BASIC FACTS ABOUT SAUDI ARABIA – C&B MANAGEMENT
Working Week in Saudi: The 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.
Date Format in Saudi: Dates are
usually written in day, month & year format.
(Ex: 23/09/2018, 23 Sep 2018)
Income Tax in Saudi: No income taxes are imposed at a local, state, or provincial level
in Saudi Arabia. The Islamic Zakat tax is imposed on native Saudi citizens, and
charged at a rate of 2.5% on capital assets.
Social Security in Saudi: Saudi
Arabia’s social security system provides benefits for
insurance, old age, injury and disability, and to survivors in the event of an
employee’s death.
Female workers are entitled to 10 weeks of paid
maternity leave, which may be extended for a further unpaid month. Contribution
rates are as follows:
·
Employees contribute to social
security at a rate of 10% (9% social
insurance, 1% unemployment insurance).
·
Employers contribute at a rate
of 12% (9% social insurance, 2%
occupational hazard insurance, 1% unemployment insurance).
*Foreign workers are not entitled to
statutory social security benefits and should make their own arrangements with
an insurance organisation operating in Saudi Arabia.
New Employees in Saudi Arabia: Once an employment contract has been signed,
new employees in Saudi Arabia must be registered with GOSI (General Organisation for Social Insurance), and inducted on to
company payroll. Registration can take place online through the dedicated GOSI
portal.
*Probation
periods for new employees in Saudi Arabia are required by law to last no longer
than 30 days - but can be extended up to 180 days in certain circumstances.
Exit Employees in Saudi
Arabia: Employees who leave their positions in Saudi
Arabia may also be de-registered from GOSI using the online portal. During
notice periods, employees must receive up to 8 full-paid work hours per week,
or alternatively, receive one full day per week to find new employment.
*Employers must be able to
demonstrate justification for terminating employees. Valid reasons include
misconduct, absence, or probationary issues.
Payroll in Saudi Arabia –
Mandatory Deductions: 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 (Withholding Tax) 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.
What is WHT?
Under the law & tax
regulations of the Kingdom of Saudi Arabia (KSA)
is an obligation for all clients to pay withholding tax (WHT) on all “Out of Kingdom” international payments to non-Saudi
resident / registered parties / companies direct to the General Authority of
Zakat & Tax (GAZT).
WHT will be deducted from payments made
to the consultant/contractor in accordance with the law and tax regulations of
KSA.
The client is required to declare
and make payment of the relevant amount of WHT
direct to the General Authority of Zakat and Tax (GAZT). The client is obliged to file and settle WHT monthly tax returns to GAZT within 10 days of the month-end in
which the payment is made and is required to submit an annual WHT return at the
fiscal year end. Failure by the client to withhold WHT or pay the WHT to GAZT timeously will result in the
client being liable to pay ‘late submission fines’ in the WHT that was initially due.
The client whilst engaging with
consultants/contractors should establish clear definitions of the payment terms
within their contracts to ensure there is no dubiety when it comes to paying
for services rendered in line with the WHT
conditions. All service contracts with non-resident entities should be reviewed
from a tax perspective before signing (ie, the wording and definition of the
Scope of Services, the tax liability clause, etc).
If a supply contract includes a
service portion, the value for the services should be stated clearly to avoid
deemed taxable profit computation. The non-resident service provider maybe
entitled to tax credits in their home countries against the WHT borne in KSA.
Method of Calculation & Deduction:
- The client will deduct and
retain the ‘Withholding Tax’ WHT
element of all international payments due to the consultant / contractor.
- Where specifically directed and
authorised by the consultant/contractor, the client will make stage and interim
fee payments directly to the appointed sub-consultants which are licenses
within KSA – consequently these payments will be free of KSA WHT regulations.
All direct payments will be made in full compliance with KSA Tax, applicable
regulations and Laws.
Worked
Example of Payment to ‘Out of Kingdom’ (non-resident/registered)
consultants/contractors:
Consultant Contract
|
Wage (SAR)
|
|
Contract Sum
|
900000
|
A
|
Variations to Work Scope
|
55000
|
B
|
Variations for Reimbursable Expenses like flights, etc.,
|
45000
|
C
|
Total Wage (A + B + C)
|
1000000
|
D
|
Withholding Tax @ 5%
|
50000
|
E
|
Consultant Payment (D -
E)
|
950000
|
F
|
Employee Rights / Compensation &
Benefits:
Employees are protected from working
more than 8 hours per day or 48 hours per week in Saudi Arabia.
Employees must take a break for rest,
prayer and food after working 5 hours consecutively. This break must be at
least 30 minutes. Because one day of rest is required per week, companies are
usually pushed to require that day correspond with the Friday holy day.
Contracts are a huge part of the
employer - employee relationship in Saudi Arabia. All part time workers must
have a contract that states an official termination date. Part time contracts
are renewable only one time. Foreign workers are required to have a fixed term
contract. Contracts remain in force even if the ownership of the company
changes hands. Any back pay owed to employees is also prioritized by law in the
case of a company bankruptcy.
Employees have rights upon dismissal
provided that they serve the employer with 30 days' notice under a monthly
payment contract. Employees receiving payment under other types of contracts
must provide 15 days' notice, if a specific period is not given in the
employment contract.
Compensation, Bonuses &
Severance Pay:
Overtime in Saudi Arabia is payable
at 100% of the normal hourly wage of the employee. There is also a 50% bonus
that must be paid to the employee as well. Any work that is done on Friday or
any public holiday is paid at the overtime rate.
Severance pay is mandated by law to
be 15 days of wages for an employee's first 5 years of employment. Employees
receive a full month of wages for every year after the fifth year.
Saudi nationals have more rights to
certain levels of compensation upon termination than do expatriates. Compensation,
severances and bonuses are also usually detailed specifically in the employment
contract. Labor unions are not a huge force in the country, but the court
system to handle cases of compensation is quite robust.
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