United Arab Emirates (UAE)

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.

Foreign investors may choose to set up in one of the mainland, free zones, or offshore jurisdictions. Each has different regulatory authorities and conditions for ownership.

A mainland company allows you to trade across the UAE but generally requires a local sponsor (for some business activities). Free zone companies are popular due to benefits such as:

• 100% foreign ownership
• Full repatriation of profits
• Exemption from import/export duties
• Quick setup (2–5 days in many zones)

Key authorities include the Ministry of Economy, Federal Tax Authority (FTA), Ministry of Human Resources and Emiratisation (MOHRE), and General Directorate of Residency and Foreigners Affairs (GDRFA).

To employ workers legally, businesses must be licensed, registered for tax (if required), and obtain an Establishment Card, Labour Card, and Immigration Card.

A local bank account is mandatory for salary and tax remittances. All companies must register for the Wages Protection System (WPS).

Registrations and Establishing an Entity

Legal entities must be established for payroll operations. Incorporation varies:

• Free-zone entity: 2–3 weeks
• Mainland (DED): 2–3 months

Setup includes:

• Business plan
• Company name approval
• Trade license from Department of Economic Development (DED)
• Registration with Ministry of Labour
• Setup of in-country bank account

Banking

Payroll must be processed through UAE-based bank accounts, especially under Wage Protection System (WPS). WPS is mandatory in mainland and many free zones.

Working Week

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 standard workweek in the UAE is Monday to Friday. Maximum working hours are 8 hours/day, 48 hours/week (6 days), or 40 hours/week for 5-day workers. During Ramadan, daily hours are reduced by 2 hours.

Employees are entitled to one day off per week, usually Friday or Sunday depending on business sector.

Employment contracts must be written and filed with MOHRE, specifying wages, benefits, working hours, probation period, and termination procedures.

Probationary period cannot exceed 6 months.

The Labour Law (Federal Decree Law No. 33 of 2021) regulates employment matters across the private sector.

Labour Ban Rules: A labour ban may be imposed on an employee who fails to comply with proper notice terms or contractual obligations, especially in cases of limited contract terminations before expiry. Certain professions and salary brackets may be exempt.

Employment Law

• Annual Leave: 30 calendar days after one year of service
• Maternity Leave: 45 days (full pay after 1 year, half pay if <1 year)
• Paternity Leave: Not statutory
• Sick Leave: 90 days (first 15 full pay, next 30 half pay, balance unpaid)
• National Service: Mandatory for Emirati males; leave granted with pay

Income Tax

The UAE has no personal income tax on employment income for residents or foreigners.

Corporate Tax (2023–2024)

As of 1 June 2023, a 9% corporate income tax applies on profits above AED 375,000. Companies earning below this threshold are taxed at 0%. Free zone companies may be exempt if compliant with qualifying activity rules.

Social Security

Applies only to UAE and GCC nationals working in the UAE.

Foreign nationals are not subject to social security, but employers must provide health insurance.

Social Security

• Applies only to UAE and GCC nationals
• Employer: 12.5% of gross salary
• Employee: 5%
• Payment due by 15th of following month

VAT

• 5% standard rate (applicable to business transactions, not payroll)

Payroll Process

• Payroll is processed monthly and must comply with the Wages Protection System (WPS) for private sector employees.

  Payslips must be provided to employees and detail:

• Gross pay
• Deductions (if any)
• Net pay
• Days worked
• Overtime and bonuses (if applicable)

Reporting & Recordkeeping

• Payroll records must be retained for at least 10 years
• Free zones may require audited financials during license renewal

New Starts

• Must be registered with Ministry of Labour and immigration
• Federal Labour Contract required
• Probation period up to 6 months allowed

Leavers

• Final settlement includes:
  • Unused leave
  • Pro-rata salary
  • End-of-service gratuity (ESG)

Hiring

Employers must:

• Obtain a valid work permit and residence visa
• File an employment contract with MOHRE
• Register the employee with WPS
• Provide mandatory health insurance coverage

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.

A second contract must be translated into Arabic to be legally binding.

Required documents:

• Passport copy
• Emirates ID application
• Medical test
• Labour contract
• Visa application and entry permit

Termination

Notice periods:

• Minimum of 30 days
• Up to 90 days depending on contract and job grade

Termination must be processed through MOHRE and GDRFA, including cancellation of labour card and visa.

Final settlements must be paid within 14 days, including:

• Outstanding salary
• Unused annual leave

End-of-service gratuity (if eligible)

ESG Calculation

• First 5 years: 21 days’ wage/year
• 6+ years: 30 days’ wage/year
• Cap: Not to exceed 2 years’ gross salary

Minimum Wage

There is no official national minimum wage, except for domestic workers (AED 1,500/month). Wages are agreed contractually.

Annual Leave

• 30 calendar days after 1 year of service
• Pro-rated after 6 months

Sick Leave

• 90 days per year
• First 15 days: 100% pay
• Next 30 days: 50% pay
• Final 45 days: unpaid
• Sick leave requires MOHRE-approved medical certificate

Maternity Leave

• 60 days (45 paid at 100%, 15 at 50%)
• Additional 45 days unpaid if medically required
• In public sector, maternity leave is 90 days with salary
• Further unpaid maternity leave: 100 days without pay

Paternity Leave

• 5 working days (within 6 months of child’s birth)
  
  

End-of-Service Gratuity (EOSG)

For unlimited contracts:

• 21 days’ wage for each of the first 5 years
• 30 days’ wage for each year beyond

EOSG is capped at 2 years' gross wage. Resignation within 3 years forfeits some gratuity:

• 1–3 years: ⅓ EOSG
• 3–5 years: ⅔ EOSG
• 5+ years: full entitlement

Separate calculation methods apply for limited-term contracts. Repatriation costs must be covered by the employer unless forfeited.

Benefits are paid at the employer’s discretion. There is no legal provision for 13th/14th month bonuses.

To employ a foreign national, employers must:

1. Obtain approval quota from MOHRE
2. Apply for Entry Permit (valid for 60 days)
3. Complete Medical test
4. Apply for Emirates ID
5. Issue Labour Card
6. Stamp Residency Visa in passport

Work permits are valid for 2 years and renewable.

Visa process can take 2–4 weeks depending on emirate and employee nationality.

Failure to process visa/residency can result in fines up to AED 50,000 per violation.

Service fees include:

• Entry Permit deposit
• Labour contract fee
• Medical fee
• Visa stamping
• Emirates ID

Change of Status (if applying in-country)

• Abu Dhabi and Dubai have specific labour and immigration departments
• Abu Dhabi employers must register with Abu Dhabi Retirement Pensions and Benefits Fund for Emiratis
• Public holidays are declared by government and change annually (Islamic calendar)
• Employment contracts must follow MOHRE template in Arabic and English
• Salaries must be paid by the 15th of each month via WPS
• Medical insurance is mandatory for all employees
• Violations of WPS can result in work permit bans and fines
  
  

Islamic banks open 8:00–16:00, except Friday (8:00–12:00); some banks reopen 16:30–18:30.

Bank transfer, cheque, cash, and WPS are permitted payment methods; actual options depend on company’s licensing authority.

Further Information

For more information, or assistance with UAE tax and payroll enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

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.