KSA Introduces Privileged Iqama System and Electronic Authentication of Employment Contracts

The Kingdom of Saudi Arabia (KSA) has recently had two significant developments: (1) the introduction of a Privileged Iqama system, which is the KSA equivalent of the U.S. green card system; and (2) the introduction of a requirement for electronic uploading of employment contracts to a government portal.

The Privileged Iqama

The objective of the Privileged Iqama (PI) system is to increase investment opportunities in the KSA for non-nationals. However, we are still awaiting clear implementing regulations to understand the realistic and practical effects the PI system will have on employment and investment opportunities, especially if early reports are correct that the PI could be cost-prohibitive and easily revoked by KSA authorities.

By law, the PI system allows non-Saudi nationals to hold residency in the KSA on either a renewable one-year basis or a permanent basis. The benefits that come along with the PI system include, but are not limited to, the following:

• Ability to reside in the KSA with immediate family members
• Right to own property for residential, industrial, and commercial purposes in all Saudi cities (except Makkah and Madinah)
• Right to work in any establishment and to change employment at any time (i.e., the PI system is not tied to specific employment)
• Ability to undertake commercial activities in the KSA in accordance with the Foreign Investment Law

In order to apply for a PI residency permit, the applicant must meet the following requirements:

• Be at least 21 years old
• Hold a valid passport
• Provide evidence of financial solvency
• Provide a police clearance certificate
• Provide a health certificate that was obtained within six months of application
• Have a valid residency visa (if already residing in the KSA)

While the general consensus is that the PI system is a long-overdue and welcome step toward opening up investment opportunities in KSA to non-Saudi nationals, it is anticipated that the associated fees will be significant, suggesting that it is targeted mainly at entrepreneurs who will be able to invest in the KSA and create job opportunities for highly skilled workers. Therefore, a PI residency permit is likely to be out of reach for the vast majority of people. Also, it is anticipated that the revocation grounds will be potentially wide in scope, which likely will have an adverse impact on investor confidence. Based on the current ambiguity surrounding how the PI system will function in practice, we eagerly await the implementing regulations. Once we know more, we will be able to assess the extent to which the PI is going to change the landscape for employment and investment opportunities for individuals in the KSA.

Electronic Authentication for Employment Contracts

The Ministry of Labor and Social Development (MLSD) has implemented a new resolution requiring all employers to upload and update employment contracts through the contracts authentication service via the General Organisation of Social Insurance’s web services portal. The main goals of this new law are to standardize employment contracts in the KSA, reduce compliance issues, and avoid labor disputes. Specifically, the uploaded employment contracts must comply with the most recent KSA labor law amendments from April 2016.

In terms of timing, the new law requires immediate compliance for all new hires and for any staff transitioning to a new contract. However, for current employees, the law allows compliance to be undertaken in phases, depending on the size of the company, between now and the end of 2020.

As a practical penalty for company noncompliance, an employee whose contract has not been electronically authenticated within the time period set by the MLSD can change employers without the consent of the current employer. While the resolution offers some leniency for updating and uploading existing employees’ contracts (especially for smaller companies), the fact that the new law requires immediate compliance for all new hires means that organizations are legally obligated to have an up-to-date and compliant employment contract for all new staff and to ensure that current contracts are in compliance. Employers may want to review their KSA employment contract templates and employment contracts for existing employees to ensure that they are compliant with the April 2016 labor law amendments.

Written by Mohsin Khan and Zahir Qayum of Al Tamimi & Co. and Roger James of Ogletree Deakins

© 2019 Al Tamimi & Co. and Ogletree, Deakins, Nash, Smoak & Stewart, P.C.