British team out of Belgian Grand Prix
Arrows had hoped to complete their sale to an unnamed American investor but they said in a statement that had not been possible.
A spokeswoman said they would be packing up immediately and returning to Britain.
"The legal teams are still working through the detailed documentation that supports the sale of Arrows," the statement said.
"Professional advisors on all sides have been working extremely hard all week to finalise the deal in time for this weekend.
"Unfortunately, due to the sheer amount of paperwork involved, the process cannot be completed by close of business today. Consequently the team has been advised to do nothing that could jeopardise the successful completion of the transaction so will not race in Sunday's Belgian Grand Prix."
The decision left the starting grid with just 20 cars for the second race in a row and means Arrows, who failed to show up in Hungary two weeks ago, have not now competed since Germany on July 28.
It also left Arrows facing possible sanctions with their Formula One survival still in doubt.
An International Automobile Federation (FIA) spokeswoman said the sport's governing body had requested an official explanation from the team.
Arrows turned up at Spa with three cars but only one named driver, Brazilian Enrique Bernoldi, and a lingering question mark over their engine suppliers Cosworth's willingness to provide power.
Germany's Heinz-Harald Frentzen was also entered as number two driver for procedural reasons but he left the team in July and did not travel to Belgium.
Arrows have been in trouble for months, fighting to stay alive in a year that has already seen the French Prost team go to the wall.
Their problems burst into the open at the British Grand Prix in July when the team's partner Cosworth demanded payment before releasing engines and team boss Tom Walkinshaw dipped into his own pocket to keep them going.
Earlier that week, they had been barred from seeking fresh investment without the consent of investors Morgan Grenfell following a High Court injunction.
The team turned up at the subsequent race in France but skipped free practice and made no more than a token attempt to qualify.
After a warning that such behaviour could lead to them being kicked out of the championship, Arrows competed in Germany but missed Hungary due to force majeure or unavoidable circumstances.
Niki Lauda, the Jaguar boss who oversees Cosworth, said in Hungary that Arrows had not paid for their engines for that race and legal action could be expected.
To add to Arrows troubles, the team faces a winding-up order in London on September 10 from former driver Jos Verstappen and another unnamed party.
The Dutchman, who is also claiming some unpaid wages from last year, was replaced before the start of the season despite having a contract for 2002.
Should Arrows be declared insolvent, they will lose their right to compete.
Arrows did not take part in Friday's free practice but Bernoldi at least took a fatalistic approach.
"The situation is bad at the moment but I think, if we can get an investor, we can sort out the problems and start competing again," said the Brazilian. "I have to say I am a little bit used to it because I had this situation in Silverstone, Magny-Cours and Hungary. So this is the fourth time. But I can't do anything."
In the meantime, Kimi Raikkonen overshadowed dominant Ferrari yesterday as McLaren led the way in practice for Sunday's Belgian Formula One Grand Prix.
Raikkonen, set to be Finland's sole Formula One driver with Mika Salo following Mika Hakkinen into retirement at the end of the year, lapped the longest circuit in the championship in one minute 47.196 seconds.
Team mate David Coulthard completed a first day one-two as the second quickest, in 1:47.356, while Ferrari's five-times world champion Michael Schumacher was third in 1:47.403.
The times, on a cloudy day with morning fog delaying practice by an hour, were well inside last year's pole position time of 1:52.072.
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