Saudi Arabia has announced an ambitious plan to enhance its debt capital markets, which includes potential tax relaxations aimed at making corporate bonds more attractive to international investors.
The Capital Market Authority is contemplating the removal of a 5 percent withholding tax on interest payments, which is currently seen as a deterrent to potential investors, as detailed in a report that outlines its strategy to develop the Saudi Arabian debt capital market.
Moreover, the authority aims to streamline the regulatory framework for debt issuances, making it less expensive and faster for businesses to offer bonds. Additionally, there are plans to facilitate the trading, settlement, and clearing of transactions in various foreign currencies.
These initiatives are components of Saudi Crown Prince Mohammed bin Salman’s bold economic reform program, Vision 2030. The plan envisages the creation of advanced capital markets and the expansion of new sectors like tourism and semiconductors to diversify the kingdom’s sources of income.
Although the Saudi equity market has shown robust performance—partially due to a vibrant market for initial public offerings—the debt sector remains relatively young.
According to CMA, since 2019, the local market for corporate debt has seen an annual growth rate of approximately 8 percent. However, this growth has primarily been driven by unlisted issuances rather than public offerings.
The authority is optimistic that eliminating the withholding tax will expand the investor base beyond the currently predominant banking sector to include more individual and foreign investors.
A recent indicator of Saudi Arabia’s growing market appeal is the secondary offering of shares in the petroleum juggernaut Saudi Aramco. Foreign investors were allocated around 60 percent of the available shares, signifying a shift from the predominantly local interest seen in the company’s 2019 initial public offering.