Fintech Market Overview

This article does not constitute legal advice.

Fintech in Saudi Arabia

Fintech Software

As mentioned above, during the past two years, both SAMA and the CMA granted temporary experimental licences as an initiative to encourage the growth of fintech in Saudi Arabia. These licences are issued through an application to the relevant entity's sandbox programme, but were still governed by the same laws that govern conventional financial transactions, which are as follows:

  • general banking control laws;
  • general finance company control laws;
  • the E-banking Rules; and
  • the Electronic Transactions Law. 1

Nevertheless, in 2020, SAMA approved the introduction of new laws governing the fintech sector, notably debt-based crowdfunding and payment service provider (PSP) activities in Saudi Arabia. While both licences are still covered by the same conventional financial laws aforementioned, an applicant can now seek a licence in line with its activities as opposed to merely taking part in the sandbox programme with a temporary licence.1

While new licences were introduced to carry out fintech activities in Saudi Arabia, fintech transactions are still governed by conventional financial transactions laws. As such, there are no specific tax regulations that apply to fintech companies. The General Authority of Zakat and Tax generally applies zakat on local companies and tax on foreign companies. The zakat is calculated to be 2.5 per cent of the capital of the company, while the tax on foreign companies or foreign shareholders in a company is usually 20 per cent of the revenue of the company, as opposed to the capital. Thus, fintech companies will be required to pay the same amounts based on the shareholders' nationality. We believe that applying only a 2.5 per cent on local companies' capital and 20 per cent on foreign shareholders' revenue demonstrates the way in which tax laws in Saudi Arabia are company-friendly, which in fact means that they are fintech-friendly as well.1

Fintech Saudi identified eight activities that do not require licensing by either SAMA or the CMA. These are:

  • aggregation of publicly available financial information;
  • business tools;
  • back-office bank operations;
  • enhancing bank's customer experience;
  • personal management;
  • regulation technology (regtech), which involves the use of technology to support financial organisations to comply with financial services regulations. Fintechs can develop regtech solutions that do not conduct regulated activities but support financial organisations to remain compliant;
  • gamification; and
  • reward-based crowdfunding (added as an exempted activity in 2020). 1

Thus, carrying out these activities shall not trigger the application of the requirements to be licensed by the CMA or SAMA. Moreover, credit information services, falling under back-office bank operations, shall also be exempted from the requirement to be licensed as they are one of the seven activities that can be carried out with a licence.1

Marketing is generally regulated by the Ministry of Culture and Information (MCI). The MCI obliges entities wishing to carry out advertising activities whether in print or electronically to obtain a licence, whether the entity is local or foreign. In accordance with MCI laws, the entity shall obtain a licence to be able to market its activities. Upon obtaining the relevant licence, the entity must comply with the banking Consumer Protection Principles with regard to the content of the material it desires to advertise.1

Third-party websites comparing products or providing information about financial products are subject to SAMA regulations. Such websites are currently considered brokers by SAMA and are therefore subject to licensing requirements to enter into its sandbox programme.1

Crowdfunding in Saudi Arabia

Fintech in other countries

  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/saudi-arabia
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