Introduction to Payroll in UAE

Precisely managing payroll in the United Arab Emirates, particularly Dubai, demands meticulous attention and expertise. At Mercans, we recognize the intricate nature of payroll services in the UAE and Dubai, considering the region’s unique labor laws and regulations. Our dedication to streamlining this process for businesses like yours remains unwavering.

The UAE’s vibrant economy and diverse workforce necessitate a payroll solution that ensures compliance and precision. Whether you’re a local enterprise or a global corporation, our payroll services in the United Arab Emirates and Dubai are designed to cater to your specific requirements. With our comprehensive knowledge, cutting-edge technology, and unwavering commitment to excellence, we stand ready to support your business in this thriving region.

Payroll Transformation with Cutting-Edge Technology, Seamless Integrations, and Recognized Excellence

At Mercans, we are honored to be at the forefront of payroll technology and payroll services in the United Arab Emirates. Our extensive range of payroll solutions encompasses every facet of payroll management, offering a seamless experience tailored to businesses of all sizes and complexities.

  • Technology-Driven Solutions: Mercans leverages state-of-the-art technology to streamline payroll operations in the UAE. Our advanced payroll system simplifies intricate tasks, from initial payroll setup to processing, ensuring precise and punctual payments. Whether it involves payroll taxes, administration, or adherence to local regulations, our technology-driven approach enhances efficiency and accuracy within the UAE payroll landscape. Learn More About Mercans’ Payroll Technology
  • Seamless Integrations for Effortless Payroll: At Mercans, we prioritize seamless integrations to enhance your payroll and HR experience in the United Arab Emirates. Our successful integrations with industry-leading HCM platforms, such as UKG, Workday, Oracle HCM, SAP Success Factors, DarwinBox, and Dayforce, optimize workforce management. By eliminating data redundancy and enabling real-time data flow, our unified HCM and payroll solution not only consolidates payroll processing costs but also streamlines administration. Explore our integrations and discover how they can benefit your UAE-based business at Integrate HCM with Mercans.
  • Recognitions in Excellence: Mercans’ steadfast commitment to excellence in payroll services has earned us recognition both within the United Arab Emirates and on a global scale. Our dedication to compliance, precision, and innovation establishes us as a trusted partner for businesses in pursuit of reliable payroll solutions. Learn more about our achievements in the realm of UAE payroll services at Awards and Recognition.

From managing payroll for small enterprises to delivering comprehensive global payroll services, Mercans’ capabilities span a broad spectrum. Our expertise extends to payroll reporting, HR and payroll integration, payroll automation, and precise payroll calculations. We also offer flexible payroll frequencies to accommodate diverse business requirements within the United Arab Emirates.

Our Payroll Solutions in UAE

Global Payroll Outsourcing in UAE:

Discover Mercans’ comprehensive Payroll Solutions in the UAE, tailored to meet your unique business needs.

  • Global Payroll Outsourcing: Rely on Mercans for payroll management, ensuring compliance with local regulations while offering multi-currency capabilities and seamless integration with global HCM and ERP systems. Trust our expertise to deliver accurate payroll solutions, freeing up your time to focus on strategic business plans and enhance customer service.
  • Managed Services: Ideal for mid-sized and large enterprises operating multi-country payrolls, our Managed Services provide on-demand HR expertise. You can have full confidence in our provider’s security, reliability, and compliance across the board, allowing you to optimize your payroll processes.
  • HRMS (Human Resources Management System): Tailored for mid to large businesses in expansion mode, our HRMS offers a comprehensive range of functionalities, including payroll and benefits. You can select the services that suit your needs, making it a versatile choice for growing organizations.
  • Global Payroll SaaS: Simplify your payroll procedures, reduce costs, and maximize efficiency across 160 countries using our secure, all-in-one platform. Mercans’ payroll engine seamlessly integrates with leading business software applications, including HCM, HRM, financial, and ERP solutions. With over 100 inbound and outbound integrations available, we provide an advanced solution for your payroll needs.

Establishing an Entity in UAE

  • Identify the Nature of Your Business Activity: The first and foremost step is to clearly define the nature of your business activity. Understanding the sector and industry you’ll be operating in is essential, as it has implications on various aspects, including licensing and permits.
  • Determine Your Company’s Legal Structure: Selecting the right legal structure is a pivotal decision. It determines your liability, shareholding, and ownership rights. Whether you choose a sole proprietorship, partnership, limited liability company (LLC), or another structure, it must align with your business goals.
  • Register the Trade Name: Your trade name is a critical aspect of your brand identity. It’s essential to ensure that your chosen name aligns with the nature of your business and adheres to local naming conventions. Registering it secures your exclusive right to use it.
  • Apply for Initial Approval: Before proceeding, you’ll need to obtain initial approval from the relevant authorities. This approval is crucial and often involves validating your business concept and adherence to regulations.
  • Create LSA or MOA: Drafting the Local Service Agent (LSA) agreement or Memorandum of Association (MOA) is necessary. This legal document outlines the roles, responsibilities, and rights of all parties involved in the business, such as shareholders and directors.
  • Choose Your Business Location: Location plays a crucial role in the success of your business. Depending on the nature of your activity, you may opt for an office, warehouse, or any other suitable premises. This choice is significant as it can impact accessibility, visibility, and operational efficiency.
  • Apply for Additional Government Approvals: Depending on your specific business activity and industry, you may need to obtain additional approvals from various government bodies. These approvals could encompass health and safety, environmental permits, or industry-specific licenses. Each of these approvals is essential to ensure your compliance with local laws and regulations.

UAE Free Zones and Benefits

The United Arab Emirates is renowned for its multitude of free zones, each with its unique advantages and offerings, making it an attractive destination for both foreign investors and expatriates. Notable free zones include:

Dubai Internet City (DIC)

DIC is a hub for IT and technology companies, providing an ideal environment for tech startups and established enterprises. It offers extensive infrastructure and a supportive ecosystem for knowledge workers in the IT sector.

Dubai International Financial Centre (DIFC

DIFC is a renowned financial hub in the region, housing a wide range of financial institutions, asset management companies, and investment firms. With its state-of-the-art infrastructure and business-friendly environment, it is the go-to location for financial services.

Dubai Media City (DMC)

As the name suggests, DMC is the heart of the media and entertainment industry. It hosts an array of media companies, advertising agencies, and production houses, attracting professionals in the creative field.

Dubai Knowledge Village (DKV)

DKV is a specialized zone catering to the education and training sector. It offers a dynamic ecosystem for knowledge workers and educational institutions, making it an ideal choice for the education industry.

Abu Dhabi Global Market (ADGM)

ADGM is a financial free zone in the capital city of the UAE. It’s a jurisdiction known for its financial services, offering a strategic location for finance professionals and organizations.

Sharjah Publishing City (SPC)

SPC is a hub for the publishing and printing industry. It is designed to support businesses in this sector and serves as a destination for publishers and media professionals.

These free zones provide several benefits, including full company ownership, tax exemptions, world-class infrastructure, and a wealth of industry-specific services. These advantages make them a magnet for EOR services and knowledge workers in various domains, from IT and finance to media and education.

Key Advantages of Free Zones for International Investors:

  • Full Foreign Ownership: Enjoy complete ownership of your business.
  • Capital and Profits Repatriation: Repatriate your capital and profits with ease.
  • Efficient Business Setup: Swift and straightforward business establishment processes.
  • Thriving Business Ecosystem: Thrive within well-developed business communities.
  • Cost-Effective Options: Explore various choices at competitive rates.
  • Tax Benefits: Benefit from total exemption from corporate and income taxes.
  • Customs Duty Exemption: Import and export without the burden of customs duties.
  • Independent Legal Framework: Operate under distinct laws and regulations.
  • Global Market Access: Convenient access to regional and global markets.
  • Modern Infrastructure: Take advantage of state-of-the-art facilities and technology.

These free zones not only offer foreign investors unparalleled flexibility but also empower them to harness the immense business opportunities that the UAE presents on a global scale.

Requirements for Payroll in UAE

In the United Arab Emirates (UAE), payroll requirements are primarily governed by the UAE labor law. While there is no specific guidance provided for payslips, it is a common practice to issue them on a monthly basis. However, certain key aspects of payroll management are regulated to ensure transparency and fairness.

Payment Control via WPS

For non-free zone companies, payments are closely monitored through the Wages Protection System (WPS). This system ensures that employees receive their salaries in a timely and organized manner. Employers are required to transfer salary payments through WPS within two weeks of the due date mentioned in the employment contract.

Contractual Agreements

In the absence of specific legal requirements for payslips, the employment contract plays a vital role in governing payroll processes. The contract should clearly outline the terms and conditions of salary payments, including the due date and payment method.

Mandatory Local Contracts

It is mandatory for employers to have a written employment contract with their employees. These contracts should be drafted in both English and Arabic and in accordance with UAE labor law. The employment contract must specify all details related to compensation, including the salary amount, frequency of payment, and currency of payment.

Payment in UAE Dirham

The UAE Dirham (AED) is the official currency of the UAE. Consequently, employers are required to make salary payments in UAE Dirhams. This ensures consistency and adherence to the local currency.

In summary, while there is no specific guidance provided for payslips in the UAE labor law, the practices are well-regulated to guarantee timely and accurate payment of salaries. Compliance with the Wages Protection System, clearly defined employment contracts, and payment in UAE Dirhams are fundamental aspects of payroll management in the UAE.

Registration of Employees to Statutory Bodies

Employee registrations are crucial notifications to pertinent statutory authorities, including the General Public Social Security Authority (GPSSA), encompassing tax and social security matters, for both new hires and departures. Mercans includes this registration process as part of our standard service, where legally permitted.

For UAE Nationals, aged between 18 and 60 years, Social Security (Pension) applies. When a new UAE National employee is hired, it is the employer’s responsibility to submit the ‘Insured Employee Start of Service Form’ (Form No 1) to the General Public Social Security Authority (GPSSA) within a maximum of one month from the employment start date.

To facilitate this process, we require the following documents from the client for new hire registrations with the social security:

  • Insured Employee Start of Service Form (Form No 1)
  • Employment Contract
  • Copy of Kholasat ilKeid, certified by the employer
  • Passport copy
  • ID Copy
  • Birth Certificate copy
  • Medical Test Certificate

It’s important to note that the UAE does not impose personal income tax, and therefore, there is no corresponding taxation authority.

Declarations and Payments to Statutory Authorities (Tax, Social Security, and Others)

In the United Arab Emirates (UAE), companies must diligently adhere to a monthly declaration process for Social Security to ensure statutory compliance and safeguard the rights of their employees. Here, we delve into the critical aspects:

Social Security Declarations

Monthly Obligation

Companies are required to file Social Security declarations on a monthly basis.
  • Monthly Payment Alongside declarations, corresponding payment cheques are to be remitted every month.
  • Prompt Submission This should be done within a strict deadline – within 7 days following the conclusion of the month.

Monthly Declaration and Payment Process

  • Precise Calculations The monthly declaration and payment process involves meticulous computation of Social Security deductions. These are calculated based on specific pay elements from January.
  • Form Submission The process commences with the completion of the declaration form, which necessitates the client’s signature.
  • Payment Cheque Subsequently, there’s the preparation and submission of the payment cheque to the authority. This is executed in line with the data contained in payroll reports.

Wages Protection System (WPS)

  • Essential Requirement The Wages Protection System (WPS) is imperative, particularly for specific entities. This includes non-free zone companies and designated free zone enterprises.
  • Monthly Reporting Companies must submit an electronic file in the WPS format each month.
  • Payment Exemption Unlike Social Security, no direct payment accompanies this step.
  • Timely Process The WPS file is generated based on payroll results, and this file is then forwarded to the client for review and approval.
  • Bank Processing Upon client approval, the file is subsequently sent to the employer’s bank for further processing.

Additional Insights

Prompt Contribution Payment

Social Security dues are to be settled without delay. These contributions should be paid within 7 days of the conclusion of the respective month
  • Payment ModeThe preferred payment method is via cheque.
  • Power of AttorneyIt’s worth noting that if someone other than the client is to make these payments, a power of attorney is necessitated.

Responsibility Matrix

To meet the statutory requirements for Social Security, it is imperative that monthly dues are delivered within seven calendar days from the culmination of the month.

Payroll Process in UAE

Efficient payroll processing is a crucial aspect of any organization’s operations. In the United Arab Emirates (UAE), the payroll process follows a specific timetable to ensure smooth and timely disbursement of salaries. Understanding this process is pivotal for businesses to meet their financial obligations and uphold employee satisfaction.

Payroll Processing Timetable

In the UAE, the payroll process operates under a structured timetable to manage the constant influx of data and ensure payroll compliance. Here are the key dates in the annual Payroll Processing Timetable:

  • Cut-off Date: This is the final date for the client to input permanent and variable data in the agreed format. Any data received after this date, unless otherwise agreed, may lead to payment delays. Time constraints often prevent the usual checking and control procedures for late data.
  • Sign-off Date: Before final processing, Mercans provides trial outputs for client review. The client must review these outputs, accept them based on the information provided, and notify Mercans of any significant errors or omissions.
  • Final Processing Date (Payroll Commit): This is when Mercans commits the payroll results in accordance with the calculations and rules. It typically occurs once per pay period, unless in pre-agreed exceptional circumstances. Mercans, alongside the client, ensures that pay slips and associated reports are error-free.
  • Pay Date: This date, determined by the client, is when employees must receive their salaries in their bank accounts. The client must execute all employee payments based on transfer instructions provided by Mercans to ensure timely salary disbursement.
  • Closing Date: On this date, the client approves the current payroll cycle, closing it and opening the next pay period.

Employers’ Role in Payroll Processing

Throughout the pay period, the employer’s Payroll Coordinator collects and approves transactions. All transactions must be available on the cut-off date and signed as approved. The cut-off date allows for correct and timely payroll processing, ensuring that transactions are processed without delays.

If transactions are not available in a timely manner, both parties must consult and establish a new output return date.

Verification and Checks

A critical aspect of payroll processing involves the verification and validation of various transactions. This process ensures the accuracy and compliance of payroll data. It includes checks on:

Taxation and Social Security

Ensuring that all transactions adhere to taxation and social security legislation, which may vary depending on the jurisdiction.

Improbable Transactions

Identifying and scrutinizing any unusual or unlikely transactions before the actual payroll processing begins. This proactive approach helps in maintaining data integrity and compliance.

Transactions Impacting Payroll Processing

Payroll processing encompasses a wide range of transactions that influence salary calculations and disbursements. These transactions include:
  • Employee Details Changes to employee details such as job roles, departments, and tax credits.
  • Hiring and Termination Managing new hires and employee terminations, including final settlements.
  • Payroll ComponentsAdjustments to fixed payroll components, such as pay increases and bank details.
  • Variable Transactions Accounting for variables like sickness days, overtime, reimbursements, and deductions.
  • Wage-Tax Reduction Schemes Calculating wage-tax reductions, such as those related to low wages, training, and parental leave.
  • Loans Handling loans provided to employees, including tracking repayments and deductions.

Closing the Payroll Cycle

At the end of each payroll cycle, there is a need to finalize and close the process. This involves several key steps:
  • Confirmation of Deliverables Verifying that all expected output reports and employee payments have been correctly processed.
  • Client Communication In cases where the client needs to be involved, there is communication to ensure their approval and acceptance.
  • Alternative Arrangements In the event that the client is unavailable on the predetermined closing date, alternative arrangements are made to guarantee the timely completion of the payroll cycle.

Payroll Processing in UAE

UAE Payroll Processing can vary in terms of frequency and types to accommodate different business needs and requirements.

Pre-processing: Data Preparation & Control:

Before diving into payroll processing in the UAE, meticulous pre-processing steps are crucial for smooth and error-free payroll calculations. This phase primarily involves data preparation and control. Employers or payroll providers must ensure that all employee data is accurate and up to date. This includes verifying employee details, tracking changes in salaries, hours worked, and other variables. By maintaining a comprehensive and well-organized database, the subsequent pay processing cycle can operate seamlessly.

Pay Processing Cycle & Pay Calculation:

The UAE Payroll Processing Cycle is a well-defined procedure that commences following the pre-processing phase. Payroll calculation involves various steps to ensure that employees are accurately compensated. This encompasses calculating salaries, bonuses, and any other financial components. Special pay types, like overtime, incentives, and premiums, are also factored in. Additionally, deductions such as tax withholdings, social security contributions, and loan repayments are accurately computed. The Payroll Processing Cycle ensures that all relevant aspects are meticulously addressed to guarantee employees receive their entitled earnings without discrepancies.

Payroll Processing in UAE:

Payroll Processing in the UAE is a comprehensive procedure tailored to meet diverse business needs and requirements. It can be adapted in terms of frequency and types to accommodate various organizational structures.

Payroll Frequencies

The primary payroll processing frequency in the UAE is monthly. However, businesses can request variations to meet their specific needs, albeit with additional charges:

  • Monthly: A single payroll run every calendar month.
  • Bi-weekly/Fortnightly: A payroll run conducted every two weeks.
  • Semi-Monthly: Involves two payroll runs each calendar month.
  • Weekly: A weekly payroll run.
  • Quarterly: A payroll run every three months.

Additional Payroll Types

In addition to regular monthly or periodic payroll, businesses have the flexibility to request specific ‘Additional Payroll Types.’ These options come with additional charges and serve distinct purposes:

  • Advance Payment Run Typically, this involves an advance salary payment, often calculated as a fixed percentage of an employee’s salary or a specific amount. It may also include early payments of commissions or overtime.
  • 13th Salary Run (or Extra Salary) This additional payroll run, often referred to as a 13th salary or similar designations, is usually paid as a regular yearly bonus, which may include an extra month’s bonus.
  • Bonus Run This is a separate payroll run from the regular periodic pay elements and is paid by some companies as a special bonus.

It’s worth noting that each additional payroll run generates its own set of standard reports, such as pay-slips, payroll registers, general ledger reports, bank reports, and more. However, it’s important to highlight that calculations and deductions related to taxation and social security are processed with the regular monthly payroll run, ensuring compliance with relevant regulations.

Payroll Post Processing United Arab Emirates

Following the successful completion of the payroll process, the post-processing phase plays a crucial role in ensuring accuracy, compliance, and timely delivery of necessary documents. This phase encompasses the production and delivery of pay-slips and other essential outputs, maintaining a streamlined and organized approach.

General Ledger Services

General Ledger Services in the context of payroll processing refer to the financial record-keeping and accounting support offered to businesses. These services encompass the preparation of general ledger files and associated outputs to facilitate the accurate tracking of financial transactions related to payroll. Key points to consider for General Ledger Services include:

  • Comprehensive Outputs: General ledger files are available in various formats, including CSV, TXT, PDF, and Excel, to meet the specific accounting needs of the client.
  • Wage Type Mapping: The flexibility to map wage types and pay elements to corresponding accounting codes ensures precise financial tracking.
  • Cost Center Allocation: Each employee’s financial activity can be attributed to at least one cost center, streamlining cost distribution.
Customization Complexity Levels:
  • Minor Complexity: Involves minor adjustments to existing general ledger files, such as label changes or the addition of new columns for specific data.
  • Medium Complexity: Includes tasks like splitting cost center allocations and introducing GL class information.
  • High Complexity: Enables intricate customization, such as employee-specific GL posting and the creation of structured files tailored to specific ERP systems.

These services contribute to efficient financial management by providing accurate, tailored solutions for accounting and financial reporting needs.

Production and Delivery of Pay-Slips

Pay-slips are generated in a standard format and made available to the client. These documents can be easily printed, distributed to employees, and archived for future reference.

Standard Delivery Options

Employers have several options for pay-slip delivery:

  • Payslips Hardcopy Delivery Pay-slips can be delivered as hardcopies through the national mail service. They are printed, enveloped individually, and sent to a designated business address.
  • Courier Delivery (Recommended)Opting for courier delivery ensures prompt and reliable receipt of pay-slips at the client’s business address.
  • Email PayslipFor convenience, pay-slips can be sent directly to employees via email, either to their company or personal email accounts. Customization of pay-slips is available upon request and is subject to additional charges.

The standard format for payroll outputs is in Excel or pdf, and most reports are provided electronically. In cases where statutory forms require manual completion, employers must ensure compliance with these requirements.

Effective payroll post-processing is vital for maintaining accurate records, adhering to statutory obligations, and ensuring that employees receive their rightful compensations in a timely manner.

UAE Payroll Administration United Arab Emirates

In the realm of UAE payroll administration, handling employee data efficiently is vital for maintaining compliance and ensuring accurate compensation. Here’s how various aspects of employee data are managed:

Maintenance of the Client Master File: Data Inputs To process changes to fixed employee data (new hires, departures, employment changes, etc.) and variable transactions (overtime, incentives, deductions, and more), specific methods are employed. These include:

Standard Input Templates

Mercans provides standard input templates that contain fields required to meet the service definition, produce payroll reports, and generate local statutory payroll calculations and forms. Any additional information needed by the client beyond these standard fields is considered an add-on service, subject to extra fees.

Data Input Format

The client is responsible for filling in the templates in the predefined input format. Any templates with incorrect or incomplete data are rejected, and clients are requested to provide accurate data for payroll processing. Following the instructions and template format is crucial to avoid potential delays in the pay cycle. While Mercans ensures accurate payroll processing, clients are responsible for input data accuracy.

Supporting Documents

Statutorily, there’s no requirement to send supporting documents with input templates unless explicitly requested by Mercans. Clients are also responsible for maintaining and archiving HR and payroll files in compliance with local regulations.

Changes in Fixed Employee Details: All fixed employee data, including initial information and subsequent changes, is communicated to Mercans using standard data input templates. These templates identify data records as either new (I – Insert) or updates (U – Update) to existing records. In cases of updates, the record should contain the employee’s ID and the new value(s) for the respective field(s). Fields that require no updates should be left blank.

Handling Variable Transactions: Variable data changes, such as overtime, bonuses, and more, are processed using standard input templates. Mercans offers a single template for changes presented as amounts, while separate forms are available for transactions presented in units (e.g., hours or days). Pay elements reflecting variable data (e.g., overtime, bonuses) must be pre-defined during initial setup. Clients can also add one-time pay elements at a later stage.

Variable data changes should include the pay element code, the values to be paid or deducted, and the effective date. Common variable data changes encompass:

  • Overtime
  • Bonus/Incentives
  • Premium pay for shift hours, weekend work, and holiday work
  • Reimbursements (if necessary for payroll communication)
  • Deductions (garnishment, alimony, courts deduction, pension, when applicable)
  • Adjustment of pay elements
  • One-time or periodic payments and deductions of elements with balances (e.g., loan payments or deductions)

Emergency Cases/Exceptional Inputs: Emergency cases are limited to specific situations, including:

  • Employee departures
  • Changes in bank details
  • Alteration of pay methods
  • Last-minute absences
  • New employee onboarding and payroll component entry

Absence Recording: Recording absences is a crucial aspect of payroll administration. This includes different types of absences, such as:

Paid Absences

These include authorized leaves with full or partial pay, such as annual leave and sick leave.

Unpaid Absences

Unpaid leaves or time off without pay, such as unpaid parental leave, are also important to record accurately.

Absences Impacting Social Security

Certain absences may have implications for social security contributions and benefits, which must be properly documented.

Moreover, Social Security (Pension) applies only to UAE Nationals aged between 18 and 60 years. For new UAE National employees, the employer should submit the ‘Insured Employee Start of Service Form’ (Form No 1) to the General Public Social Security Authority (GPSSA) within a maximum of 1 month from the employment start date. These measures are essential in maintaining a streamlined UAE payroll administration system.

Tax and Social Security in United Arab Emirates (UAE)

In the United Arab Emirates (UAE), the tax landscape is characterized by its simplicity and the absence of several common tax types. The key tax aspects to consider in the UAE include:

Corporate Income Tax (Rate: Varies for certain oil and gas businesses):

The UAE follows a unique tax regime by not imposing corporate income tax on most companies. However, for certain oil and gas businesses, a corporate income tax rate is applied, which is notably low at around 55% of taxable profits. This tax rate contributes to a business-friendly environment, making the UAE an attractive destination for such entities.

Permanent Establishment:

In the UAE, there is no specific definition or taxation related to permanent establishments (PEs). The absence of PE regulations simplifies the taxation framework, offering flexibility to businesses and foreign investors.

Withholding Tax:

One of the advantages of conducting business in the UAE is the absence of withholding tax. Companies do not need to withhold taxes on payments made to non-residents, providing ease of doing business and facilitating financial transactions.

Personal Income Tax (Rate: 0%):

The UAE stands out for its straightforward personal income tax system, which is essentially non-existent. Residents enjoy the benefit of receiving their full salaries without any deductions for personal income tax. As a result, individuals do not face complex tax planning issues that are typical in countries with income tax obligations.

Value Added Tax (VAT) (Rate: 5%):

The UAE has introduced a Value Added Tax (VAT) at a rate of 5%. While this applies to certain goods and services, it remains relatively low in comparison to VAT rates in many other countries. It has provided the UAE with a source of revenue while still maintaining a favorable tax environment.

Social Security Tax (Rate: Variable):

In the UAE, social security contributions vary depending on the nationality and age of the employee. For Emirati employees, contributions are mandatory, ensuring their enrollment in the social security system. However, expatriate employees are typically not part of the UAE social security system. Instead, they are covered by private medical insurance provided by their employers, which is a legal requirement in the UAE. This system ensures that foreign employees have access to healthcare benefits while working in the country.

These tax policies, including the relatively low VAT rate and the absence of personal income tax for residents, contribute to the UAE’s appeal as a global business hub with a favorable tax environment.

Payroll Taxes in UAE

Employers in the UAE bear specific responsibilities in the context of UAE payroll taxes. While it’s a notable feature that the UAE does not impose individual or corporate income taxes (with specific exceptions applying to oil and gas firms), there are essential nuances to consider. Employers are required to withhold pension contributions, a vital aspect of payroll taxation, for local workers. This requirement encompasses foreign businesses as well, should they have a workforce based in the UAE. These payroll tax duties underscore the crucial aspect of legal compliance with local labor regulations, reflecting the comprehensive nature of payroll management in the UAE. This tax system ensures that all UAE employees, regardless of their origin, benefit from due pension contributions and entitlements. These contributions serve to enhance the UAE’s appeal as a destination for both local and expatriate workers.

Payroll Compliance in United Arab Emirates

Statutory Filings in the United Arab Emirates (UAE):

Payroll compliance in the United Arab Emirates (UAE) comes with a unique set of regulations and processes. Unlike traditional statutory filings, the UAE follows a distinct approach. Instead of mandatory filings, the General Pension and Social Security Authority (GPSSA) collaborates with the Central Bank of the UAE (CB-UAE) to establish the UAE Fund Transfer System (UAEFTS). This innovative system, functioning similarly to SWIFT, is designed to facilitate real-time financial transactions, primarily focusing on the streamlined collection of pension contributions. Employers in the UAE have pivotal roles in this process.

Processing Payments through UAEFTS:

The payroll compliance process in the UAE is an intricate yet streamlined procedure. Employers, as key contributors to the UAEFTS, hold the responsibility of preparing contribution files according to the precise format and specifications outlined by banks. These contribution files can be generated directly from the core HR system, through Excel templates, or by utilizing specific bank utilities, depending on individual bank requirements. Once these files are received, they are then diligently processed by banks or exchange houses through the UAEFTS, directing them to the Central Bank. Here, rigorous validations take place to determine the success or rejection of transactions. For transactions marked as successful, the GPSSA assumes control, ensuring the seamless execution of internal administrative and financial reconciliations. In addition, they promptly notify both employers and employees regarding these transactions through various communication channels, including email and SMS, ensuring that accurate contact information is maintained by the GPSSA.

While the UAE’s payroll compliance system does not involve the typical statutory filings found in many other countries, it does demand a comprehensive understanding of the UAEFTS process. Employers must collaborate closely with financial institutions to meet their pension contribution obligations efficiently and in compliance with UAE regulations.

Payroll Outsourcing in UAE

Opting for outsourced payroll services in the United Arab Emirates (UAE) presents a host of benefits to businesses operating in the region. By partnering with trusted providers like Mercans, companies can reclaim precious time that would otherwise be spent on intricate payroll responsibilities, allowing for a greater emphasis on strategic business initiatives and enhanced customer service. The notable precision of these experts guarantees a virtually error-free payroll process, significantly reducing the occurrence of mistakes. Beyond the essential payroll tasks, Mercans adeptly handles all obligatory reporting, effectively relieving your team from repetitive administrative duties. Furthermore, their extensive knowledge ensures seamless adherence to the intricate web of legal regulations governing the UAE, instilling a sense of confidence and assurance when managing a global workforce.

Payroll in Dubai and Abu Dhabi

Mercans excels in providing comprehensive payroll services across the United Arab Emirates (UAE), including key areas such as Dubai and Abu Dhabi. With a dedicated entity in Dubai, we are well-equipped to assist companies with their payroll needs. Our highly knowledgeable team possesses expertise in the intricacies of payroll laws across all UAE regions, ensuring that businesses receive top-notch support and compliance in Dubai, Abu Dhabi, and other locales.


When it comes to payroll services in the United Arab Emirates (UAE), Mercans stands out as your trusted partner. With a strong presence in Dubai and extensive knowledge of UAE payroll regulations, Mercans offers comprehensive solutions tailored to your unique needs. We cover all aspects of payroll services, including statutory filings and pension contributions. Our expertise ensures efficient payment processing through the UAE Fund Transfer System. With minimal income tax implications in the UAE, Mercans simplifies your payroll compliance, allowing you to focus on your core business operations. Count on Mercans for reliable and compliant payroll services in the UAE.

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.