Saudi Arabia Payroll Services

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Saudi Arabia Payroll

The Kingdom of Saudi Arabia (KSA) enjoys an economic strength that is built on oil fields – it holds 15% of the world’s known reserves and is the largest global exporter of crude oil. Saudi Arabia had Gross Domestic Product of US$842 billion in 2021, 19th in the world, with growth for 2022 predicted at around 7%.

The Saudi government exerts strong control over business activities but is encouraging private enterprise to generate diversity and a greater role for Saudi nationals on company payrolls. As a strong move in this direction, Saudi Arabia issued 44 licenses for multinationals to move their headquarters to the capital, Riyadh, including PepsiCo, Deloitte, Unilever, and Baker Hughes. From 2023, foreign companies will need a regional headquarters in Saudi Arabia to qualify for a foreign investment license.

Some of the companies being targeted have regional headquarters in neighboring United Arab Emirates, which the Saudis want to rival as the No. 1 business hub for West Asia and the Middle East.

Plainly, there are strong reasons attracting international companies and staff to Saudi Arabia, but when it comes to hiring and operating payroll – and obtaining the necessary permits and visas – the required processes are prolonged and complicated.

Firstly, companies must establish a legal entity in Saudi Arabia to be allowed to hire and run payroll, before complying with social insurance regulations and employees’ entitlements and guaranteed benefits. This comprises a heavy workload that needs expert advice.

What Saudi Payroll Options are available for Companies?

Remote payroll: This allows businesses to operate under a single payroll system, by adding employees to the parent company’s payroll in Saudi Arabia. However, these employees must operate under different regulations, which can lead to mistakes and cause problems.

Internal payroll: You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence in Saudi Arabia. However, this does require hiring dedicated HR staff who understand the Saudi employment and compliance laws.

Saudi Arabia payroll processing company: If you are considering outsourcing, then working with a Saudi payroll company will help in processing your payroll – but not when it comes to compliance.

Saudi Arabia payroll outsourcing: However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can handle payroll and compliance for all your employees in Saudi Arabia. We lift the administrative burden from your shoulders so you can focus on what you do best.

Saudi Arabia Payroll Services

International companies planning to hire staff and operate payroll for their employees in the Kingdom of Saudi Arabia (KSA), must establish a subsidiary as an independent legal entity. This is essential even though there is no personal income tax levied on employees’ salaries. Employers must still deal with the Zakat, Tax and Customs Authority (ZATCA) – ‘Zakat’ being the 2.5% annual deduction for charitable and religious purposes. Additionally, employers and employees must register with the General Organization for Social insurance (GOSI).

The obligations of operating payroll and complying with employee entitlements is one element that companies must balance against expanding into the formidable Saudi economy.

The first step is to set up the subsidiary in Saudi Arabia, with the most popular choice being a private limited liability company (LLC). The subsidiary is a legal entity separate from the parent company which, along with shareholders or partners, is liable only to the extent of their contribution to the invested capital.

The protracted procedures begin with applying to the Ministry of Investment Saudi Arabia (MISA), formerly Saudi Arabia General Investment Authority (SAGIA) pre-2020, and eventually receiving the commercial registration certificate. Post-incorporation, applying for and receiving various certificates and official documents can take several months.

There is an alternative route through Saudi Arabia’s complex corporate landscape, with Bradford Jacobs effectively and efficiently establishing your company’s place in the Saudi economy. We recruit the staff in-country, then put into action our comprehensive knowledge of tax and payroll regulations. Sourcing local staff who have an ‘iqama’ (resident work permit) speeds up the process. As part of the service, Bradford Jacobs deals with the tax and social security authorities directly from our payroll system. Procedures are still complex, but your new staff can be up and running in days rather than the months it would take to set up a legal entity in the country.

Outsourcing payroll in Saudi Arabia will streamline your operations by dealing with the following procedures for onboarding staff:

  • All contracts must be logged and approved through the online Qiwa website
  • Once the contract is signed, register employee online with GOSI. All Saudis must be registered, and expats can elect to register independently of their employer
  • Register employee with ZATCA. Although there is no personal income tax on Saudi-sourced income, withholding taxes apply to non-residents

Note: Foreigners entering Saudi Arabia to work require a sponsor (kafeel), which can be company or individual, and must have a written employment contract. Employers must then:

  • Ensure expat has the 10-digit Sponsor ID from the Ministry of Human Resources and Social Development
  • Use Sponsor ID to verify the ‘iqama’ residence and work permit, issued by the Ministry of the Interior. To obtain a foreigner’s work, permit a Saudi national must already be on the subsidiary’s payroll

What is required to set up Saudi Payroll?

Foreign companies must establish a subsidiary in the Kingdom of Saudi Arabia (KSA) to hire staff and operate payroll, with the most popular choice being a private limited liability company (LLC).  Companies are governed by the Companies Law, as amended in 2016. Subsequently, in 2020 the Ministry of Commerce and the Capital Markets Authority published a ‘Draft Law’. Among changes, it removed the restriction on a single shareholder LLC being owned by another single shareholder LLC.

There are exhaustive procedures and requirements for foreign companies setting up a subsidiary, including:

  • Obtain pre-approval for the application for an international investment license from the Ministry of Investment Saudi Arabia (MISA), formerly Saudi Arabia General Investment Authority (SAGIA) pre-2020, by submitting a comprehensive business and financial plan
  • Reserve unique company name with the Ministry of Commerce (MOC) and submit Articles of Association
  • Make formal application to the MOC to receive the Registration Certificate
  • Register for taxation with the Zakat, Tax and Customs Authority (ZATCA) – ‘Zakat’ is the 2.5% annual deduction taken to support charitable and religious purposes, which for a company is assessed on various criteria
  • Additionally, employers and employees must register with the General Organization for Social insurance (GOSI)
  • Secure lease agreement for business premises and register with the appropriate municipality. This process can take up to three months to complete, after which GCC and Saudi nationals can begin operations, but not foreign-owned subsidiaries
  • Open business bank account
  • Submit municipality lease, tax number, registration certificate, bank’s confirmation of deposited share capital to MISA, who then issue the foreign business investment license. At this point the business can start operating
  • There is no statutory minimum for share capital, but MISA requires foreign LLCs to have minimum capital of at least SAR 500,000 (€130,750, US$133,180)
  • The subsidiary must publish a résumé of the Articles of Association in the Official Gazette, register with the relevant chamber of commerce, and produce a company seal
  • A minimum of one shareholder is required under the new Companies Law (2016), prior to which the requirement was for two. The shareholder can be a person or entity. There is no requirement on number of directors