Saudi Arabia payroll and tax overview.

Saudi Arabia is a Middle Eastern country situated between the Red Sea and the Persian Gulf. One of the largest and most populous states in Asia and the Arab world, Saudi Arabia shares land borders with numerous Arab states, including Kuwait, Qatar, Bahrain and the UAE, and is a prominent regional and international business destination. Saudi Arabia’s economy was historically agriculture-based thanks to the nomadic lifestyle of its population but after the discovery of substantial petroleum deposits in 1938, the country’s financial influence expanded and it became one of the world’s most prolific oil producers. In the 21st century, oil production is the backbone of the Saudi economy, helping GDP rise to $779 billion (with 0.33% growth in 2019) and comprising around 90% of export earnings. Recently, the Saudi government has made efforts to diversify by stimulating its small mining and agricultural sector, however the oil and gas industries continue to provide the vast majority of the country’s commercial interests and development efforts remain concentrated on them. Saudi Arabia is a member of the G20, OPEC, and the Gulf Cooperation Council and was ranked 62 on the World Bank’s Ease of Doing Business Survey 2019 - a significant improvement on its 2018 ranking of 92.

Why Invest in Saudi Arabia?

Interested investors may choose Saudi Arabia for a number of reasons, including:

• Oil Opportunities: The petrochemical industry continues to drive Saudi Arabia’s economic growth - but the industry also creates a range of peripheral opportunities across the business landscape, including in mining, hospitality, health, and leisure. The Saudi government recently announced plans to invest around $47 billion in three ambitious petrochemical projects.
• Infrastructure Improvements: Saudi Arabia’s businesses are served by modern, and continuously improving transport, energy, and communication infrastructures, which are expected, to be part of an estimated $1,000 billions of collective investment over the next 20 years.
• Incentives for FDI: The Saudi government has established a number of incentives for foreign investors, including the Saudi Arabian General Investment Authority (SAGIA), which assists businesses in obtaining set-up approval. SAGIA also delivers various extra benefits, including lower capital requirements, 100% foreign ownership, tax incentives, employee visa assistance, and more.
• Expat Lifestyle: Saudi Arabia offers expatriate workers a safe, comfortable, and often luxurious lifestyle, with an abundance of leisure facilities and amenities. Employees moving families into the country will find numerous highly rated English and International schools.
• Advantageous Location: Saudi Arabia is located at the heart of the Arab world, and benefits from lucrative trade connections across the region. Saudi Arabia’s free trade agreements include the Greater Arab Free Trade Area, and the European Free Trade Association. International ports and airports across the country connect with the Arabian Peninsula, Asia and the rest of the world.

Registering a Company and Establishing an Entity in Saudi Arabia

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 Organisation of Social Insurance.

Banking in Saudi Arabia

It is mandatory to have an in-country bank account to process payments in Saudi Arabia. All government levies must be paid through a government payment channel, SADAD. SADAD payments can only be initiated from Saudi Arabia based bank accounts.

All entities with more than 10 employees are required to process their payroll payments through Wage Protection System (WPS).

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)..

What Are the Working Days and Working Hours in Saudi Arabia?

The typical working week in Saudi Arabia is Sunday to Thursday from 9am to 6pm. Friday is the only official weekend day and Saturday is often a working day for the construction and service industries.

Basic Facts about Saudi Arabia

General Information

Civilisation in the territory now known as Saudi Arabia dates back over 100,000 years, and was characteristically tribal and nomadic until Islamic society began to coalesce in the 6th and 7th centuries AD. Subsequently ruled by a variety of Arab dynasties and political powers until the 20th century, the Kingdom of Saudi Arabia was founded in 1932 by Ibn Saud, who united the four regions of Hejaz, Najd, Eastern Arabia, and Southern Arabia. The discovery of oil and gas deposits within the kingdom propelled it onto the world stage, and quickly made it a significant international commercial interest. Today, Saudi Arabia remains a hereditary monarchy, with an economy based on its lucrative oil production industry. As the location of Mecca, Saudi Arabia holds a central place in Arab and Islamic culture, and is otherwise a country of predominantly desert landscapes, surrounding settlements and highly populous urban centres. Saudi Arabia holds a variety of desert animals, including gazelles, leopards, and hyenas, while its climate is hot and dry throughout most of the year, with an annual monsoon season between October and March.

Official Name: Kingdom of Saudi Arabia

Capital: Riyadh

Population: 33.7 million (World Bank, 2018)

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

Major Languages: Arabic

Major Religions: Islam

Monetary Unit: Saudi Riyal (SR)

GNI Per Capita: $51,600 (World Bank, 2018)

Main Exports: Petroleum and petroleum products

Internet Domain: .sa

International Dialling Code: +966

Tax in Saudi Arabia

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 is applicable at the rate of 5% from 1st January 2018 on all goods & services subject to limited exceptions.

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 in Saudi Arabia

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

New Employees in Saudi Arabia

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 and each entity has a unique GOSI number. Saudi employees must be added as part of the onboarding process on the first working day.

Saudi Law states that a probation period should not last any longer than 30 days.

Leavers in Saudi Arabia

All leavers must be deregistered from GOSI through GOSI online portal. Employees serving their notice periods are entitled to eight fully paid hours per week or a full day per week to look for alternative employment.

If an employer terminates the employee, they must have valid reason for doing so. Examples of valid reasons include gross misconduct, violence, prolonged absence without reason and employees that are still under probation.

Employers in Saudi Arabia have certain obligations during the payroll process, including withholding tax and social security contributions. While no income tax is generally due on employee wages in Saudi Arabia, social security contributions and nonresident withholding taxes (WHT) must be paid.

• Social security contributions (GOSI) are charged at a rate of 10% to Saudi nationals.
• WHT is paid at a rate of 5-20%

It is legally acceptable to issue employees with online payslips in Saudi Arabia, and payroll reports must be kept for a minimum of 7 years.