Introduction

The Kingdom of Saudi Arabia, located on the Arabian Peninsula in Southwest Asia, is one of the world’s largest oil exporters and is renowned for its abundant petroleum resources. With the rapid advancement of the financial industry, Saudi Arabia is gaining prominence as a significant financial hub in the Middle East and globally, thanks to its open market environment and proactive regulatory policies. The financial sector in Saudi Arabia is subject to stringent oversight, with key institutions such as the Saudi Central Bank (formerly known as the Saudi Arabian Monetary Authority, or SAMA) and the Ministry of Communications and Information Technology (MCIT) actively promoting the development of fintech and cryptocurrency regulatory frameworks to adapt to the evolving landscape of financial innovation. This article will provide an overview and analysis of Saudi Arabia’s cryptocurrency-related systems, covering aspects such as the classification of cryptocurrencies, tax policies, and regulatory frameworks.

2.Saudi Arabia’s Classification of Cryptocurrencies

Saudi Arabia regards digital assets, including cryptocurrencies, as a digital representation of property rights, a perspective similar to that of Qatar. Specifically, Saudi regulatory authorities consider cryptocurrencies as alternatives to or representations of fiat currency. They are not issued by any government entity but are instead digital forms of rights to immovable or movable property (including contractual rights) that can be issued, transferred, or stored through distributed ledger technology or similar technologies. Additionally, Saudi Arabia views stablecoins as substitutes for currency used as a means of payment.

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3.Saudi Arabia’s Basic Tax Policies

3.1 Overview of Saudi Arabia’s Tax Policies

Saudi Arabia’s primary taxes include Zakat, income tax, customs duties, vehicle stamp duty, and other indirect taxes. The country operates a dual corporate income tax system and does not impose value-added tax (VAT) or any form of tax on stamp duties, transfers, consumption, sales, production, real estate, or property.

Zakat, a wealth tax based on religious law, is levied at 2.5% of the total assets of Saudi Arabian and Gulf Cooperation Council (GCC) nationals and at 2.5% of the total capital of companies. It is collected by the General Authority of Zakat and Tax (GAZT), reflecting the close connection between Saudi taxation and religion.

Income tax covers both individual and corporate income, primarily targeting non-Saudi foreign enterprises and individuals. Personal income tax applies to ordinary income and investment income (capital gains) earned in Saudi Arabia, though its scope is relatively narrow. The standard corporate income tax rate is 20%, but the oil and gas industry is subject to rates ranging from 50% to 85%. Foreign companies registered in Saudi Arabia pay a 20% corporate income tax, while businesses registered by GCC citizens are only required to pay the 2.5% Zakat. Additionally, Saudi citizens and expatriates are subject to indirect taxes such as customs duties and vehicle stamp duty, as well as excise tax, social insurance tax, VAT (with a standard rate of 15% and exemptions for certain goods and services), and natural gas investment tax (with rates determined based on the company’s capital investment ratio).

Saudi Arabia’s tax system is distinctive, with Zakat being rare in non-Muslim countries. The complex rate structure for corporate income tax and capital gains tax, differentiated treatment of various industries and business types, exemption of personal wage income from taxation, and taxation of resident companies’ global income reflect the country’s religious and cultural characteristics as well as its tax strategies.

3.2 Potential Tax Issues Related to Cryptocurrencies

Saudi Arabia has not yet established a comprehensive legal framework for cryptocurrency taxation, and the tax treatment of cryptocurrencies remains unclear. Based on existing information and guidance from relevant authorities, the potential tax issues related to cryptocurrency transactions in Saudi Arabia are outlined as follows:

Saudi Arabia’s tax system is based on the Income Tax Law, which does not explicitly mention cryptocurrencies but taxes income derived from commercial activities, investments, and capital gains. Therefore, cryptocurrency transactions may be subject to the following taxes:

(1) Income Tax: If cryptocurrency mining or trading is considered a commercial activity, the income generated may be subject to income tax, with the current corporate tax rate being 20%.

(2) Capital Gains Tax: If cryptocurrencies are treated as assets, profits realized from selling or exchanging them may be subject to capital gains tax, with a rate of 15% in Saudi Arabia.

The tax treatment of specific cryptocurrency transactions may vary depending on the nature of the transaction and the taxpayer’s circumstances, as outlined below:

(1) Buying and Selling Cryptocurrencies: This may be treated as a capital gains transaction, with profits potentially subject to capital gains tax.

(2) Cryptocurrency Mining: This may be considered a commercial activity, with mining income subject to income tax.

(3) Cryptocurrency Trading: Transactions conducted on trading platforms may be treated as commercial activities, with income subject to income tax.

(4) Accepting Cryptocurrencies as Payment: Receiving cryptocurrencies as payment for goods or services may be treated as income and subject to income tax.

4.Brief Analysis of Cryptocurrency Regulatory Policies

Saudi Arabia’s regulatory policies in the cryptocurrency sector are still in their early stages, lacking a systematic legal framework. For instance, there is currently no comprehensive regulatory framework for Virtual Asset Service Providers (VASPs), and as a result, Saudi Arabia does not have any local centralized exchanges (CEX). Despite the absence of a comprehensive regulatory framework, the younger population in Saudi Arabia is showing increasing interest in cryptocurrencies. According to Chainalysis, cryptocurrency investors in Saudi Arabia accumulated profits exceeding 350 million in 2023, surpassing the approximately 204 million in the UAE during the same period. This growing interest has prompted Saudi Arabia to consider how to foster innovation while strengthening regulation to address the rise in market activity and consumer demand.

Notably, Saudi Arabia is actively reforming its policies and regulatory frameworks to simplify the procedures and licensing processes for foreign businesses setting up operations in the country. It has also relaxed ownership restrictions for foreign investors, introducing new regulations such as the Companies Law, Foreign Investment Executive Regulations, and Foreign Investment Law. These laws detail the rights and obligations of foreign investors in Saudi Arabia, licensing conditions and standards, and licensing procedures. Additionally, Saudi Arabia offers a range of tax and financial incentives to foreign investors, such as customs duty refunds, reductions in personal income tax, and lower corporate tax rates. These incentives help reduce operational costs for cryptocurrency businesses in Saudi Arabia and enhance their competitiveness in the Saudi market. To further promote foreign investment, the Saudi government has launched initiatives like the “Partners Program” and the Industrial Development Fund, as well as established several economic zones focusing on investments in pharmaceuticals, biotechnology, and digital industries, with special incentives provided. Saudi Arabia is also considering the creation of special regulatory zones to further attract foreign investment. These reforms provide a clearer legal framework and operational guidelines for foreign investors, including cryptocurrency businesses, reducing market entry complexities and offering a favorable investment environment and development opportunities.

In terms of building a regulatory framework, Saudi Arabia has adopted a cautious approach toward cryptocurrencies. As of December 2024, Saudi Arabia has not enacted specific legislation targeting cryptocurrencies. While cryptocurrencies are not explicitly banned, they lack formal legal recognition and operate within a risk-averse regulatory framework established by SAMA and the Capital Market Authority (CMA). The Saudi Arabian Monetary Authority (SAMA) has issued multiple warnings regarding the risks associated with cryptocurrencies. Notably, in 2018, the Standing Committee for Awareness on Unauthorized Securities Trading Activities in the Forex Market, which includes SAMA, issued a warning emphasizing the significant risks and potential negative consequences of trading virtual currencies due to their lack of government oversight. Additionally, in 2019, the Saudi Ministry of Finance issued a similar warning, advising against trading or investing in virtual currencies, including cryptocurrencies, as they are neither legally recognized nor regulated by any official authority in Saudi Arabia.

The Anti-Money Laundering Law (AML), enacted via Royal Decree (M/20) on October 25, 2017, and the Counter-Terrorism Crime and Financing Law (CFT), enacted via Royal Decree (M/21) on November 1, 2017, do not explicitly mention cryptocurrencies. However, the broad definition of “funds” in these laws suggests that such assets are included, as the definition covers both tangible and intangible assets, economic resources, or any property of value, particularly including assets obtained through “electronic or digital systems.” Article 1, Paragraph 4 of the CFT’s implementing regulations states that the financial activities or transactions regulated by the law include “electronic money.” Although the implementing regulations do not explicitly define “electronic money,” it is generally understood to encompass digital forms of currency, including cryptocurrencies. While personal possession and trading of cryptocurrencies are not explicitly prohibited, local financial institutions do not engage in cryptocurrency transactions due to the lack of legal recognition for cryptocurrencies in Saudi Arabia.

Although Saudi Arabia has not completely banned cryptocurrencies like Bitcoin, its regulatory framework reflects a cautious approach toward emerging financial technologies. SAMA, in collaboration with the Central Bank of the UAE, launched a pilot project called “Aber” in January 2019. The project aims to test the use of Central Bank Digital Currency (CBDC) in cross-border payments. “Aber,” meaning “crossing boundaries” in Arabic, reflects the project’s goal of enhancing payment system interconnectivity between the two countries. Additionally, Saudi Arabia’s financial regulators have initiated a sandbox project, providing a controlled environment for blockchain startups to experiment. In terms of stablecoin regulation, SAMA imposes strict oversight on stablecoins like USDT, ensuring that all transactions are conducted on licensed exchanges that comply with AML and KYC rules. Furthermore, SAMA has implemented regulatory measures for stablecoins, such as Tether, to ensure that all related transactions are conducted on licensed exchanges adhering to strict AML and KYC rules, thereby enhancing the security and transparency of financial transactions. Despite SAMA’s warnings about cryptocurrency risks, stablecoins like Tether have received official recognition. Saudi Arabia also plans to establish official regulatory policies for digital currencies, indicating a relatively moderate approach to cryptocurrency regulation, in contrast to the stricter measures adopted by some countries. Moreover, Saudi Arabia emphasizes the importance of regulating and reviewing digital currencies and urges countries to conduct risk assessments before issuing stablecoins to ensure financial market stability and investor protection. These measures collectively form Saudi Arabia’s regulatory framework for cryptocurrencies, aiming to balance innovation with risk management.

5.Conclusion and Outlook

In summary, Saudi Arabia’s stance on cryptocurrencies has evolved from initial conservatism to active acceptance, with increasing attention being paid to cryptocurrency tax compliance issues. In the long term, Saudi Arabia’s cryptocurrency landscape is on the brink of profound transformation. The country’s regulatory framework is not just about rules and restrictions but also signifies a critical period of transition for its financial ecosystem. We believe that Saudi Arabia will further refine its laws and regulations regarding cryptocurrencies in the future. This is not only an inevitable step to align with global fintech trends but also a way to strengthen oversight in this domain, ensuring the stability of financial and market order while enhancing Saudi Arabia’s position in the global crypto ecosystem.