Traversing through the UAE Payroll Process

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The United Arab Emirates (UAE) is a vibrant and growing economy that attracts businesses and talent worldwide. As such, it is essential for companies operating in the UAE to have a strong understanding of the local payroll regulations and best practices.

This guide is designed to provide a comprehensive overview of the UAE’s payroll management and help businesses navigate the complex rules and regulations involved. It covers everything from legal requirements and standard payroll practices to salary components, taxation, and end-of-service benefits.

Whether you are a business owner, HR professional, or simply looking to expand your knowledge of payroll management, this guide is an essential resource. Its clear and concise information will help you make informed decisions, stay compliant, and ensure the fair and timely payment of employee salaries and benefits.

We hope that this guide serves as a valuable reference for all those involved in payroll management in the UAE and contributes to the success and growth of your business.

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Legal Requirements for Payroll Management in the UAE

uae payroll process guide

The United Arab Emirates (UAE) has a comprehensive legal framework that governs payroll management and the payment of salaries and benefits to employees. Understanding these laws and regulations is essential for businesses operating in the UAE, as failure to comply can result in significant fines and other penalties.

In this chapter, we will take a closer look at the key laws and regulations that govern payroll management in the UAE, including:

1. UAE Labor Law

The UAE Labor Law sets out the basic rights and obligations of employers and employees in the UAE, and outlines the rules and procedures for the payment of salaries and benefits. Some of the key provisions of the UAE Labor Law include:

2. Working hours

Employees are entitled to a maximum of 8 hours of work per day, or 48 hours per week, except in exceptional circumstances where longer hours may be allowed.

3. Overtimes

Employees are entitled to overtime pay for work performed outside of their normal working hours, at a rate of not less than 25% of their regular pay.

4. Paid leave

Employees are entitled to annual leave, sick leave, and maternity leave, which are paid in accordance with the provisions of the UAE Labor Law.

5. Maternity leave

A female worker is entitled to 60 days of maternity leave, with 45 days being fully paid and 15 days being half paid. She can apply for leave up to 30 days prior to the expected delivery date. If she has an illness resulting from pregnancy or childbirth, she can take an additional 45 days without pay, with a medical certificate. If the baby is sick or has a disability, she can take up to 30 days fully paid, with an option to extend it for 30 more days without pay, with a medical certificate. After resuming work, she can take one or two paid breaks for nursing her child for up to 6 months following delivery, with each break lasting no longer than one hour.

6. End-of-service benefits

Employees are entitled to end-of-service benefits, which are calculated based on the length of service and the employee’s last salary.

uae payroll process guide

UAE Social Security Law

The UAE Social Security Law requires employers to make contributions to the UAE Social Security Fund on behalf of their employees. These contributions are used to provide social security benefits, such as pensions and health insurance, to eligible employees. 

In the UAE, both UAE national employees and employees of companies registered in a free trade zone are subject to social security contributions, which are calculated based on 20% of the employee’s gross remuneration as stated in their local employment contract. Of this 20%, the employee is responsible for paying 5%, the employer is responsible for paying 12.5%, and the government contributes an additional 2.5%. In Abu Dhabi, the contribution rate is higher, with the employer responsible for paying 15%, the government contributing 6%, and the employee’s contribution remaining at 5%. 

Payroll Taxation in UAE - Legal

uae payroll process guide

The United Arab Emirates (UAE) is known for its tax-friendly policies, with a zero-income tax rate and no wealth tax, inheritance tax, payroll tax, capital gains tax, or real property tax. Very few people in the UAE are required to file or pay taxes on their income. However, this is set to change with the introduction of federal corporate income tax starting from fiscal years on or after June 1st, 2023.

The main type of taxation for most expats in the UAE is the Value-Added Tax (VAT), which was first imposed on January 1st, 2018, and levied at a standard rate of 5%. Some goods and services, including food items, health, education, petroleum products, social services, bicycles, and residential properties, are exempt from VAT.

Excise tax is levied on products deemed hazardous to human health, such as sweetened drinks, carbonated drinks, energy drinks, electronic smoking devices, and tobacco products. The excise tax rate is 50% on carbonated drinks and 100% on other products.

Taxes on rented properties vary among the Emirates, with Dubai charging 5% on residential tenants’ annual rent and 10% on commercial tenants. Abu Dhabi exempts UAE citizens from property tax but imposes 5% on expats. Sharjah charges a rental tax of 2% on all tenants.

A municipality tax of 5% of the rental contract’s value is also calculated, with a minimum amount of AED 450 per year.

Tourism tax has also been introduced to support the growth of UAE’s trade and tourism. It is applied to guests staying in hotels, hotel apartments, guesthouses, and holiday homes. Hotels may also charge a 10% service charge, 10% municipality fee, 6-10% city tax, and 6% tourism fee.

The tourism fee and hotel charges vary by Emirate, with Dubai charging a Tourism Dirham fee ranging from AED 7 to AED 20 per room per night. Abu Dhabi imposes an additional 4% fee on hotel bills and charges AED 15 per room per night. Ras Al Khaimah also charges AED 15 per room per night.

There is also a 4% transfer tax on property transactions, which is usually borne by the buyer. The tax is lowered to 2% in the Emirate of Abu Dhabi. Overall, the taxation system in the UAE is still considered very low compared to other countries.

In addition to these laws and regulations, there are also several regulatory bodies in the UAE that oversee payroll management, including the Ministry of Human Resources and Emiratisation (MOHRE), the Federal Tax Authority (FTA), and the Dubai Health Authority (DHA). Keeping up-to-date with the latest laws and regulations is essential for businesses operating in the UAE, and working with an experienced payroll provider can help ensure compliance and minimize the risk of penalties and fines.

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