Payroll & HR Insights From a Leading Saudi Arabia Payroll Outsourcing Provider

This guide is a must read before you either outsource your Saudi Arabia payroll or build a local HR and Payroll function. As a Saudi Arabia Payroll Outsourcing market leader, Mercans can guarantee your full compliance with all the applicable regulations.

A guide to doing business in Saudi Arabia

Investing in Saudi Arabia

Saudi Arabia’s Oil-Based economy is getting even stronger as their petroleum sector accounts for roughly 80% of budget revenues, 45% of GDP, and 90% of export earnings. Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi Nationals. Diversification efforts are focusing on Power Generation, Telecommunications, Natural Gas Exploration, and Petrochemical Sectors. More than 6 million foreign workers are a part of Saudi economy, particularly in the Oil and Service Sectors.

Registrations and Establishing an Entity

The formation and operations of business entities in Saudi Arabia are regulated by the Companies Law promulgated by a Royal Decree in 1965, as amended in 1967 and 1982 by Subsequent Royal Decrees. The provisions of the Companies Law are extensive and cover all types of commercial activities in the Kingdom. Registration of a company in Saudi Arabia follows this 11-stage process.

  1. Prepare documents including legalization by the Saudi Consulate.
  2. Submit application to the Saudi Arabian General Investment Authority (SAGIA) and obtain an investment license.
  3. Obtain agreement from the Companies Department at the Ministry of Commerce and Industry after submitting the Articles of Association and the company name.
  4. Sign the Articles of Association in front of a Notary Public.
  5. Publication of the company name and a summary of the Articles of Association in the official gazette. This will cost approximately 5500SR.
  6. Open a Bank Account, Transfer the Share Capital and Obtain a Certificate stating that the capital has been deposited.
  7. Register with the General Department of Passports, Ministry of Interior and the Ministry of Labor and obtain a work visa for the company manager.
  8. Company manager getting his visa stamped at the Saudi consulate and obtaining his Work Permit and Residence Permit upon arrival in Saudi Arabia.
  9. Registrations with the Commercial Registry at the Ministry of Commerce and Industry and the Chamber of Commerce. This costs 8100 SR approximately.
  10. Obtain a File Number and Certificate of Business commencement by registering with the Department of Zakat and Income Tax (DZIT), Ministry of Finance.
  11. Register with the General Organization of Social Insurance.

Banking

It is mandatory to have an In-Country Bank Account to process payments in Saudi Arabia.

Bank lending consists mainly of trade and medium-term investment finance. Banking operations in the Kingdom are regulated by the Saudi Arabian Banking Control Law and are supervised by the Saudi Arabian Monetary Agency (SAMA).

Working Week

The typical working week in Saudi Arabia is Sunday to Thursday from 9am to 6pm; however, Friday is the only official weekend day and Saturday is often a working day for the construction and service industries. The working hours related regulations have been summarized below.

Basic Facts about Saudi Arabia

Official Name: Kingdom Of Saudi Arabia

Capital: Riyadh

Population: 33,335,000 (2017)

Area: 2,149,690 Sq. Km (424 Sq. Miles)

Major Languages: Arabic

Major Religions: Islam

Monetary Unit: Saudi Riyal (SR)

GDP Per Capita: $ 53,845 (World Bank, 2017)

Internet Domain: .sa

International Dialling Code: +966

How to Say . . .

 

Hello                                     (As-Salām ‘Alaykum)   مرحب

Good Morning                  (Ṣabāḥul KẖAyr) صباح الخير

Good Evening                   (Masā’ Al-Khayr) مساء الخير

Do You Speak English?  (Hal Tatakallam El-Ingliziyya) هل تتكلم الانجليزية

Good Bye                            (Bāy Bāy) باي باي, (Ma`A As-Salāma) مع السلامة

Thank You                         (Shukran Jazīlan) شكرا جزيل (Shukran) شكرا

See You Soon!                  (Ashoufak ‘Ourayyeb )

 

Dates & numbers

Dates are usually written in the year, month and day sequence. For example, 2018 July 12.

Tax & Social Security

Employers must pay 2% of the Employee’s wage to the General Organization for Social Insurance (“GOSI”) for all employees. This is to cover injuries sustained through occupational hazards.

In addition to the 2% employer GOSI contribution, all Saudi national employees are subject to 10% employee and 10% employer GOSI contributions.

Monthly GOSI contributions are established for the duration of each calendar year based on the January contractual Basic Salary and Housing Allowance amounts. The first month’s contractual amounts are used for the employees who start after January.

When an employee is provided with housing and no allowance is mentioned, the contributory value is equivalent to 2-month basic salary or 16.67% x Basic Salary.

Maximum salary amounts subject to GOSI are:

1) Under Annuities Branch (Saudi nationals) – minimum of SR 1,500 per month is subject to GOSI contribution, an employee earning less than this minimum amount will pay social insurance equal to an employee earning SR 1,500, i.e. (1,500 x 10% = 150).

2) Contribution would not be applicable on earnings greater than SR 45,000 per month. The maximum contribution an employee is liable for is 45,000 x 10% = 4,500.

3) The contribution under Annuities branch apply only to the Saudi nationals and are paid by both the employer and employee, a total rate of 20% (10% employer and 10% employee)

4) Under Occupational Hazard Branch – minimum of SR 400 per month is subject to GOSI contribution, an employee earning less than this minimum amount will pay social insurance equal to an employee earning 400, i.e. (400 x 2% = 8).

Also, the contribution would not be applicable on earnings greater than SAR 45,000 per month.

The maximum contribution an employee is liable for is SAR 45,000 x 2% = 900.

The contribution under Occupational Hazard relates to both Saudi and Non-Saudi nationals, and is paid by the employer only.

Income Tax

There is no Tax payable on salaries for Foreign Employees in Saudi Arabia, and self-Employed foreigners are only taxed on overseas-earned income.

VAT was introduced by Saudi Arabia in January 1, 2018. The standard VAT rate is 5%, with a nil VAT rate for some goods.

Saudi Arabia has a double Tax treaty with France, and similar arrangements with the UK and Germany. Certain countries, including the US, UK, Germany and Japan give their citizen’s Tax allowances against any Tax paid in Saudi Arabia.

Social Security Benefits

Saudi Arabia has an extensive social security system which provides old age, disability and survivor benefits for its Employed and self-Employed nationals.

New Starters

Employees must be registered as soon as the employment contract has been signed.

Expat Employees are registered during the visa application process and must also be registered with GOSI. The GOSI registration process is completed through an online GOSI portal. .

Leavers

All leavers must be deregistered from GOSI through GOSI online portal.

Payroll

It is legal to provide the Employee with an online payslip but there are no procedures regarding the provision of online payslips. 

Reports

Payroll reports must be archived for at least seven years.

Employment Law

Foreign nationals account for about half of Saudi Arabia’s workforce. All Employees should be provided with an employment contract in written document specifying all details of the remuneration package. Anything agreed verbally is not covered by a contract, so it is important that all the important aspects are written down.

The majority of employment contracts in Saudi Arabia are “single-status,” which means that even if you are married, your spouse and/or family members cannot accompany you to Saudi Arabia. Only some senior/administrative and medical contracts allow family members to travel to and live in Saudi Arabia.

The employment contract types and the respective considerations have been summarized below.

Holiday Accrual / Calculations

Based on payroll and salary code, Employees can earn up to 38 calendar days of vacation each year, in addition to an extra 2-4 travel days. Employees with at least two years’ continuous service with the Employer are entitled to paid leave of 10 to 15 days (including the Eid al-Adha holiday) to perform the Hajj pilgrimage.

Employees are entitled to three days’ paid leave on the occasion of their marriage, and in the event of the death of an “ascendant” (that is, a parent, grandparent and so on) or descendant (that is, a child, grandchild and so on).

Maternity Leave

A female worker shall be entitled to a maternity leave for the four weeks immediately preceding the expected date of delivery and the subsequent six weeks. The probable date of delivery shall be determined by the physician of the firm or pursuant to a medical report certified by a health authority. A woman may not work during the six weeks immediately following delivery.

During the maternity leave, an Employer shall pay the female worker half her wage if she has been in his service for one year or more, and a full wage if she has served for three years or more as of the date of commencement of such leave. A female worker shall not be paid any wages during her regular annual leave if she has enjoyed in the same year a maternity leave with full wage. She shall be paid half her wage during the annual leave if she has enjoyed in the same year a maternity leave at half wage.

An Employer shall provide medical care for female workers during pregnancy and delivery.

When a female worker returns to work following a maternity leave, she shall be entitled, in addition to the rest periods granted to all workers, to a rest period or periods not exceeding in aggregate one hour a day for nursing her infant.

Such period or periods shall be calculated as part of the actual working hours and shall not entail any reduction in wages.

An Employer may not terminate the employment of a female worker or give her a warning of the same while on maternity leave.

Paternity leave

Paternity leave is not provided for under Saudi labour law.

Sickness

A worker whose illness has been proven shall be eligible for a paid sick leave for the first thirty days, three quarters of the wage for the next sixty days and without pay for the following thirty days, during a single year, whether such leaves are continuous or intermittent. A single year shall mean the year which begins from the date of the first sick leave.

A worker whose illness has been proven shall be eligible for a paid sick leave for the first thirty days, three quarters of the wage for the next sixty days and without pay for the following thirty days, during a single year, whether such leaves are continuous or intermittent. A single year shall mean the year which begins from the date of the first sick leave.

Employee benefits

Expenses

Expenses are calculated at the Client’s behest.

Visas & work permits

Individuals cannot apply for a permit themselves; their sponsor must apply for one on their behalf.

Eligibility

For a prospective Employee to obtain an Employment Visa, they must have:

  • Professional skills or academic qualifications that are lacking or unavailable in Saudi Arabia
  • An employment contract with a Saudi citizen, a Saudi company or a foreign organisation licensed to do business in the country

Given that there is currently a drive towards ‘Saudization’ of organisations, Employers have to prove to the Saudi government there are no Saudi citizens available to fill the position in question.

Employment for women is restricted to a limited number of professions – mainly in the education, healthcare and domestic help sectors.

Application Procedure

To start the process off, the sponsor will first open an ‘immigration file’ at the Ministry of Interior and apply for a visa. Once the application has been approved, the Employee is required to submit the following documents to the Saudi embassy in the country of residence:

  • Original passport: valid for the duration of the employment contract with a minimum of two consecutive blank pages
  • Three colour passport photographs
  • Completed application form: this will either be provided by the Employer or can be requested from the embassy or consulate of Saudi Arabia in the home
  • Copy of the employment contract: signed by both the Employee and the sponsor (Employer)
  • Letter from the sponsor (usually the Employer), certified by the Saudi Chamber of Commerce and the Ministry of Foreign Affairs, including the number and date of the visa, as well as the name of the applicant and the job title
  • Copy of a degree or diploma received by the foreign Employee, certified and notarised by the relevant organisation in the home country as well as the embassy or consulate of Saudi Arabia in that country
  • Three copies of a medical report (with three passport photographs) certifying the absence of the HIV virus and any contagious diseases: this must be issued by a licensed doctor from a Saudi Embassy-approved clinic in the country of origin within three months of the application. All individual copies need the doctor’s signature along with details of name, address and licence number (where applicable), and may need to be paid for by the Employee
  • Police report detailing any criminal records held by the applicant, which must be issued within six months of the application
  • Notification of the number of the Employment Visa applied for by the sponsor from the Ministry of Foreign Affairs in Saudi Arabia and its date of issue
  • Application fee: this should be paid by the Employer, but if it is required to arrange this personally, check how it should be made in the country of origin with the Employer.

These documents can be directly submitted to the Saudi embassy, but it is often faster, to go through an agency nominated by the Employer to handle the application.