Saudi Arabia: Saudi Arabia Update - February 2016

Legal developments

Local partner requirement reported to cease

Saudi Arabia seeks to draw investors to help reduce its reliance on oil exports and aims to facilitate foreign companies' investment in its market. The Saudi Arabian General Investment Authority (SAGIA), the Ministry of Commerce and Industry (MOCI), and the Ministry of Labor (MOL) are working together in a triple sectorial committee to review factors that impede foreign investment in the country and eliminate all obstacles slowing down global investment. When the committee concludes its studies, the requirement of a local partner in some sectors is likely to be removed according to local media sources.

Arab News – 1 February 2016

Wage Protection System – 10th phase

As we described in previous  updates, 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 those with 3,000 employees or more. On 1 February 2016, the WPS entered its tenth stage to cover all businesses with between 11 and 100 employees, starting with companies that have 80 employees and more. Employers will have to provide details of their employees' salaries into the system within two months. If employers delay providing these details for more than three months, all services will be stopped, their foreign and Saudi employees can transfer their sponsorship / employment to other firms without consent, and the employer will be subject to a fine of SAR 3,000 for every offence.

Arab News – 18 January and 2 February 2016

9.00pm shop closure; 40-hour work week

As we have described in previous  updates, last year the Council of Ministers proposed a new law requiring most shops to close at 9.00pm, with exceptions for certain types of shops and certain seasons (e.g. Ramadan). The proposed law has been under study and, until recently, has not been discussed significantly via media channels.

The Cabinet of Ministers will soon announce that the government intends to approve a recommendation to require shops to close at 9.00pm, according to government sources. The implementation of the law has been attributed by some to a growing demand to make private sector employment more attractive to Saudi Arabian citizens, so that working long hours past 9.00pm will not be required of private sector employees.
In that regard, the Cabinet also announced recently that another law approved by the Shoura Council reducing the private sector work week from 48 hours to 40 hours will also be approved.

Arab News – 18 and 27 January 2016

No minimum capital for industrial facilities

New investors are no longer required to pay a minimum capital when making their investment applications for industrial facilities in Saudi Arabia. The MOCI issued a ministerial decree to eliminate such requirement in order to facilitate procedures for investors to get their industrial licences and expand the production capacity of the industrial sector.

Arab News – 12 February 2016

Inspection visits guidelines
The MOL has announced that inspectors are not allowed to enter any business establishment without using the official channels nor are they allowed to enquire about salaries. Further, inspectors are not allowed to make random or individual visits, make these visits outside the working hours of an establishment, or make visits while wearing informal attire.

Arab News – 8 February 2016

Introducing VAT in the GCC countries

As we described in previous updates, members of the Gulf Cooperation Council (GCC) are working on an agreement on certain aspects of the value added tax (VAT) regime that will be implemented in the GCC in 2018. The GCC countries have reached the final steps to the agreement that will introduce the VAT. Details of the percentage to be applied are not clear yet but reports have indicated it will be around 5 per cent. According to the agreement, all GCC countries will have their own VAT laws and, if any two members express their willingness, then work on the unified VAT system will begin with implementation around 2018. The VAT will not be imposed on key sectors, such as health, education and social services, and 95 food items will be excluded from it as well.

Arab News – 16 January 2016

Salary delay consequence

According to the Minister of Labor, expatriate employees will have the right to transfer their sponsorships to other employers if their previous sponsors delay the payment of their salaries for over three months and can sue previous sponsors for such delay. As part of the MOL's plan to facilitate communication between the employee and the MOL, a video call service which allows employees to directly reach the MOL has been activated in Jeddah, Rafhaa and Al-Dawadmi. Employers and employees are no longer required to visit the main Labor Office in Riyadh to have their enquiries answered and paperwork processed but can call the customer service officials in the MOL. 

Saudi Gazette – 17 January 2016

Economic cities – diversifying the Saudi economy

The Economic Cities Authority (ECA) was established pursuant to Royal Decree No. A/19 dated 10/3/1431H. corresponding to 24/2/2010G., which gave the ECA power and authority to promulgate rules and regulations applicable to the economic cities within Saudi Arabia. The ECA has enacted a number of regulations relating to real estate sales, importation, foreign investment and the like that are distinct from Saudi Arabian law generally. Some benefits of the economic cities include, for example, foreign ownership of real estate and potentially faster dispute resolution. In addition, foreign investors do not need a foreign investment licence from SAGIA to operate within an economic city.

As part of the efforts to diversify the Saudi economy beyond oil, the King Abdullah Economic City (KAEC) on the Red Sea near Jeddah is seeking to speed up and broaden investment. KAEC has developed around 40 projects since 2005 and is planning to develop 170 for the next 10 years. It has a population of around 5,000 people and is projected to hit 50,000 by 2020, with an ultimate target of 2 million around 2035. KAEC aims, as well, to move into tourism, medical care and education.

Activities by the ECA and the economic cities have increased under the tutelage of King Salman. It will be interesting to see how foreign investment in the economic cities will continue in the future.

Arab News – 27 January 2016

Banking and finance developments


Saudia plans to raise SAR 5 Billion in Sukuk

The Kingdom's local air carrier, Saudi Arabian Airlines (Saudia), is planning to raise SAR 5 billion in Islamic bonds (Sukuk) in order to refinance existing debt and purchase new aircraft. Saudia is planning to expand its aircraft from 157 to 200 by 2020. The delivery and financing of these aircraft will be carried out through Islamic financing in a sale and leaseback deal with Dubai-based International Airfinance Corporation.

Arab News – 25 January 2016

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