Saudi Arabia Update – August and September 2017

by Dentons


Legal developments

Public projects anti – corruption actions

The National Anti-Corruption Commission (Nazaha) is the local body responsible for investigating violations of the Combating Bribery Law (CBL) and referring such violations for prosecution.

The majority of Nazaha action occurs within the various government ministries, as the CBL is aimed primarily at regulating misconduct of Saudi public officials. However, private parties engaged in corruptive behaviour involving a public official are also subject to CBL liability.

Nazaha recently undertook a widespread investigation of ongoing public projects in the Kingdom and referred 123 projects for further investigation or prosecution. Some of the potential or actual violations include:

  1. violating or disregarding the Government Tenders and Procurement Law and its Implementing Regulations;
  2. failure to offer or place the project on time;
  3. failure to maintain confidentiality of the project's estimated cost;
  4. failure to hand over the project site to the contractor on time;
  5. failure to produce designs and blueprints prior to offering the project; and
  6. offering projects with an estimated cost higher than the approved budget.

Companies doing business in Saudi Arabia and their representatives and personnel should ensure that effective anti-bribery and corruption policies are in place.

Saudi Gazette – 28 August 2017

Public projects – expat worker tax exemption

Companies employing non-Saudi individuals pay a tax on their expatriate employees in the form of Iqama renewal fees. Previously, the fees were reduced in proportion to the number of Saudi individuals employed by the company. But, according to new rules which came into effect this year, the fee reduction benefit was abolished and the same Iqama renewal fees apply across the board notwithstanding the number of Saudi employees.

Contractors working on public projects have complained that the new rules will be catastrophic to their budgets and to the ongoing public projects.

Thus, the Cabinet of Ministers has approved a resolution to exempt contractors who were working on public projects that began prior to December 2016, when the new rules were issued, from the equalised fees and allowing them to pay reduced Iqama renewal fees in proportion to the number of Saudi employees as before.

Saudi Gazette – 21 August 2017

Review of Labor Law Art. 77

As described in previous Updates, Art. 77 of the Labor Law has been criticised by Saudisation activists in the Kingdom since the October 2015 amendments that brought it into effect. Particularly, Art. 77 has been characterised as an anti-Saudization legal provision that allows employers too easily to terminate the employment of Saudi employees with payment of a small indemnity amount, statutory severance benefits and 60 days' notice (or payment in lieu).

A committee of the Shoura Council in February of this year discussed with concerned individuals and businesses the implications of Art. 77 as well as a number of other potential amendments to the Labor Law. Now the Shoura Council has stated that it intends to take the committee’s views under evaluation in an upcoming session.

Saudi Gazette – 22 August 2017

Review of company mass firing of Saudi employees

As we described in previous Updates, companies that terminate the employment of  groups of Saudi employees are coming under increased scrutiny by the Ministry of Labor (MOL) and the Saudi authorities.

Recently, a telecommunications company in Saudi Arabia has faced repercussions for firing a mass group of Saudi employees, which then went viral on Twitter. It is not known how many Saudi employees were fired, or what proportion of the total workforce they represented in relation to expatriate employees.

The MOL responded by announcing the cessation of services to the company and that an investigation had been opened.

Companies doing business in Saudi Arabia should exercise caution when dealing with termination of employees, especially Saudi employees.

Saudi Gazette – 23 August 2017

11th phase of Wage Protection System

Under Saudi Arabia’s Wage Protection System (WPS) implemented by the MOL, private sector businesses in Saudi Arabia are required to electronically submit employee wage information to a database maintained by the MOL and, further, to deposit and pay employee salaries solely through in-Kingdom banks.

The WPS has been implemented in phases, beginning with the largest firms with 3,000 employees or more. On 1 February 2016, the WPS entered its 10th stage to cover all businesses that have 80 employees or more.

Now, the WPS entered its 11th stage as of 1 August with application to companies with 60 or more employees.

Employers will have to provide details of their employeesʼ salaries to the system within two months; if they delay providing these details for three months all services will be stopped and their foreign and Saudi employees can transfer their sponsorship / employment to other firms without their consent. Employers who delay paying salaries or fail to do so will be fined SAR 3,000 for every offence.

Saudi Gazette – 9 August 2017

100 per cent foreign ownership of engineering companies

The general rule is that the Saudi economy is open to foreign investment and foreign ownership in Saudi companies. However, certain sectors, trades and industries require a minimum Saudi national shareholding, while others are completely closed off to any foreign investment.

With respect to engineering companies incorporated in Saudi Arabia, regulations have previously required that a Saudi individual licensed as an engineer hold a minimum 25 per cent shareholding, amongst other requirements.

Now, an exception is being made for established multinational engineering companies to incorporate wholly-owned subsidiaries in the Kingdom. The new rules are not available yet, but it is apparent that applicant companies must have 10 years' experience in engineering services and a presence in at least four other countries, although SAGIA in its discretion may waive certain requirements.

Arab News – 9 August 2017


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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