Understanding Payroll Compliance in the United Arab Emirates
The United Arab Emirates, or UAE, is a country made up of seven emirates. One way to think of them is they are akin to states or provinces in the other countries, albeit with more autonomy. If you are considering expanding your business into this progressive and business-oriented region, the two emirates you might be most interested in are Dubai and Abu Dhabi (the capital). Together these emirates contain about 70% of the country’s total population. Another fascinating thing to note before we get into the details of payroll compliance is that almost 88.5% of the population is made up of ex-pats. So, if you are establishing or expanding your business to the UAE, chances are that most of your employees will be ex-pats. Learn more about Understanding Payroll Compliance in the United Arab Emirates.
Different Economic Zones
There are two main economic zones you need to know about:
Mainland: To open a new business or expand your business to the mainland, you may need to bring in a UAE national partner who would own 51% of the shares. The benefit is that you get a decent number of visas as part of your quota, so you can hire more employees at less cost. To increase the amount of your visa quota, you have to increase your business space.
Free Zone: Most businesses prefer to expand to UAE free-zones. There are about 45 at the moment, and you can own 100% of a business when you establish it in one of the free zones. The downside is that you don’t get access to a lot of visa quotas and might have to invest in buying/renting more space in the free zone, which can be costly.
An important difference between the two is that if you are registered on the mainland, all business entities have to comply with the labor laws set up by the UAE government and pay their employees through the Wage Protection System (“WPS”). Some free zones have also adopted WPS, but not all, and each and every free zone might have its own regulation and compliance requirements.
If you are paying salaries through WPS, regardless of which zone you are in, it’s imperative that you meet the requisite dates and don’t delay the salaries because it might result in hefty fines.
Payroll Compliance Considerations In UAE
There are several things you need to know about the payroll practices and compliance requirements in the UAE before expanding there. The good news is there are no income taxes for businesses in the free zones because these zones offer tax exemptions for periods between 15 and 50 years.
The first thing you need to look into are the labor laws of the free zone you are considering. Since the labor laws of the UAE don’t apply inside the free zones, the authority governing the free zone might have its own set of laws. They would be the ones “sponsoring” your employees and not you.
The tax-free “courtesy” is not extended to foreign banks and oil & gas businesses.
The regular working hours in the UAE are typically eight hours per day or 48 hours a week. Beyond that, you will have to give your employees overtime. The overtime payment calculation is simple: 125% hourly wage or 150% hourly wage if your employees have to work between 9 p.m. and 4 a.m.
The rules might not be the same for businesses in the mainland zones; however, Friday and sometimes Saturday is the day-offs. Though working Saturdays is a common practice.
There is no minimum wage for ex-pats, whether your business is in the mainland or a free zone. For locals, the practice is that minimum wage is defined by the level of education. There are certain stipulations, especially in the mainland, associated with minimum wages, like the fact that for employees with a salary below a certain threshold, the business is responsible for providing accommodation to the employees.
A few paid leave policies to be aware of when running payroll in the UAE are:
- Thirty days of paid leave for employees who have been with you for at least a year.
- 15 fully paid and 30 half-paid sick leave days.
- 33 fully paid and 32 half-paid maternity leave days for women.
- Five-day paternity leave.
- 14 public holidays.
These leave policies apply to both the public and private sectors.
Social security is available only for UAE residents and not ex-pats. As the operating business, you would need to contribute 12.5% to the pension plan of qualified employees, and the government would contribute 2.5%.
Free Zone-Specific Payroll Compliance Considerations
It’s important to note that a lot of payroll compliance considerations will stem from the free zone you are in, starting with the usage of WPS. The free zone you are in can also mandate that you take care of certain expenses, like airfares, entry permits, residence permits, health insurance, etc.
Similarly, the overtime, bonus schemes, and even the compensation for working on public holidays might also be governed under the free zone guidelines. There is a simple logic behind it. Since the free zone authorities are responsible for taking the employees in and there are no federally enforced labor laws governing how you treat the applicable employees in the free zone, the local authorities have to ensure that the businesses don’t take advantage of that.
While that does remove many compliance layers and allow businesses to interact with the regulatory authorities without too much red tape, that doesn’t mean a company can avoid adhering to the right payroll and compensation practices. UAE free zones strive to attract both international business and international talent. They can’t do it if companies are getting around payroll regulations and offering less than fair compensation to their employees.
Compared to many other countries, expanding to the UAE is relatively quick and straight-forward. You can set up your business in less than a month. Also, there are no taxes, so you can divert more money toward your business growth and talent acquisition. But understanding the nuances and practices of payrolls in UAE free zones and mainland businesses might require extensive local research. Partnering with companies that offer relevant services in UAE would ensure that you don’t have to learn about payroll compliance issues in the UAE by trial and error.
Learn more about Global Compliance in the United Arab Emirates here.