United Arab Emirates (UAE) Payroll & Tax Guide - Compliance and Employment Law | activpayroll (2024)

The United Arab Emirates lies on the south-eastern edge of the Persian Gulf, neighbouring Oman and Saudi Arabia and sharing maritime borders with Qatar and Iran.

The country actually consists of seven emirates: Abu Dhabi, Dubai, Ajman, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain - each emirate is governed by an individual monarch, but together form the Federal Supreme Council.

Like other areas of the Arabian Peninsula, tribal civilisations occupied the territory now known as the UAE for hundreds of thousands of years, and numerous powers fought for sovereign control throughout history.

The discovery and exploitation of oil in the 20th century brought prosperity and independence to the UAE and today it is one of the wealthiest nations in the Arab world.

The modern UAE has a reputation for its highly-developed, architecturally-elaborate urban centres, and Abu Dhabi and Dubai in particular generate tourism and business interests from across the world.

Although the UAE is covered by vast desert terrain, its subtropical climate brings warm and hot temperatures throughout the year, and attracts holidaymakers to a number of luxurious coastal resorts.

General Information

• Full Name: Kingdom of UAE
• Population: 9.44 million (World Bank, 2022)
• Capital: Abu Dhabi
• Major Language: Arabic
• Major Religion: Islam
• Monetary Unit: United Arab Emirates dirham
• Main Exports: Petroleum and petrochemicals, fishing, aluminum, cement, fertilizers
• GNI per Capita: US $$48,950 (World Bank, 2022)
• Internet Domain: .ae
• International Dialling Code: +971

How Do I Say?

• Hello: As-Salām Alaykum
• Good morning: Ṣabāḥul KẖAyr
• Good evening: Masā' Al-Khayr
• Do you speak English?: HalTatakallam El-ngliziyya
• Good bye: Bāy Bāy
• Thank you: Shukran Jazīlan
• See you later: Ashoufak Ourayyeb

Dates & Numbers

Dates are usually written in the day, month and year sequence. For example, 1 July 2021 or 1/7/21.

Numbers are written with a period to denote thousands and a full stop to denote fractions. For example, 3.000.50.

The United Arab Emirates (UAE) continues to solidify its position as a global business hub, renowned for its dynamic economy, strategic geographic location, and world-class infrastructure.

Businesses operating in the UAE benefit from the country's stable political environment, robust legal framework, and a highly diversified economy, reducing reliance on oil revenues.

The government's commitment to fostering innovation and entrepreneurship is evident in its numerous free zones, offering tax benefits, 100% foreign ownership, and custom duty benefits. Sectors such as tourism, real estate, trade, logistics, and financial services are thriving, presenting myriad opportunities for business growth.

The UAE's focus on digital transformation and sustainable development aligns with global trends, making it an attractive destination for businesses aiming for regional and global expansion. With its cosmopolitan culture and a forward-thinking approach to business, the UAE remains a top choice for companies looking to tap into the vast opportunities in the Middle East and beyond.

The UAE's investment landscape is known by resilience, strategic diversification, and an investor-friendly environment.

The nation's strategic initiatives, including significant investments in infrastructure, technology, and renewable energy, provide a robust foundation for sustainable economic growth.

Investors are particularly drawn to the UAE's free zones, which offer a range of incentives such as 100% foreign ownership, tax exemptions, and world-class facilities.

The real estate sector continues to be a cornerstone of the UAE's economy, with Dubai and Abu Dhabi offering high-end residential and commercial properties. The burgeoning tourism sector, bolstered by iconic landmarks and luxury hospitality offerings, presents lucrative opportunities for investment in travel, leisure, and cultural projects.

Moreover, the UAE's commitment to becoming a green economy opens new avenues for investment in renewable energy, clean technologies, and sustainable urban development.

With its pro-business policies, strategic geographic location, and commitment to innovation, the UAE is a magnet for investors seeking stability, growth potential, and access to regional and global markets.

The UAE stands as a premier destination for foreign direct investment (FDI), offering a conducive environment for international investors. The country's FDI strategy is centered on diversifying the economy, fostering innovation, and integrating into the global market. Key areas for FDI include:

• Technology and Innovation: The UAE's focus on becoming a hub for innovation attracts FDI in sectors such as artificial intelligence, fintech, and biotechnology. The establishment of tech parks and innovation centres provides a supportive ecosystem for tech start-ups and global tech companies.
• Real Estate and Infrastructure: The UAE's ambitious infrastructure projects and iconic real estate developments continue to attract significant FDI. Opportunities exist in residential, commercial, and industrial property development, as well as in large-scale infrastructure projects such as airports, ports, and roads.
• Tourism and Hospitality: With its reputation as a luxury travel destination, the UAE offers investment opportunities in hotel development, entertainment projects, and cultural initiatives. The country's strategic efforts to boost tourism further enhance its attractiveness for FDI in this sector.
• Renewable Energy and Sustainability: Aligned with the global shift towards sustainability, the UAE is investing heavily in renewable energy sources, including solar and wind power. This presents opportunities for FDI in green energy projects, environmental technologies, and sustainable urban solutions.

The UAE government's commitment to creating a favourable environment for FDI, coupled with initiatives such as 100% foreign ownership in selected sectors and comprehensive support services for investors, reinforce the country's position as an attractive investment hub.

For businesses and investors looking to capitalise on the opportunities in the UAE, the nation's strategic location, economic stability, and forward-looking policies make it an ideal choice.

The estimated timeframe for a legal entity incorporation process varies significantly based on the legal entity type. Free-zone entities can be incorporated in 2-3 weeks, while the registration of a legal entity outside a free-zone can take 2-3 months.

The process of registration of a legal entity outside a free-zone involves:

1. Drafting a Business Plan: The key elements of a business plan are the executive summary, market analysis, company description, organization/management, product/service, market plan and financial plan.
2. Submitting Documents: A completed company registration application must be submitted, along with the proposed company name, to the Department of Development. Preliminary approvals from the license section of the Dubai Department of Economic Development(DED), regarding the classification of the limited liability corporation's capitalization, identity of partners, business activities and trade name, must be obtained before a company can be registered.
3. Submitting the Memorandum of Association to the DED: The DED will supply a standard Memorandum of Association also called Articles of Association that is signed in the presence of a notary.
4. Filing the Company Documents with the DED: The Memorandum of Association, the original and a copy; a letter issued from the DED confirming the company name approval; the original letter of company approval from the DED Committee of Limited Liability Companies and the prescribed application form signed by a director or representative must be rendered to the Commercial Registry and the DED.
5. Obtaining a Trade License: After the notary at the Commercial Registry notarises the memorandum, a license application is completed in Arabic and signed by the company representative and filed with the DED. You must then submit the original lease for the company's headquarters; a form setting out the business name in English and Arabic and a prescribed form for obtaining a clearance on the suitability of the premises from the Dubai Municipal Building Department, if incorporating in Dubai, with the license application.

The company is required to have a legal entity established in order to process a payroll in UAE.

All the applicable payroll registrations of the company are completed during the process of establishing of the legal entity.

The residency permit issuance process takes typically 4-6 weeks and it consists of the following steps:

It is mandatory to make payments to employees from an in-country bank account when the employee is registered under the Wage Protection System (“WPS”). The WPS is mandatory for all the legal entities registered outside the free-zones. In addition, certain free-zones (i.e. JAFZA, Dubai Airport Free Zone, etc.) have implemented the WPS and the employees working in these free-zones must also be paid through the WPS.

In general, the opening hours of Islamic banks in the United Arab Emirates are from 08:00 to 16:00, while opening days every day with an exemption on Fridays (08:00-12:00).

Some banks also offer afternoon opening hours from 16:30 to 18:30 or even continuous opening during the day.

There are different options in UAE for making payments to the employees and/or authorities:

• Bank transfer
• Cheque
• Cash
• Wage Protection System

Payment methods may be restricted depending on the authority to which the company is registered.

1-2 working days for local bank accounts is required for funds to be transferred from the client account to employee bank account. International transfers can take up to 4 working days.

There are currently no personal income taxes applicable in the UAE.

Where a UAE entity employs UAE nationals, it is required to make social security contributions, but there is no requirement for an employer of an expatriate or an expatriate employee to make any social security contributions.

Income Tax

There is currently no individual income tax in the UAE.

Value Added Tax (VAT)was introduced in the UAE on 1 January 2018 and the rate of VAT is 5%. The introduction of VAT provides the UAE with a new source of income which will continue to be utilised to provide high-quality public services.

Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers.

There is no social security scheme available to expatriates.Expatriate employees are not required to make social security contributions.

Appropriate health care insurance is required in order for an individual to obtain a UAE Residence Permit.

It is mandatory for all employers to provide medical insurance to their employees.

It is compulsory for the employer to register a UAE national/GCC Nationals with the General Pension and Social Security Authority (GPSSA) after one month of hiring the employee.

Contributions should be made by both the employer and employee:

• Employer Contribution – 12.5% of employee’s monthly salary (Basic + Housing Allowance)
• Employee Contribution – 5%
• Late Payment Fee – 10%

For GCC nationals, pension rates will vary depending on their country’s pension scheme

The 5% employee contribution will be deducted from the employee’s salary each month while the payment to GPSSA should be done before 15th of the following month.

The UAE does not require any accounting reports to be filed, however, free-zone entities are required to provide audit annual statements to the free-zone authorities during their trade license renewal processes.

The payroll provider is responsible for producing the Year End Reports as per the client’s request.

Potential new hires must be registered with the Ministry of Labour at the time of employment. Employees must be registered with the local authorities as soon as the employment contract has been signed, during the visa application process.

The employer and employee are required to sign a Federal Labour Contract, which is obtained from the Ministry of Labour and is written in both Arabic and English.

Should the employer wish to extend the terms of employment outside of Federal Labour Contract, a second contract must be created by the employer and attached to the Federal Labour Contract. In order to be legally binding, the second contract must be translated into Arabic.

The documents required to register an expat new start are as follows:

• Passport copy
• Residence visa
• Signed contract
• Labour card
• Emirates ID card

The Labour Law states that employees can be hired on a probation period provided the probation period does not exceed six months. During this period the contract can be terminated without any notice and the employee will not be entitled to ‘End of Service Benefits’. If an employee successfully completes their probation period, this period will be regarded as part of the employee’s period of service.

End of Service Benefits

Upon termination of the employment contract, there are certain rights that the employee becomes entitled to under the Labour Law. These are known as ‘End of Service Benefits’.
Upon termination of an employment contract, the employee is entitled to receive the following:

• A notice period with full pay (or payment in lieu of notice if the employer does not want the employee to work during the notice period)

• Payment in lieu of any unused holiday entitlement

• Repatriation expenses - if the employee is to leave the UAE (see further below)

• End of Service Gratuity

End of Service Gratuity (ESG) is a variable amount based on the length of service and by reference to the party terminating the contract. The amount of the ESG is calculated on the basis of the relevant employee’s basic salary. The amount shall not exceed 2 years’ gross salary.

A worker who has completed one or more years of continuous service shall be entitled to ESG at the end of his employment. The days of absence from work without pay shall not be included in calculating the period of service. The ESG shall be calculated as follows:

1. 21 days' wage for each of the first five years of service

2. 30 days’ wage for each additional year of service provided always that the aggregate amount of severance pay should not exceed two year's wage

Whereas for a worker under a limited contract, ESG will only be provided if the worker will complete the contract and it will be calculated as 21 days per year for the first five years and 30 days for each additional year. In case the worker has been terminated by the employer, he will be entitled for 30 days of basic salary for each year of service.

The employer shall, upon the termination of the contract, bear the expenses of repatriation of the worker to the location which he is hired, or to any other location agreed upon between the parties. Should the worker, upon the termination of the contract, be employed by another employer, the latter shall be liable for the repatriation expenses of the worker upon the end of his service. Should the reason of the termination of the contract be attributable to the worker, the latter shall be repatriated at his own expense should he have the means therefore.

It is acceptable to provide online payslips to employees as there are no provisions against online payslips.

Reports

By law, payroll reports must be kept for at least 10 years.

United Arab Emirates (UAE) Payslip Example

The primary authority relevant to employment is the Ministry of Labour and its offices are at multiple locations throughout the UAE. However, some free-zones have adopted their own labour laws/regulations, which apply to all employment matters within the particular free-zone.

The recruitment of skilled employees from the UAE has become easier as employees are now allowed to change jobs without having to complete 2 years in their previous jobs.

In accordance with the new laws, employees who have at least secondary/high-school diplomas will not be banned from taking a new job if their previous employment was ended on a mutual agreement and without being contested. This change lifts the mandatory 6 months labour ban placed on employees who left their jobs before completing a 2-year period in their previous jobs. However, a labour ban may be imposed in any of the following:

• illegally terminated the employment contract or did not observe the provisions of the UAE Labour Law. For example, not respecting the notice period mentioned in his non-limited contract or terminating his limited contract before the end of its duration
• committed any of the violations listed in article 120 of the UAE Labour Law
• worked with another company without obtaining a work permit from MoHRE
• stayed in the UAE after the termination of his employment contract, for any reason, for more than two months without legal justification

Additionally, a labour ban is imposed on new non-skilled labour who did not complete six months of service with their respective employers. The labour ban could be for one-year or permanent.

Holiday Accrual / Calculations

An employee is entitled to two days leave for every month they have worked when they have been in service more than six months and less than one year.

A full time employee is entitled to a minimum of 30 days (exclusive of public holidays) of annual paid holidays when their continuous service exceeds one year.

At the end of the service, the employee is entitled to annual leave encashment for the fraction of the last year spent in service.

Maternity Leave

A working woman is entitled to 45 days maternity leave with full pay which includes the period before and after the delivery, provided she has served continuously for no less than one year.

The maternity leave is granted with half pay if the woman has not completed one year of service.

Working women in the public sector get a longer maternity leave of 90 calendar days. Female workers are also eligible to take up to 100 consecutive or calendar days of unpaid leave, if there is a pregnancy complication.

Paternity Leave

Employees of the private sector are entitled to aparental leave of 5 working daysfrom the day of the birth of their child to six months. The parental leave is a paid leave that can be applied for by both mother and father of the baby.

Sickness

Employees will be entitled to 90 days sick leave once they have completed their probationary period and have worked 3 continuous months after the probationary period with the same employer. Sick leave is paid as follows:

• The first fifteen days with full pay

• The next thirty days with half pay

• Any subsequent periods without pay.

National Service

Compulsory military service for young Emiratis holding a secondary high school certificate and above has been extended to 16 months; previously it was mandatory to serve just 12 months.

Women of the same age group (18-30), as well as men aged between 30-40, can volunteer regardless of their educational qualifications.

The working week in UAE is Monday to Thursday from 8am to 5pm and 8am – 12pm on a Friday (4.5 day working week was introduced on the 1st January 2022)

The maximum normal working hours for adult employees is eight hours per day or 48 hours per week. During the month of Ramadan, normal working hours are reduced by two hours per day.

There are multiple statutory holiday schedules within UAE. Below are the statutory national holidays in UAE for 2024.

Typical benefits afforded to expat employees in the UAE are:

• Monetary provision for housing/accommodation provided
• Travel allowance
• Annual vacation flight ticket to country of origin
• End of Service gratuity

Benefits are paid at the employer’s discretion.

The UAE does not have a legal provision for 13th and 14th month payments. Should the client wish to make these payments, the payroll provider should be able to accommodate the request.

Expenses

Expenses are calculated through payroll when requested by the company.

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.