SAUDI ARABIA Law and Practice Contributed by: Zain Satardien, Chadi Hourani and Hayel Hourani, Hourani & Partners
Pension Requirements The General Organisation for Social Insurance (GOSI) is the pension scheme for Saudi Arabian nationals. Every company needs to maintain its own GOSI account and make sure all employees are registered in the system. Pension contributions have to be paid on a monthly basis from the company’s bank account in Saudi Arabia by using the SADAD system (a Saudi- based electronic payment system used by all banks and governmental entities), and the invoice/payment number will be the company’s membership number in the GOSI. Severance Pay Employees are entitled to an end of service gratuity (EOSG) payment, which is payable at the end of the employment relationship. If it is the employer ending the employment relationship, the EOSG is calculated by adding half a month’s wage for each of the first five years and one month’s wage for each of the sub - sequent years. Saudisation Saudisation or nitaqat is a colloquial term used to describe Saudi Arabia’s overall policy objectives for addressing the employment of Saudi Arabian citizens and increasing the technical and professional skills of Saudi Arabian employees, as well as in the small business sector for Saudi-owned companies and local entrepreneurs. This policy is implemented, enforced, and regulated by several government programmes and policies, and is reflected in nearly every facet of the public and private sectors. On a day-to-day basis, the most common encounter with Saudisation is via the GOSI and the Ministry of Human Resources and Social Development (MHRSD). All companies are required to open a file with these departments and keep these files up to date with respect to employ - ees as they join and leave the company, and much of Saudisation is enforced via the GOSI and the MHRSD accordingly. The Saudisation programme labels companies as platinum, green (high, medium and low), or red based on a formula involving set variables, which are the number of employees; the size of the company; and the activities of the company. Failure to hire the required percentages of Saudi employees under the
tantly, where the transfer is not to a Saudi Arabian entity, the exemption will not apply. Indirect disposals may also be subject to capital gains tax if the transaction results in the transfer of owner - ship or control over Saudi-sourced assets through the disposal of shares or interests in an offshore holding entity. 9.5 Anti-Evasion Regimes Saudi Arabia does not have specific general anti- avoidance rules. However, rules are embedded with - in the broader tax and zakat framework. These rules focus on preventing abusive tax arrangements that lack genuine commercial substance and are primar - ily structured to evade taxes. Saudi Arabia is also a signatory to the multilateral instrument (MLI), which includes anti-abuse provisions, such as the principal purpose test (PPT), which denies treaty benefits if the principal purpose of a transaction is to obtain a tax advantage. 10. Employment and Labour 10.1 Employment and Labour Framework Labour and employment in Saudi Arabia are mainly governed by the Saudi Arabian Labour and Work - men’s Law (LWL) and its Implementing Regulations (IRs). The LWL is generally an employee-friendly law and there is a duty on employers to have sound pro - cedures and mechanisms in place to maintain compli - ance, conduct investigations, employee disciplinary procedures, and employment termination. The rights and duties of employment under the LWL and its IRs generally apply equally regardless of nationality. Hiring, dismissals, salary, benefits, leave, working hours, disciplinary rules, severance pay, and the like, all apply equally regardless of nationality. One key difference is that only Saudi Arabian nationals may work on an open-ended employment contract without a fixed end date. Non-Saudis must have a valid work permit (iqama) in order to work which is only issued and valid for one year. The LWL and IRs generally set out strict disciplinary and termination procedures.
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