Global mobility professionals with operations in Saudi Arabia must prepare now for the vast changes ahead for their workforce. With the Saudi government under intense pressure to reduce the high unemployment rate among its citizens, multi-national companies may face crippling blows as the country implements its most aggressive job nationalization plan on June 11.
1. The June 11 job nationalization plan called the Nitaqat programme, will classify firms as “excellent and green” and those failing to abide by the rules and regulations stipulating the hiring of more Saudis will be classified as “red and yellow.”
The Nitaqat system requires one Saudi native employed for every 10 foreign nationals. Currently 300,000 companies in the world’s oil powerhouse are bracing for these expansive changes to its workforce.
In the past, expats working in Saudi Arabia had no personal income taxation beyond the payment of 9% social insurance, coupled with the very low corporate taxation, was definitely the “key attraction” to operating and working in this kingdom.
It is estimated that nearly six million foreigners work in the Saudi private sector, accounting for around 90% of the sector’s total work force.
Saudi Arabia’s Labor Minister, Adel al Faqieh, has taken extreme measures, due to Saudi Arabia’s high unemployment rate (estimated at 39%), to promote nationalization (formally known at Saudization).
The Saudi Government has already taken polls with companies to get an idea of how many of them are being compliant with hiring Saudi natives.
2. Companies in the red zone are not allowed to renew or request work permits until they become compliant.
Currently there are over an estimated 340,000 companies with zero local Saudi’s employed. This is a huge concern, and is creating a state of emergency for these businesses. This could create upward of half a million to a million job displacements for locals in Saudi Arabia.
In addition to non-renewal of work permits, the Saudi government has also instituted a cap on work permits for companies in the red and yellow zones.
3. A six-year cap in place on work permits for companies in the red and yellow zones.
This is a huge concern, and has triggered fears among foreigners residing in the region.
Recently, amnesty was granted to illegal immigrants that were to be deported back to their home country. If in Saudi Arabia and need assistance with an exit stamp, you will need to report to the deportation labor regulations since there are around two million expatriate Indians in Saudi Arabia, many of them blue collar workers.
Conversely, 34% of the expatriate population in Saudi Arabia is hoping to repatriate due to increased cost of living, higher education costs, and overall difficulty raising children in Saudi Arabia according to a recent HSBC survey.
However, with the Nitaqat system in place, and a possible VAT tax, we will most likely see prices continue to increase which would in turn result in more expatriates wishing to leave the kingdom.
To receive expert advice and more information about these changes, please contact a Lexicon representative today.