Payroll & HR Insights From a Leading UAE Payroll Outsourcing Provider
This guide is a must read before you either outsource your UAE payroll or build a local HR and Payroll function. As a UAE Payroll Outsourcing market leader, Mercans can guarantee your full compliance with all the applicable regulations.
Investing in UAE
The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Successful efforts of economic diversification have reduced the portion of GDP based on oil and gas output to 25%.
The government has increased spending on job creation and infrastructure expansion and is opening up utilities to greater private sector involvement.
The country’s free trade zones – offering 100% foreign ownership and zero taxes – are helping to attract foreign investors.
Registrations and Establishing an Entity
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.
It is mandatory to make payments to employees from an in-country bank account when the employee is registered under the Wage Protection System (the “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 work 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
• Wage Protection System
Payment methods may be restricted depending on the authority to which the company is registered.
1-2 working day 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.
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 shall be eight hours per day or forty-eight hours per week.
Basic Facts about UAE
Full name: Kingdom of UAE
Population: 9.4 million (2017)
Capital: Abu Dhabi
Major Language: Arabic
Major Religion: Islam
Monetary Unit: United Arab Emirates dirham
Main Exports: Petroleum and Petrochemicals, Fishing, Aluminum, Cement, Fertilizers.
GDP per Capital: $73,879 (World Bank, 2017)
Internet Domain: .ae
International Dialing Code: +971
How to 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
Tax & Social Security
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 an 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.
There is no Individual Income Tax in the UAE.
Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent.
Implication of VAT for businesses
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. The difference between these sums is reclaimed or paid to the government.
VAT-registered businesses generally:
- must charge VAT on taxable goods or services they supply
- may reclaim any VAT they have paid on business-related goods or services
- keep a range of business records which will allow the government to check that they have got things right
VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be done online.
If they have charged more VAT than they have paid, they have to pay the difference to the government. If they have paid more VAT than they have charged, they can reclaim the difference.
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 with the General Pension and Social Security Authority (GPSSA) after a month of hiring the employee.
Contributions should be made by both the employer & employee.
• Employer Contribution – 12.5% of employee’s monthly salary (Basic + Housing Allowance)
• Employee Contribution – 5%
• Late Payment Fee – 10%
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 10th of the following month.
The social security payments that have to be made for the UAE nationals must be processed through the UAE Funds Transfer System (UAEFTS). UAEFTS payments are facilitated by the UAE commercial banks.
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 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 from Expat new starts are as follows-
• Passport Copy
• Residence Visa
• Signed Contract
• Labour Card
• Emirates ID Card
There is a Gratuity (End of Service Benefits) once the employee has left the company that is mandatory for companies to pay.
Final payment must be made upon cancelation of Employment Visa.
Notifications have to be made by the employer to the local authorities when there is a leaver. These notification entail cancellation of the employment visas of the expatriate employee and deregistration of the Emirati national employees from the social security authority.
You can find UAE End of Service Calculator from here.
It is acceptable to provide online payslips to the employees as there are no provisions against online payslips.
By law, payroll reports must be kept for at least 10 years.
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 labor ban placed on employees who left their jobs before completing a 2-year period in their previous jobs.
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 of annual paid holidays when their continuous service exceeds one year.
At the end of the service, the employee is entitled to annual leave for the fraction of the last year spent in service.
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 not less than one year.
The maternity leave is granted with half pay if the woman has not completed one year of service.
Paternity leave is not provided under UAE law.
Employee’s 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;
- The subsequent period, without pay.
Emirati men aged between 18 and 30 must sign up for military service. Young women may volunteer.
Those who have finished secondary school will serve for nine months. Those who have not are required to serve two years.
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 are calculated through payroll when requested by the company.
Visas & Work Permits
The residency permit issuance process takes typically 4-6 weeks and it consists of the following steps: