How Can Foreign Companies Avoid Common Non-Compliance Risk Areas in Saudi Arabia?
This article is the second edition of a 2-part series covering compliance in Saudi Arabia for foreign businesess.
Maintaining full compliance with Saudization requirements, governmental portal regulations and tax laws is the cornerstone of a streamlined, successful Saudi market entry.
This makes it crucial for foreign companies to adhere to Saudi business regulations to ensure the validity and continuity of their operations and achieve better corporate governance.
Non-compliance can occur at different stages and levels, depending on the nature of the business activities and the respective industry. This guide explores common non-compliance areas, in an attempt to help foreign companies successfully navigate the regulatory frameworks in Saudi Arabia.
Licensing
Foreign companies in Saudi Arabia must obtain the necessary approvals from relevant ministries and register an office with a national address to be able to establish a base for their operations.
Non-adherence to licensing requirements renders the company ineligible to carry out commercial operations in Saudi Arabia and benefit from government incentives.
An incomplete or non-compliant company registration results in disqualification from contract acquisition and tender opportunities.
Taxation
Tax evasion can come in the form of late payments of taxes or avoiding paying them altogether, as well as submitting false, fraudulent documents to reduce tax liabilities.
Failure to comply with VAT taxes, for example, attracts fines ranging from SR10,000 to 50,000. Other penalties that apply to all types of taxes include 1% of the tax amount for every 30 days of delay from the due date.
Late filing of tax returns leads to a fine of 25% of the amount, while late payment of fines is subject to 25% of the amount due.
Saudization
Companies that don't comply with Saudization can face difficulties renewing official documents, such as commercial registrations (CR) and general manager (GM) visas.
The first hire after the general manager for the Saudi entity must be a Saudi national; otherwise, the company can't issue visas for its foreign staff.
If the recruitment process for a national takes longer than required, companies might face blockages on their bank accounts.
This can adversely impact their ability to pay their clients in the Kingdom and access banking services, including funding opportunities as well as bidding on key projects.
Governmental Portals
Non-compliance initially leads to blockages on portals and accordingly inability to issue certain certificates or documents.
This can result in ineligibility to submit proposals for key government projects, including giga projects.
Penalties associated with noncompliance can be escalated into fines ranging between SR5000 and SR10,000.
Understanding the Impact of Non-Compliance on Foreign Companies: A Case Study
Governmental portals are seamlessly integrated, meaning that non-compliance with the regulations stipulated in one portal triggers a chain reaction that reverberates across the entire business operations. This rings true for other areas of compliance in the Kingdom, where a lack of adherence to regulations can significantly impact the public perception of a business and its reliability.
For instance, a company that fails to remove terminated employees from the system can be subject to fines for “having ghost employees,” which can be considered a case of occupational fraud.
Speaking of the cascading impact of noncompliance, Abdullah Aldhubaie, from the Saudi expansion team at AstroLabs, said: “We have seen companies that didn't process salaries properly through the WPS, and they got blocked from the whole Ministry of Labour system. That means they couldn't process Iquamas, apply for a new visa, or use other services."
On its end, AstroLabs’ on-ground team helps companies manage key governmental portals and ensure close alignment with local hiring quotas and tax regulations, enabling clients to increase compliance at every stage of their Saudi market entry process.
Starting a business in Saudi Arabia is a journey filled with opportunities and new avenues for financial growth. Getting in sync with the country’s ever-evolving compliance landscape remains crucial to developing a solid business reputation and staying ahead of the competition.
Read the first part of this article to find out how to increase compliance with business regulations in Saudi Arabia.
