UAE payroll and tax overview.

Your guide to doing business in the United Arab Emirates

Doing Business in the UAE

The United Arab Emirates is one of the wealthiest nations in the Arab world and, with a GDP of over $370 billion, is the second-largest economy in the region. Bordered by Saudi Arabia and Oman, the UAE is strategically placed for access to the Persian Gulf states and MENA - and offers businesses one of the most liberal trade regimes in the Middle East. Producing around 2.81 million barrels a day, the UAE’s economy draws heavily on its oil reserves which are the seventh-largest in the world. Despite the ongoing prominence of the oil industry, the UAE has diversified its economy, with trade, tourism, banking, logistics, real estate and manufacturing becoming increasingly important. The UAE government is focused on investing and developing the country’s business infrastructure, and has introduced free trade zones, tax incentives, and a streamlined regulatory environment for foreign investors. The UAE offers its businesses a stable political environment in which to operate, and is one of the most developed nations in the Gulf Cooperation Council. In 2018, the UAE was ranked 21 on the World Bank’s Ease of Doing Business Survey.

Why Invest in UAE?

Interested financiers will find a number of positive reasons to invest in the UAE, including:

  • Business environment: The UAE’s government has established a number of free trade zones which offer 100% foreign ownership. The government has also established a liberal trade regime under which foreign investors are free to repatriate profits along with proceeds from sale and liquidation.
  • Tourism growth: One of the UAE’s economic success stories is its growing tourism industry. Luxury beach resorts, shopping complexes, and spectacular architecture are just some of the attractions to be found across the country. By 2024, the UAE’s tourism is expected to grow to account for 8.5% of GDP.
  • Strategic location: The UAE lies at the southeastern edge of the Persian Gulf, and offers excellent connections to the rest of the MENA region, and the world. Etihad, the UAE’s national airline carrier, is rapidly expanding its fleet to meet increased international demand.
  • Long-term infrastructure: The UAE’s business infrastructure is highly-developed and includes state-of-the-art facilities and services. Numerous construction and development programmes are in place to ensure the UAE provides the highest international standards of business services into the future.
  • Highly skilled workforce: The UAE’s workforce is highly-skilled and attracted by exciting opportunities at international organisations across the country. A spectrum of languages are spoken across the UAE, and expatriates make up around 85% of the UAE’s population.

Foreign Direct Investment in UAE

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:

  • 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.

  • 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.

  • 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.

  • 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.

  • Obtaining a Trade License

After the notary at the Commercial Registry notarizes 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.

Business Banking in UAE

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 13:00, while opening days are from Saturday to Wednesday with an exemption on Thursdays (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.

Working Week and Working Hours in UAE

The working week in UAE is Sunday to Thursday from 8am to 5pm or in some instances, Saturday to Thursday.

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.

Basic Facts about UAE

General Information

The United Arab Emirates lies on the southeastern 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.

Full Name: Kingdom of UAE

Population: 9.77 million (World Bank, 2019)

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 $$40,880 (Macrotrends, 2018)

Internet Domain: .ae

International Dialling Code: +971

 

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Tax & Social Security in UAE

Like most of the Middle East states, the Government of the United Arab Emirates (UAE) receives most of its revenues from the oil industry. 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 in UAE

There is currently no individual income tax in the UAE.

VAT

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 utilized 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.

Social Security in UAE

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 monthly minimum salary subject to social security contributions is AED 1,000 and maximum is AED 50,000.

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 social security payments that have to be made for the UAE nationals/GCC Nationals must be processed through the UAE Funds Transfer System (UAEFTS). UAEFTS payments are facilitated by the UAE commercial banks.

Reporting Tax in UAE

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.

New Employees in UAE

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 Labor Contract, a second contract must be created by the employer and attached to the Federal Labor 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.

Leavers in UAE

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

Where a worker under an unlimited term contract resigns at his own initiative after a continuous service of not less than 1 year and not more than 3 years, he shall be entitled to 1/3 of the ESG provided for in the preceding article. Such a worker shall be entitled to 2/3 of the said ESG if his continuous service exceeds 3 years up to 5 years and to the full ESG if it exceeds 5 years. In case the worker has been terminated by the employer, he will be entitled for 21 days of basic salary for each year of service.

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.

Payroll in UAE

Employers in the UAE have certain responsibilities as part of the payroll process. Since the UAE has no individual or corporate income tax (with the exception of certain oil and gas businesses, and some branches of foreign banks), tax-withholding is not normally a consideration.

Employers are obliged to withhold pension contributions for local workers in the UAE - although foreign workers do not contribute to, or receive pension funds. Local employees must contribute 5% of their wage or salary as pension social security, while their employers must contribute 12.5%.

Wages must be paid to employees in the UAE within two weeks of the end of the pay period. It is possible to provide UAE employees with online payslips - and payroll reports must be kept for a minimum of 10 years.

Foreign businesses with employee populations working across international territories may want to consider outsourcing the UAE payroll process to a service provider in order to develop a global payroll solution. Payroll outsourcing companies in UAE are plentiful, and represent a way to import compliance expertise, along with speed and efficiency.