Top 7 Compliance Risks for Foreign Companies Must Avoid in Saudi Arabia.

Compliance in Saudi Arabia is no longer a background function. Regulatory enforcement is growing increasingly sophisticated and proactive. Tax policies are tightening, labour laws are more stringently enforced, and new frameworks such as the Personal Data Protection Law (PDPL) are setting higher standards for operational accountability. However, this surge in opportunity comes together with a complex web of regulations and cultural norms. From Saudization mandates to emerging data privacy laws, the stakes have never been higher for Non-Saudi investors.  

Saudi Arabia stands at the crossroads of an economic renaissance. As Vision 2030, the government is actively diversifying the economy away from oil dependency and fostering a more business-friendly environment. This strategic pivot has made Saudi Arabia a magnet for global investors and foreign enterprises looking to tap into a market projected to exceed $1.14 trillion in GDP by 2025. 

In a previous blog, we have talked about business setups for Saudi and foreign companies, and with a step-to-step guidance. In this blog, we will explore the seven most critical compliance risks foreign businesses must avoid in Saudi Arabia. Through key statistics, real-world insights, and practical guidance, we’ll help you navigate the regulatory landscape and build a foundation for long-term success 

Why Is It Important to Stay Compliant? 

Compliance is crucial for foreign businesses operating in Saudi Arabia to ensure they align with the country’s legal, cultural, and regulatory frameworks. It helps companies avoid legal penalties, protect their reputation, and build trust with local authorities and partners. Adhering to compliance requirements also enables smoother market entry, supports long-term growth, and positions businesses to benefit from government incentives and investment opportunities. 

1. Saudization (Nitaqat) Requirements. 

Saudi Arabia’s Nitaqat program mandates that private sector companies maintain minimum levels of Saudi national employees. Failure to comply can trigger severe penalties: 

• Over 200,000 firms were closed for noncompliance in 2014 alone, illustrating the program’s teeth. 

• Companies with low Nitaqat rankings face restrictions on work permits, municipal licensing, and even bank financing. 

Best Practice: Regularly audit your workforce composition and leverage local recruitment platforms to ensure you meet and ideally exceed the mandated Saudization ratios. 

2. Licensing and Corporate Registration. 

Operating without the correct licenses or lapses in registration with the Ministry of Investment (MISA) and other agencies can bring abrupt business shutdowns. Key considerations: 

• Sector-specific licenses: Certain activities, like telecom, energy, and education, require special approvals and local partner structures. 

• Annual renewal deadlines: Missing a renewal can incur fines up to SAR 50,000 and trigger compliance investigations. 

Best Practice: Implement a centralized license management system to track renewals, conditions, and local partner obligations. 

3. Zakat, Tax, and VAT Compliance. 

The Zakat, Tax and Customs Authority (ZATCA) has ramped up enforcement in recent years: 

• VAT revenue now accounts for 7.6% of non-oil GDP, a jump from 6.3% in 2020, following the VAT rate hike from 5% to 15% in 2020. 

• Penalties for late VAT filings range from 5% to 25% of the tax due; failure to register can incur fines up to SAR 10,000. 

Best Practice: Adopt e-invoicing solutions compliant with ZATCA’s Fatoorah platform and conduct quarterly internal tax audits to catch discrepancies early. 

4. Anti-Bribery and Corruption Risks. 

Nazaha, the National Anti-Corruption Commission, has demonstrated zero tolerance: 

• In 2024, Nazaha arrested over 1,700 individuals, including government officials, for corruption related offenses. 

Best Practice: Establish a robust anti-corruption policy, conduct regular employee training, and deploy anonymous reporting channels. 

5. Data Protection and Privacy (PDPL). 

Saudi Arabia’s Personal Data Protection Law (PDPL), effective from September 2021, imposes strict rules on data collection, storage, and transfer: 

• Organizations found in breach may face penalties of up to 5% of annual revenue and data transfer blocks. 

• Cross border data flows require prior approval, complicating regional IT architectures. 

Best Practice: Conduct a PDPL impact assessment, update privacy notices, and implement consent management platforms for third-party data sharing. 

6. Foreign Investment Restrictions. 

While Saudi Arabia has liberalized many sectors, key areas remain closed or restricted: 

• Sectors like oil exploration, defence, and certain healthcare services require at least 25% local ownership or special ministry approvals. 

• The MISA “Negative List” is updated periodically; non-adherence can void contracts and lead to capital repatriation delays. 

Best Practice: Engage specialized legal counsel to vet investment structures against the latest Negative List and secure preapproval waivers where necessary. 

7. Cultural and Religious Considerations. 

Missteps in marketing, product offerings, or employee conduct can provoke public backlash and regulatory action: 

• 80% of Saudis consider aligning business practices with Islamic and Arab values essential, according to a 2022 market survey. 

• Offending content on social media or in advertisements has led to injunctions and fines in high-profile cases. 

Best Practice: Collaborate with local cultural advisors, vet all customer facing materials, and integrate cultural training into onboarding programs. 

Partner With TASC for Expert Guidance and Compliance Support. 

TASC can serve as your local partner, guiding business through Saudi regulations and laws. With over 18 years of experience, and 200 team members TASC can help your business to overcome any barriers to accessing the Saudi market. 

In the Kingdom’s rapidly evolving business environment, compliance is not a static checkbox, but a strategic imperative. Interested in a tailored compliance roadmap? Contact our team now for a comprehensive assessment and bespoke action plan to avoid any compliance risks for your business.