The Kingdom of Saudi Arabia ("Kingdom") is one of the largest economies in the Middle East and a market which has attracted more and more activity in the past six years. Often businesses will seek to explore the market through a partner or a third party with which employees are placed and through which they seek to operate in the Kingdom.
Such operations will more often than not fall foul of KSA legislation designed to prevent a non KSA entity using a KSA entity's trade licence to do business in the Kingdom. Over the past three years, we have seen the KSA authorities clamp down on activities they regard as harmful to the economy and in breach of legislation.
In 2013 a six month immigration amnesty resulted in millions of individuals correcting their status, and thousands being deported for illegal working (For more information click here).
This regulatory clampdown has continued into 2015. In the past few months the Ministry of Commerce and Industry ("MOCI") has intensified its campaign against illegal business ventures being conducted by expatriates in the name of Saudis (''Concealment'') (referred to in Arabic as ''Tasattur'') as part of efforts to put an end to what it called "the most dangerous practice" affecting the business community in the Kingdom.
Tasattur business transactions in the Kingdom are estimated at more than SAR230 billion annually. The majority of these Tasattur businesses are small and medium scale enterprises earning a monthly revenue of between SAR50,000 and SAR1 million. According to a study by the Riyadh Chamber of Commerce and Industry, there are an estimated 200,000 of such Tasattur businesses in the Kingdom (Source: http://www.arabnews.com/saudi-arabia/news/686836).
Article 1 of the Saudi Arabian Anti Concealment Law issued by Royal Decree No. (M/22) dated 4/5/1425H (corresponding to 22/6/2004) (''Anti Concealment Law'') provides that any Saudi who enables a non-Saudi to use the Saudi's licenses and other facilities to invest or engage in commercial activities in Saudi Arabia without (where available) the necessary authorisations and licenses shall be considered as committing the offence of "concealment". Articles 4 and 5 of the Concealment Law provide that a party guilty of "concealment" may be punished by:
- A fine not exceeding SAR 1,000,000 (approximately US$ 266,667);
- Imprisonment for a term not exceeding two (2) years;
- Deportation from the Kingdom; and/or
- Being barred from re-entering the Kingdom.
In addition, the foreign party involved in any "Concealment" may be assessed for tax by the Department of Zakat and Income Tax on the basis of the deemed profits earned in the course of the activities that were "Concealed."
The MOCI's current clampdown is being implemented through its website, several newspapers, and Twitter account. It also publicised the conviction of a Saudi and a Jordanian — in Dammam for their involvement in Tasattur, fined them SAR2 million, and deported the Jordanian national finally publishing their conviction in two newspapers at their expense. MOCI also this month published the conviction of a Saudi, an Indian, and two Yemeni nationals — in Riyadh for their involvement in Tasattur, fined them SAR 450,000, deported the non-Saudis from the Kingdom, and published their conviction in two newspapers at their expense.
Various arrangements can fall foul of the Anti-Concealment Law, including the placement of employees into an agent, client or other partner. The key concern is to monitor employees' activities, business cards and their presentation to the market.
Recently, the Council of Ministers has instructed relevant agencies to carry out surprise inspections in the market and report Tasattur businesses to MOCI. As a tool of enforcing the Anti Concealment Law, the Kingdom is planning to monitor the foreign currency transfers of expats, in order to check if such transfers are coming from Tasattur business activities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.