With a favorable tax environment and a rapidly growing economy, the United Arab Emirates (UAE), a federation composed of seven regions and more than 9 million people in the Middle East, has transformed over the years to become an attractive market for businesses from around the world. As the country continues to grow, it offers a free market economy that is welcoming to foreign investments. Furthermore, a host of multi-national organizations across industries such as technology, transportation, communication and retail have already successfully expanded their operations into the UAE.
However, navigating through the payroll regulations in the UAE is labor-intensive, as its requirements are amended often, without much or any notice to employers. Failing to adhere to regulations can add undue costs to a company’s global payroll operations.
For growing enterprises looking to capitalize on the UAE’s broad-based, dynamic growth in recent years (reaching nearly $650 billion in GDP annually in terms of purchasing power parity), incorporating UAE operations into their global payroll strategy is key to organizational success. Here are several key should consider as they establish or expand payroll in the UAE.
Doing business in the UAE has gotten easier since the government has increased spending on job creation and infrastructure and opened up its utilities space to greater private sector participation. The country's free trade zones offering companies 100% foreign ownership opportunities with zero taxes.
Incorporating a business involves different processes and approval timelines depending on entity type. Free-zone entities can typically be incorporated in 2-3 weeks, for example, but the registration of a legal entity outside a free-zone can take 2-3 months. The company is legally required to have a formal entity established in order to process a UAE payroll, but all applicable payroll registrations are completed during the process of establishing of the entity.
To compensate employees that are registered under the Wage Protection System (the “WPS”), it is mandatory for UAE businesses to make payments from an in-country bank account.
Both UAE nationals and foreign workers are subject to UAE employment law, with some exemptions for certain categories. New hires are required to sign a Federal Labour Contract, must be registered with the Ministry of Labour as soon as the contract has been signed (during the visa application process for foreign employees).
The standard workweek and workday hours vary depending on an organization’s domain as well as an employee’s education or type. For example, the typical UAE work week for public sector employees begins on Sunday and ends on Thursday, but private businesses are free to set their own schedules. The ordinary workday is 8 hours with a 48-hour maximum.
Compensation & Severance Considerations
Minimum wage in the UAE varies by education. All employee wages must be paid through the UAE’s electronic salary transfer system, known as the WPS, or Wages Protection System. Probation periods are capped at a maximum of six months.
Hours worked beyond 48 in a single workweek are compensated with overtime pay of time and one-quarter or time and a half (for work performed between 9:00 p.m. and 4:00 a.m). Employees who work on Friday, which is considered a day of rest, are entitled to a substitute day of rest or overtime pay of time and a half. Women generally may not be required to work at night (10:00 p.m. to 7:00 a.m.) unless they hold managerial positions or certain medical, technical, or service-industry jobs.
Termination pay is mandatory in the UAE, with some exceptions for employees who are terminated for cause, quit without giving proper notice, or quit before completing a definite-term contract. Employees who have completed one or more years of continuous service are entitled to 21 days of severance pay for each of the first five years of service and 30 days of pay for each additional year of service. There is a two-year maximum payout.
Tax & Withholding Considerations
Employers regulated by UAE Labor Law have no federal tax withholding obligations, as the UAE has no individual nor corporate income tax (except for certain industries including branches of foreign banks and companies engaged in oil and gas). However, the Ministry of Finance confirmed that VAT of 3-5% will be introduced in the UAE by 2018.
Statutory pension contributions for local employees (5%) and employers are required for organizations to maintain payroll compliance. Expat employees do not contribute to or receive pension benefits. Wages must be paid to employees through the WPS within two weeks of the end of the pay period.
UAE regulations entitle employees to vacation, holiday, sick, and maternity leave. Employees who have been working for their employer for between six months and one year receive two days of paid vacation leave per month, and those working for at least one year are entitled to 30 days of paid leave. Labor Law currently mandates seven paid holidays.
In addition, after completing three months of continuous service, employees are entitled to 15 sick days at full pay. Though, subsequent employee sick days (for up to 90 days) are given at partial pay or no pay. In addition, pregnant employees are eligible for maternity leave of 45 days.
|Date||UAE's Public Holiday Schedule|
|January 1st||New Year's Day|
|27 Rajab||Israa wal Miraj Night|
|1 - 3 Shawwal||Eid ul-Fitr/ End of Ramadan|
|9 -12 Dhul-Jijjah||Eid ul-Adha/ Day of the Sacrifice|
|1 Dhu Al-Hijjah||Haj Season|
|9 Dhu Al-Hijjah||Arafat Day|
|10 Dhu Al-Hijjah||Eid Al Adha|
|1 Muharram||Hijri New Year's Day|
|November 30th||Commemoration Day|
|12 Rabi' Al-Awwal||Prophet Mohammed's Birthday|
|December 23rd||UAE National Day|
Payroll regulations across the UAE are not exactly intuitive or universal. (For example, in some instances employment records are required to be in Arabic; in others, no such requirement applies). To achieve ongoing success with UAE payroll and stay up-to-date on all required guidelines, multinational companies are wise to engage a trusted global payroll managed services partner.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.