In January 2018, Saudi Arabia implemented a bill that forces private companies to pay a fee for every foreign worker they employ. The move came as part of the kingdom's Vision 2030 and a governmental strategy aimed at raising non-oil revenue and encouraging companies to hire Saudis.
That same bill failed to work since local businesses - accustomed to cheaper foreign labor which means increased expat employment - couldn't adapt to the fees and still manage to balance their profits. What worsened the issue further is that the expat employee fee was imposed at the same time subsidy cut laws and a value-added tax went into effect.
In a bid to rescue companies that are unable to keep their financial standing, the kingdom's cabinet announced that the state will temporarily cover the cost of the mandatory fees for licensed industrial companies over the next five years. The move is set to cost the government around 29.75 billion riyals (nearly $8 billion).
The move comes after a previous reform failed to solve the issue
The fees proposed under the original scheme amounted to 300 riyals ($80) for every work permit. They were set to increase to 600 riyals ($160) in 2019 and 800 riyals ($213) in 2020 per expat employee, Al Arabiya reported.
However, hundreds of institutions struggled to even cover the 300 riyals per permit fee. This, in turn, led to King Salman approving a $3.1-billion plan to ease the levies, though it didn't fully end the problem.
Saudi employers said the fees eventually contributed to an "exodus of foreign laborers, hitting the economy without making much of a dent in Saudi unemployment."
The industrial employee fee is different than the fees expats have to pay
The fee the Saudi state will now be helping companies pay off is not related to the fees expat residents have to pay on behalf of their dependents. Therefore, the change announced on Tuesday only affects costs that were supposed to be paid by businesses on behalf of their foreign workers.
Fees and taxes to be paid by expats and their sponsors will continue to be applied in the kingdom. One such fee is an annual one paid by every expat when their residence visa is sent in for renewal or when they need to issue a new visa.
The sum goes straight to the state treasury and starts at a monthly 100 riyals ($26) for each individual. This amount is expected to increase gradually until 2020.