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Insights   >   Top 4 Common Legal Issues Businesses Face In Saudi Arabia And How To Prevent Them

Top 4 Common Legal Issues Businesses Face In Saudi Arabia And How To Prevent Them

Author: Daniyal Chishti & Albatul Alharthi
Dec 14, 2022
Employers • KSA

The Kingdom of Saudi Arabia (KSA) offers numerous opportunities for foreign businesses. Saudi Arabia, the world's largest petroleum exporter, has used its wealth to build several bustling cities and has been focusing on the diversification of its industries through Vision 2030. Due to astronomical growth and changes, doing business in Saudi Arabia may present some challenges.

Understanding and addressing these challenges can help you increase your chances of establishing a successful business in Saudi Arabia.

Saudi’s Employment Law Violations

Businesses must follow the Saudi labour code. Unfortunately, there are numerous cases where companies fail to do so, and employment law violations are among the most common legal issues that businesses face throughout the Kingdom. Labour law violations can take many forms, such as failing to observe weekly rest periods or annual leave entitlement, exceeding the legal limits for overtime, underpaying employees, or failing to meet the Nitaqat status. Read Top 5 Ways To Achieve Green Nitaqat Status in KSA

For instance, if any amount is deducted from the worker's wages without his written consent, or if the employer delays payment of the worker's wages without a valid justification beyond the due date specified in the governing law, the worker may submit a request to the labour courts of the settlement of labour disputes to order the employer to return any wrongfully-deducted amounts or to pay him his outstanding wages.

Suppose it is established that the employer has unjustifiably deducted or delayed payment of the wages. In that case, the preceding labour courts may impose a fine not exceeding double the amount deducted from the worker's wages.

It is critical to have an experienced HR and compliance team or work with external legal experts who are familiar with all the regulations in place and keep an eye out for potential employment law changes to prevent violations of applicable labour laws. Working with an experienced Employer of Record like ours in KSA who handles all legal and administrative employment tasks is the best way to ensure compliance when managing talent in KSA.

Wrongful Termination in KSA

Wrongful termination technically falls under the broad category of employment law violations. Lawsuits involving employee termination are much more common than businesses believe.

Businesses should handle employee terminations with extreme caution to ensure that the dismissal is legally justified and that the notice period is followed.

Although the legal grounds for termination and the necessary procedures vary, it is standard practice in Saudi Arabia that employers must provide timely notice to their employees, deliver an official letter of termination stating relevant reasons for the dismissal, and provide severance pay.

According to article 77 from Saudi labour law if an employee is dismissed for an "invalid" reason, he or she will be eligible to receive one of the following:

  1. A sum of money agreed upon in the employment agreement; or
  2. If no monetary compensation is agreed upon in the employment agreement:
    1. Their salary for the remainder of their employment contract (subject to a stipulation) if they are employed, of two months' wages on a fixed-term contract of employment
    2. Or 15 days' pay for every year of service (subject to a two-month minimum wage) if they are employed for an unlimited-term contract  

If you decide to reduce the size of your team, an Employer of Record like TASC can assist you in handling employee termination in full compliance with local laws. It is always best for businesses in KSA to ensure that their HR department is up to date on all applicable laws and consult an employment lawyer if in doubt. Read Here’s Why You Need A GRO Service Provider in KSA

Intellectual Property Infringement (IP)

Although not always on a business’s radar, intellectual property infringement is surprisingly a frequent legal issue that affects businesses in Saudi Arabia. IP violations, such as using other companies’ trademarks for auto parts and other consumer goods are a significant problem in the Kingdom.

The Saudi Authority for Intellectual Property (SAIP) aims to organize, support, sponsor, protect, and promote intellectual property in the Kingdom through global best practices. For example, in Saudi Arabia, anyone other than the rightful owner is not permitted to register a trademark similar to an internationally recognized mark. Infringement of a valid trademark is punishable by imprisonment for no more than one year and a fine of no less than SAR 50,000 and no more than SAR 1 million.

Businesses should exercise due diligence when creating and naming new products by looking for pending patents and or trademarks to safeguard themselves from prolonged legal battles. The same holds for using text, pictures, and other visual content across the Kingdom.

Saudi Government Portals Management

Saudi Arabian businesses should comply with government portals such as Mudad, QIWA, Muqeem, and GOSI to avoid penalties. These portals provide a single window for businesses to comply with government regulations and procedures. The portals also provide online services to businesses, including licensing, registration, and monitoring. Failing to comply with government portals can lead to fines and other penalties.

Mudad Portal – This is crucial for Mudad (Wage Protection System), as the salary file must be updated on or before the 17th of every month. If this isn't done, the organization risks paying fines and having its MOL blocked, which affects its COB.

QIWA – QIWA is a one-stop shop for keeping track of a company's Nitaqat status. It is critical to monitor QIWA every week; this allows organizations to maintain a healthy (Medium Green) status, ensuring smooth operations.

Muqeem – This labour portal allows you to electronically connect your facility to the General Directorate of Passports and provides many services, such as renewing residence permits via the Muqeem website. It is crucial to keep an eye on this because all IQAMAS are renewed through Muqeem. Hence, renewals must be completed on time to avoid fines in the long run.

GOSI – GOSI, or the General Organization for Social Insurance, is a key government organization in Saudi Arabia that implements the provisions of the country's Social Insurance Law. They are primarily concerned with collecting contributions from employers, obtaining legal social insurance coverage, and paying benefits to insured individuals or their family members. KSA nationals and expats must update and make GOSI payments on time; failure to do so may result in violations and fines from HRDF.

Allow TASC To Streamline Your Business Operations in KSA

TASC Outsourcing provides a comprehensive suite of solutions for starting a business in Saudi Arabia. You get quick, dependable, and unbiased advice on your specific business setup needs. We can assist you in choosing the right license for your business activity and walk you through the entire process from start to finish while guaranteeing 100% compliance.

With over 15+ years of local and global experience, our experts at TASC Outsourcing can help businesses to successfully set up in the Kingdom. TASC Outsourcing is a one-stop solution for mainland business setup, GRO services, payroll outsourcing, and HR operations across the Kingdom. Our local specialists have an in-depth knowledge of Saudi labour laws, Visa/ IQAMA, and licensing regulations and will streamline your interactions with the government.

If you want to set up your business operation in Saudi Arabia, TASC can assist you in identifying and addressing these challenges. We have assisted companies in successfully expanding into Saudi Arabia and other markets. To learn more about our services, please contact us today.

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