Saudi Arabia to abolish ‘kafala’ sponsorship system in March 2021

Saudi Arabia is to abolish the foreign worker sponsorship system, also known as ‘kafala’, next year and replace it with a new contract between employers and employees, according to an announcement made by the Ministry of Human Resources and Social Development (HRSD) on 4 November.

The Kingdom had been scheduled to abolish the sponsorship system during the first quarter of 2020, but the move was delayed by the onset of the coronavirus pandemic. The reforms are now scheduled to come into effect on 14 March 2021.

The end of the sponsorship system under the Kingdom’s new Labour Reform Initiative (LRI) will give expatriate workers freedom to secure exit and re-entry visas, receive the final passport exit stamp and gain employment in Saudi Arabia without the approval of a sponsor.

Currently more than 10 million foreign workers live in Saudi Arabia under the kafala system, which requires them to be sponsored by a Saudi employer and be issued with an exit/re-entry visa whenever they want to leave the country.

The LRI has been launched under the National Transformation Programme (NTP) to increase the flexibility, effectiveness and competitiveness of the labour market and bring it into line with best international practice and the Saudi labour law.

LRI activates the contractual agreement between employee and employer through digital documentation, which will contribute to reducing the disparity between the Saudi workers and the expatriates. This, said the HRSD, will increase both employment opportunities for Saudis and the attractiveness of the Saudi job market for top international talent.

Employee mobility will allow expatriate workers to transfer between employers upon the expiry of the binding work contract without the employer’s consent. LRI also outlines the conditions applicable during the validity of the contract, provided that a notice period and specific measures are adhered to.

The Exit and Re-Entry Visa reforms allow expatriate workers to travel outside the Kingdom without requiring the employer’s approval after submitting a request; the employer will be notified electronically of their departure.

The Final Exit Visa reforms allow expatriate workers to leave the Kingdom after the end of the employment contract without the employer’s consent and will, again, notify the employer electronically with the worker bearing all consequences – financial or otherwise – relating to breaking an employment contract. All three services will be made available to the public through the smartphone application (Absher) and (Qiwa) portal of the HRSD.

The HRSD said the LRI would enhance the competitiveness of the local Saudi labour market and would also increase the Kingdom’s ranking on international competitiveness indicators because it will bring the labour regulations into line with international practices. LRI is also expected to decrease the number of dispute cases between employers and employees and help to attract high-level calibre employees from around the world.

Saudi Arabia is seeking to boost its private sector and make it more attractive to foreign talent under plans to diversify its oil-based economy. Abolition of the sponsorship system is part of economic reforms being carried out in line with Crown Prince Mohammad bin Salman’s Vision 2030 initiative.

“This is one of the most significant economic and social changes the GCC has seen in recent years,” said Nicholas Cully, Sovereign Group Sales Director.

The development comes as the next step after last year’s introduction of Special Privilege Residency Permit (Premium Iqama) which allows all those who have ties with the Kingdom, irrespective of nationality, “to obtain a permanent or temporary residency that would grant them many privileges as well as the chance to avail of several services for themselves and their families”.

The new legislation allows permit holders to enjoy several privileges previously extended only to Saudi citizens, such as owning real estate, renting out of properties, educational and health services, and other utilities specified in the Executive Regulations.