DOING BUSINESS IN THE UAE - PWC
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
This publication is a joint project with Doing business in the UAE
Contents
Executive summary 4 Disclaimer
Foreword 6 This document is issued by HSBC
Bank Middle East Limited (the
Introduction – Doing business in the UAE 8 ‘Bank‘) in the UAE, which is regulated
by the Jersey Financial Services
Conducting business in the UAE 14 Commission, in partnership with
PricewaterhouseCoopers (PwC).
Taxation in the UAE 18 This document is not intended as an
offer or solicitation for business to
anyone in any jurisdiction. It is not
Audit and accountancy 22
intended for distribution to anyone
located in or resident in jurisdictions
Human Resources and Employment Law 24
which restrict the distribution of this
document. It shall not be copied,
Trade 38 reproduced, transmitted or further
distributed by any recipient.
Banking in the UAE 40
The information contained in this
HSBC in the UAE 42 document is of a general nature only.
It is not meant to be comprehensive
Country overview 44 and does not constitute financial,
legal, tax or other professional
Contacts 46 advice. You should not act upon
the information contained in this
publication without obtaining specific
professional advice. This document
is issued by the Bank together with
PricewaterhouseCoopers (‘PwC‘).
Whilst every care has been taken in
preparing this document, neither the
Bank nor PwC makes any guarantee,
representation or warranty (express
or implied) as to its accuracy or
completeness, and under no
circumstances will the Bank or PwC
be liable for any loss caused by
reliance on any opinion or statement
made in this document. Except as
specifically indicated, the expressions
of opinion are those of the Bank
and/or PwC only and are subject to
change without notice. This document
is not a 'Financial Promotion'.
The materials contained in this
publication were assembled in
August 2012 and were based on the
law enforceable and information
available at that time.
Executive summary
This document seeks to provide When considering doing • UAE provides a tax favourable
a general overview of the business in a foreign country, environment for most industries;
United Arab Emirates (‘UAE’) any investor needs to consider
for investors (corporates and a range of commercial issues • There are a high number of
individuals) who are looking to that influence the decision of expatriate workers at all levels
establish business in the UAE. setting up in a country. The UAE of the economy such that
could be an attractive hub for expatriates accounts for over
The UAE comprises of a investors to locate their business 80% of the work force;
Federation of seven emirates interests for the following reasons:
namely, Dubai, Abu Dhabi, • There are no exchange control
Sharjah, Fujairah, Ras • The UAE has one of the most restrictions and it is possible to
Al-Khaimah, Umm Al-Quwain liberal trade regimes in the Gulf have unrestricted repatriation of
and Ajman which have their region and attracts strong capital income and capital;
own rules and regulations. flows from across the region;
This document covers several • UAE’s culture is driven by Islamic
considerations that may • UAE is focussed on economic traditions, however, with over
generally apply in all of these diversification in trade, logistics, 150 nationalities, expatriates
emirates and can be considered banking, tourism, real estate are able to practise their own
by foreign investors in evaluating and manufacturing and provides cultures; and
the prospects of operating and opportunities in various
investing in the UAE. These industries; • UAE provides a safe and secure
include the economy, regulatory family environment with one
framework, tax aspects, audit • UAE has a well-established of the lowest crime rates in
and accountancy, human infrastructure, strong banking the world.
resource and employment system and a stable political
issues, trade and banking. system; This document contains
further details on key matters
• Although there are restrictions that investors should consider
on company ownership by when exploring whether to
non-GCC nationals, the UAE operate in the UAE. We hope
also provides for a window of that the document provides you
free trade zones that can allow with a useful initial overview of
100% foreign ownership and the key matters to consider
a nil taxation regime (subject when setting up in the UAE.
to certain limitations);
4
Foreword
HSBC has a proud tradition decisions. Today, as ever, Abdulfattah Sharaf
of long-term investment and HSBC stands ready to support Chief Executive Officer UAE
commitment to the countries the country’s next phase HSBC Bank Middle East Limited
in which it conducts business. of economic growth and
This tradition has allowed development.
HSBC to build deep and trusted
relationships with individuals, However, we believe that
companies, government business and society are
departments and ruling interdependent, and that strong
families. It has also helped economic growth requires an
HSBC understand how our educated society and skilled
business principles can best workforce living in a healthy
be complemented by giving and sustainable environment.
back in appropriate ways to
the communities in which This belief has driven us at
we operate. a fundamental level to support
not only financial but also social
For 64 years HSBC has development. The volunteer
supported local UAE work that our staff carry
businesses, and foreign out to support their local
investors coming to the country communities has become as
to establish new ventures. much a part of our business
Their combined success has principles as financial strength
propelled the UAE to new and acumen. Focused on
heights, establishing it as the educational and environmental
centre for trade and finance programmes, HSBC and its
in the region. In recent years, staff work hand-in-hand with
HSBC has witnessed strong UAE and global institutions
growth in demand from UAE in creating awareness and
businesses for assistance understanding through
and support as they expand education and experience.
overseas. In parallel, major
multinational companies have HSBC’s commitment to social
made the strategic choice responsibility will continue to
to relocate businesses and grow over the long term, with
regional Head Office functions time and funding provided to
to the country, a true testament volunteers to engage in and
to the quality and confidence support this tradition of giving
in the future of their investment back to the community.
6
Introduction
Doing business in the UAE
Economic environment increasing spending and boosting made on debt restructuring Opportunities
liquidity in the banking sector. in the Emirate's troubled Oil prices are expected to stay
The United Arab Emirates The crisis hit Dubai hardest, government related entities. high (by historical standards)
(‘the UAE/country’) is in the as it was heavily exposed to over the near future.
Middle East, bordering the Gulf depressed real estate prices. SWOT Analysis
of Oman and the Arabian Gulf, Economic diversification into
between Oman and Saudi In February 2009, Dubai Strengths gas, tourism, financial services
Arabia. The UAE has an open launched a US$20bn bond The UAE has one of the most and high-tech industries offers
economy with a high per capita programme to meet its debt liberal trade regimes in the Gulf some protection against volatile
income and a sizeable annual obligations. The Central Bank and attracts strong capital flows oil prices.
trade surplus. With Abu Dhabi of the UAE and Abu Dhabi- from across the region.
and Dubai as its dual financial based banks bought the Despite the impact of
centres, the UAE has long largest proportion of these In common with most Gulf the 2009 downturn, the
commanded economic bonds. In December 2009, states, there are a high number tourism and financial
superiority in the GCC. Dubai received an additional of expatriate workers at all services sectors still have
US$10bn loan from the emirate levels of the economy. good medium-term growth
Successful efforts at economic of Abu Dhabi. Dependence on prospects, driven by domestic
diversification in trade, logistics, oil and on a large expatriate The UAE is progressively and foreign investment.
banking, tourism, real estate and workforce are significant diversifying its economy,
manufacturing have reduced the long-term challenges. minimising vulnerability The prevailing unrest in the
portion of GDP based on oil and to oil price movements. Middle East Region and North
gas output to 25%. Since the Currently, the UAE economy is Africa which erupted in the
discovery of oil in the UAE more recovering from the previous The UAE is very well beginning of 2011 seems to
than 31 years ago, the UAE has headwinds, driven by a pick-up connected to the rest of have worked to the UAE's, and
undergone a profound in trade, tourism and public the world, mainly due to particularly Dubai's advantage,
transformation from an spending, and supported by Ethihad, the UAE's national with businesses, financial
impoverished region of small higher oil prices. Real GDP carrier and Emirates, Dubai's institutions and people relocating
desert principalities to a modern recorded a sound 3.3% airline, rapidly expanding to the UAE. Capital inflows and
state with a high standard of growth in 2011, with nominal their fleet networks. tourism also seem to have
living. The government has output regaining its pre-crisis increased as a consequence of
increased spending on job level of US$360 billion. The Weakness the regional unrest.
creation and infrastructure UAE have benefited from The UAE’s currency is pegged
expansion and is opening up increased investments looking to the dollar, giving it minimal UAE‘s real estate sector has
utilities to greater private sector for diversification within the control over monetary policy benefited from the extension
involvement. region, along with the spill and reducing its ability to tackle of visas by the UAE federal
over effects of higher oil prices inflationary pressure. The government in June 2011 from
The country‘s Free Trade benefiting the economy as a country’s location in a volatile six months to three years, a
Zones – offering 100% foreign hydrocarbon exporter on the region means that its risk reduction in mortgage rates
ownership and zero taxes – background of abundant oil profile is, to some extent, as banks remain more liquid
are helping to attract foreign and gas reserves, the seventh affected by events elsewhere. and increasing oil prices.
investors. The global financial largest in the world. The Arab US concerns about regional
crisis, tight international credit, Spring and the European debt militant groups and regional
and deflated asset prices crisis have indeed diverted political instability could affect
constricted the economy in tourists, businesses and investor perceptions.
2009 and 2010. UAE authorities financial capital into Dubai.
have tried to blunt the crisis by A significant headway has been
8
Threats The existence of free trade about 85% of the workforce (FDI) sources from outside the Key markets and trade
Heavy subsidies on utilities zones with 100% ownership, with over 150 nationalities region. On the positive side,
and agriculture, as well as an zero taxes, excellent working and living harmoniously the absence of income tax The major trading partners of
outdated tax system, have infrastructure, a relatively stable in a safe, almost entirely compensates for the restrictive the UAE include the European
contributed to persistent outlook on country risks, and crime-free environment. investment environment. Union (with 27 member
fiscal deficits in the past, very a convenient geographical states), India, Japan, China,
although rising oil revenues location almost midway between The UAE attracts a highly The UAE’s substantial South Korea, United States of
have addressed the east and west are attractive skilled workforce, which hydrocarbons resource America, Thailand, Singapore
problem in recent years. aspects for foreign investments. is absorbed by the growing revenues means government and Oman.
number of international has no pressing need to raise
Several high-profile construction Some 80% of Fortune 500 companies, professional income via direct taxes. Export commodities include
projects have been delayed and companies (including all of service firms and financial crude oil (45%), natural gas,
the property market crash could the top 10) have established institutions. Expatriates There are also several benefits re-exports, fish and dates to
threaten future development. a presence in UAE according enjoy tax-free salaries, to corporates and their employees Japan (17.1%), India (13.6%),
to The Economist, and the schools accredited to in relation to taxation. Refer to South Korea (6.1%), and
For the first time in its history, UAE’s 25 plus free zones international standards, Taxation section. Thailand (5.1%). Import
the credit rating of the United are now host to numerous a high standard of health commodities include
States of America was multinational and regional care and excellent recreational Barriers, risks or downsides machinery and transport
downgraded from AAA to AA companies – including over facilities – including a number for foreign investors equipment, chemicals and
plus by S & P which has had a 6,400 companies from over of championship golf courses. food from India (17.5%),
significant negative impact on 120 different countries located Unfortunately, just as every China (14%), United States
the USA's stock market and in Dubai’s Jebel Ali Free Zone. Incentives for foreign investors country has some incorporation of America (7.7%), Germany
currency. Despite this, the UAE disadvantages, so does UAE. (5.6%) and Japan (4.8%)1.
is committed to maintaining its Some of the challenges The UAE’s investment climate However, these disadvantages
peg with the US Dollar and, to invest in the UAE include is becoming more clement are far outweighed by the Intellectual property rights
therefore, the prices of non-US the need for a local sponsor for foreign direct investors: advantages of setting
Dollar imports are expected to owning 51% of the business the federal government, led by up business in the UAE. The UAE is a regional leader
witness volatility in line with the (if not in a free zone); ability Abu Dhabi, has made significant in the protection of intellectual
movements in the US Dollar to enforce contracts; more headway in the past five years • The UAE is not an English property rights, with improving
exchange rate. limited creditors’ rights and in increasing the role of the common law jurisdiction; enforcement of copyright,
options (bankruptcy laws private sector. Yet the overall trademark and patent laws.
Why it is a good place not keeping pace with the legal framework continues • A foreigner wishing to conduct Anecdotal evidence suggests
to do business economy development); to favour local over foreign business outside a free zone that the federal government
and some inherent risks investors – a fact that partly must have a local partner owning is enforcing these laws, which
The UAE is the 30th largest to the region because reflects the historically benign at least 51% of the business; and were passed in 2002. The rate
economy in the world1 and No.2 of geopolitical concerns. macro environment in light of of software piracy in the UAE
in the Middle East and North the country’s substantial oil • The existence and interaction of is regarded as one of the
Africa. The UAE ranks 33rd out Languages spoken include revenue windfall. This has federal laws, individual emirate lowest in the Middle East.
of 183 countries for the overall Arabic (official), Persian, endowed local and regional Gulf laws and free zone laws can be However, enforcement of
‘Ease of Doing Business’2 English, Hindi and Urdu. The investors with substantial liquidity, quite complex and confusing. anti-piracy measures can
benchmarked as of June 2011. labour workforce is 4.1 million disincentivising the search for vary between emirates,
and expatriates account for new foreign direct investment
2000-2011 CIA World Factbook.
1
www.doingbusiness.org,
2
a co-publication of the World Bank and
10 the International Finance Corporation.
with Dubai seen as the best When entering a meeting,
performer. More could be general introductions will begin
done in other emirates, while with a handshake. You should
the UAE still remains a major greet each of your Emirati
centre for the transhipment counterparts individually. In
of counterfeit goods. line with Muslim customs,
avoid shaking hands with a
Local customs and woman unless they extend
business etiquette their hand first. Business cards
are common but not essential
UAE’s culture is rooted in to Emirati business culture. If
Islamic traditions. Courtesy you do intend to use business
and hospitality are amongst cards whilst in the UAE, ensure
the most highly prized of that the information is printed
virtues, and this is reflected in in both English and Arabic.
the warmth and friendliness of
the local people. UAE society People in the UAE prefer to do
is marked by a high degree of business in person. Relationships
tolerance for different lifestyles. and mutual trust are paramount
It is a liberal society by any for any successful business
measure and is rated as among interaction and can only be
the safest in the world. developed through face-to-face
Foreigners are free to practice meetings. It is important to
their own religion, and the spend time with Emirati business
dress code is liberal. Women, counterparts and ensure future
whether married or single, meetings take place to continue
do not face any form of cultivating the relationship.
discrimination and may drive, It is also important to have
work, and move around connections with people in
unescorted. In spite of its the UAE who can facilitate
rapid economic development introductions before attempting
in recent years, UAE remains to do business in the country.
closely linked to its heritage. Emiratis prefer to do business
with those they know, so
The customary greeting is appropriate introductions are
‘As-salam alaikum,’ (peace be important in order to establish a
upon you) to which the reply successful business relationship.
is ‘Waalaikum as-salam,’
(and upon you be peace).
Conducting business in the UAE
Forms of business
Foreign investors can carry However, owing to certain A representative office is broadly
out any activities in the UAE restrictions, the choices similar to a branch, except in that
only after being registered commonly adopted by foreign a representative office is only
and licensed by the relevant companies are generally limited permitted to promote its parent
authorities in the UAE. to a limited liability company company’s activities and is not
(‘LLC’) or a branch. The other permitted to undertake any
In general, a foreign investor options e.g. partnerships and income earning activities.
can establish a suitable joint venture etc. are usually
business presence in either not favoured by foreign investors. Free trade zones
the UAE mainland (also
commonly known as ‘onshore’) As per the UAE Commercial Investors also have a choice
or a business presence Companies Law, the foreign to set up operations in one
‘offshore’. An ‘offshore’ ownership of a LLC may of the free trade zones in the
business presence typically not exceed 49%, with the UAE. A free trade zone is a
refers to a registration in one balance of 51% to be held geographical area within the
of the UAE free trade zones. by a UAE national. UAE that has been established
This type of registration of by the UAE government to
business inside the free trade The UAE Commercial generally encourage direct
zone is not to be confused Companies Law is currently foreign investment into the
with the regulatory system being re-drafted, and the new UAE and, as such, there are
for offshore companies (also law is expected to allow 100% generally no foreign ownership
referred to as ‘International foreign ownership (subject restrictions, unlike ‘onshore’
Business Companies’) which to approval from the relevant entities. That is, foreign investors
exist in certain freezones. authorities) for specific can set up 100% fully-owned
industries set up onshore. entities in the free trade zones.
In terms of the legal forms, However, there are no further The principle drawback of a
UAE Company Law provides details at this time as to how free trade zone is that strictly,
the regulations governing the this new law will apply. entities registered in the free
operations of foreign business. trade zone are not permitted to
The Federal Law provides for A branch is an extension of conduct commercial activities
seven categories of business the foreign parent company. As in the UAE, outside of the free
organisation: limited liability such, it is wholly-owned by its trade zone.
company, branches, partnership, parent company and there is no
joint venture company, public requirement for UAE nationals Currently, there are over 30
shareholding company, private to take an ‘equity’ interest in established free trade zones in
shareholding company and the business of the branch. the UAE, of which the majority
share partnership company. are in the Emirate of Dubai.
The free trade zones also
provide a choice of establishing
either a company or a branch.
14
Setting up a business
Limited Liability Company (LLC) providers and contractors) and It takes a similar amount of time International
the trade licence limits the to set up a representative office Business Companies
A LLC can be formed by activities of branches to specified as it takes to set up a branch.
a minimum of two and a permitted activities only. Businesses not intending to
maximum of fifty persons Free trade zones do any business in the UAE,
and the minimum capital A branch is wholly-owned by whether in a free trade zone
requirements vary from Emirate its parent company and there The free trade zones are or onshore, can be set up under
to Emirate (e.g. Dubai is AED is no requirement for UAE governed by their own regulatory the offshore regulatory system.
300,000, whereas Abu Dhabi nationals to take an ‘equity’ authorities and have their own Typically, such businesses act
requires AED150,000). The interest in the business of rules and regulations and are as holding companies for
foreign minority shareholder the branch. seen to adopt an industry focus. subsidiaries outside the UAE.
is, however, able to exercise This means that the free trade Under the offshore regulations
control of a LLC through powers A UAE national service agent, zones are typically tailored to of certain free trade zones, these
vested to the foreign partner in sometimes referred to as a specific industries and only companies act as a vehicle to
the Memorandum and Articles ‘sponsor’ must, however, be licence specific types of activities. own freehold property onshore.
of Association. It is also possible appointed to represent the
to attribute profit entitlements branch in all administrative The regulations for establishing Annual filings
in favour of the foreign dealings with Government and operating a business in
partner in a ratio other than departments (such as the zones are less rigorous and Under the UAE Commercial
the respective shareholdings immigration formalities). The time consuming than those Companies Law, most companies
would otherwise suggest. remuneration of the sponsor applying to entities located or branches are required to
is normally agreed on an in the ‘onshore’ UAE. The have their accounts audited
It takes approximately eight annual fixed fee basis, and registration requirements are locally, and these accounts
to twelve weeks to incorporate is a matter of commercial more or less similar across the will then need to be filed with
a LLC, since there are agreement and can vary free trade zones and involve the appropriate Emirate level
a number of steps, and depending on the prominence a two-staged process. The authorities on an annual basis
supporting legalised of the sponsor and the precise first stage is to obtain an initial as part of the licence renewal
documentation, to complete contribution he makes to the approval from the free trade zone filing process. There is also an
in the incorporation process. business of the branch. authority and the next stage annual licence renewal fees to
is to apply for a trade licence be paid which is based on the
Branch It takes approximately eight and registration. As mentioned type of licence, entity and its
to twelve weeks to establish above, the free trade zones also activities. Similar requirement is
A branch has no separate legal a branch. provide a choice of establishing for the free trade zone entities,
personality and is an extension either a company or a branch. although the requirements
of the foreign parent company. Representative office The capital requirements (only and fees vary and need to be
According to Law number 13 of for companies, not branches), considered based on the legal
2011 free zone companies are A representative office is broadly licence categories and fees vary entity set up and its location.
allowed to set up branches in similar to a branch except, among different free trade zones
the wider Emirate, provided they as mentioned above, it is according to their rules, industry Foreign Exchange
obtain the proper licence from not permitted to undertake prioritisation as well as the type requirements
the Department of Economic any income earning activities. of entity that is established.
Development and the approval of There are currently no foreign
the Ministry of Economy. Branch A representative office however, It normally takes up to four to six exchange control restrictions in
registrations may not be available is also required to recruit the weeks to complete a registration, the UAE that may impact the
to all businesses (in broad terms services of a UAE national though this may vary for each repatriation of profits or capital.
they are permitted for service services agent or sponsor. free trade zone.
16
Taxation in the UAE
Corporation income tax Entities established in a free and the remaining 12.5%
(or equivalent) trade zone in the UAE are is payable by the employer.
treated differently than a normal The rates can differ in
Currently, the UAE federation ‘onshore’ UAE entity. As different Emirates.
does not impose a federal previously noted, free trade
corporate income tax in the zones have their own rules and The withholding obligation
Emirates. However, most of the regulations and typically, from is on the employer. There
Emirates constituting the UAE a tax perspective, they generally are no social security
federation introduced income tax offer guaranteed tax holidays to payments for expatriates.
decrees in the late 1960’s and businesses (and their employees) For completeness, expatriates
taxation is therefore determined set up in the free trade zone for employed by a UAE employer
on an Emirate by Emirate basis. a period between 15 to 50 years are entitled under the UAE
(which are mostly renewable). Labour Law to a gratuity
Tax residence under the tax payment (or an ‘end of service’
decrees of the various Emirates On the basis of the above, benefit). End of service
is based upon the French most of the entities registered benefits are not applicable
concept of territoriality. in the UAE are currently not to UAE national employees.
Basically, the French required to file corporate tax
territoriality concept taxes returns in the UAE, regardless On the basis of the above,
profits based on territorial of where its UAE business individuals in the UAE are
nexus, rather than taxing profits is registered. currently not required to file
earned outside the country. personal tax returns in the UAE.
Personal income tax
Under the Emirate based tax Sales tax/VAT
decrees, corporate income There are currently no Federal or
taxes may be imposed on all Emirate level personal income There is currently no VAT in the
companies (including branches taxes imposed on individuals UAE. However, the UAE (along
and permanent establishments) working in the UAE. with the other member countries
at rates of up to 55%. However, of the Gulf Cooperation Council)
in practice the corporate income There is a social security has committed, in principle, to
tax is currently imposed only regime in the UAE which introduce a VAT system and UAE
on oil and gas companies and applies to employees who has made significant progress
branches of foreign banks having are GCC nationals. Generally, towards its introduction, which
operations in the Emirate. for UAE nationals the social is expected in the near future.
security payment is at a rate
In addition, some of the Emirates of 17.5% of the employee’s At this point in time there is
have introduced their own gross remuneration as stated no confirmation on its rates
specific banking tax decrees in an employee’s employment or how this will effect business
which impose tax on branches of contract and applies regardless operations in the UAE (onshore
foreign banks at the rates of 20%. of the free zone tax holidays. or free trade zones).
5% is payable by the employee
18Other taxes
Withholding tax Hotel tax
There are currently no Most emirates impose
withholding tax regulations a 5-10% hotel tax on the
in the UAE that would apply value of hotel services
to payments such as royalties, and entertainment.
interest or dividends etc. made
from the UAE entities to another Transfer pricing and thin
person (resident or non- capitalisation
resident). That is, payments
of any kind made by a UAE There is currently no transfer
company should not suffer any pricing regime in the UAE.
withholding taxes in the UAE. There are currently also no thin
capitalisation (or debt-equity
Municipal tax ratio) requirements in the UAE.
Municipal property taxes are
levied in the various emirates
in various forms, but generally
as a percentage of the annual
rental value. In some cases,
separate fees are payable
by both tenants and property
owners. (For example, in Dubai
they are currently levied at 5%
of the annual rental value for
tenants or for property owners
at 5% of the specified rental
index).
These levies are administered
differently by each emirate.
These levies may also be
collected at the same time
as (or as part of) licence fees,
or the renewal of licences,
or by another method.
(For example, in Dubai
the payments have recently
started to be collected via the
Dubai Electricity and Water
Authority’s billing system).Audit and
accountancy
Joint stock and limited liability There is no specific language
companies must appoint one requirement for the purpose
or more auditors. All legally of maintaining books and
incorporated companies have records, although books
to file their audited financial are generally maintained in
statements with the Ministry English. International Financial
of Economy or relevant Reporting Standards (‘IFRS’)
authority in order to renew is mandated by SCA and the
their trade licences. There Central Bank of the UAE and
are no exceptions available adopted as the default GAAP
or restrictions on appointment by all other companies.
of auditors, although listed
companies, particularly banks, Financial institutions and
tend to be audited by the Big other non-regulated entities
Four audit firms. Companies operating in the Dubai
generally prepare their accounts International Financial Centre
on a calendar year basis and (‘DIFC’), are also required to
banks are specifically required have their financial statements
to do so by the Central Bank prepared in accordance with
of the UAE. IFRS and audited by auditors
registered with the Dubai
Listed companies (including Financial Services Authority
banks) are required to file (‘DFSA’), the regulator of
quarterly reviewed financial the DIFC. Islamic financial
statements and annual audited institutions (‘IFI’) operating in
financial statements in both the DIFC, continue to prepare
English and Arabic with the their financial statements in
Securities and Commodities accordance with Financial
Authority (‘SCA’), which Accounting Standards (‘FAS’)
publishes the quarterly and issued by the Accounting and
annual financial statements Auditing Organisation for Islamic
on its website. Banks, Financial Institutions (‘AAOIFI’),
including branches of foreign although going forward, IFI's
banks, are also required to will also have to prepare
file audited annual financial their financial statements
statements and regulatory under IFRS, with FAS being
returns with the Central Bank the default GAAP. Auditors
of the UAE and publish them registered with the DFSA are
in a local newspaper. also regulated by the DFSA.
22Human Resources
and Employment Law
Contracts and Unions
Federal Law No.8 of 1980 Employment Contracts Language
(‘Labour Law’) governs
employment relations in In the case of employment All employment records,
the UAE. This law is loosely contracts where an including contracts, files,
based on the International employment is with an onshore statements and other
Labour Organisation‘s model company, the employee documents, such as circulars,
and applies in all of the has to enter into a standard instructions and memoranda
Emirates. The law governs Ministry of Labour contract. sent to employee should in
most aspects of employer/ This contract forms the basis theory be in the Arabic language.
employee relations, such as to obtain sponsorship to work In cases where instruments
hours of work, facilities, leave, or a ‘work permit’ in the UAE. are made in a foreign language
termination rights, medical It is good practice to have and Arabic, the Arabic language
benefits and repatriation. a fully-fledged employment will prevail over other texts.
contract detailing the terms
Right to be employed of employment. Duration
While UAE nationals are provided Where the employee is employed Article 38 of the Labour law
the first right of employment to work in one of the free zones provides for employment
under this law, expatriates in the UAE, the free zones will contracts to be for a fixed
i.e. non-UAE nationals may provide their own standard form or indefinite term. A fixed-term
be employed with requisite of employment contract, where contract must specify an
approvals by UAE Ministry applicable, which an employer end date and cannot exceed
of Labour and Social Affairs and employee will be required four years from the date of
(the ‘Ministry of Labour’). to enter into before the free commencement of the contract.
Employment preference is zone obtains sponsorship for After the expiry of the fixed
given to UAE nationals and, the employee to live and work term, the contract can either
if UAE nationals are not in the UAE. Some free zones be renewed or be considered
available, the next in level do not require such employment as an indefinite term contract
of preference is given to contracts to be made. in the absence of written
nationals of other Arab states agreements or amendments
including other GCC nationals. As stated before, in practice, to either explicitly treat it as
The Emiratisation policies given that the content of either a fixed-term contract or revise
of the Labour department a Ministry of Labour contract it with a fresh contract or
encourages and even, in or a free zone contract is fairly addendum stating an end
some instances, compels the basic, employers enter into an point thereto.
employment of UAE nationals additional form of contract with
in certain job sectors. the employee.
24Probationary periods and • The duration of the contract • References to UAE Labour Other relevant provisions Permitted deductions from establishments. The Ministry
termination during probation (if it is for a fixed period). Please Law permitting the employer an employee’s wages cannot also retains the right to decide
note that a fixed-term contract to terminate without notice Normally, the contents of exceed 10% of his wage and to reduce the daily working
The normal probationary must not exceed four years in or an end of service gratuity; the employment contract may be deducted from his hours for hazardous and
period for any contract in the duration (although it can be and the facilities provided salary for settlement of any dangerous jobs or those that
UAE should not exceed six renewed following the end • A number of originals clause; are at the employer’s discretion advances, debts or loans due might be detrimental to health.
months. The Labour Law of the four-year term); and in as much as they do not to the employer. Friday is ordinarily considered
specifies that a probationary • Allowances granted to the contravene any mandatory as the weekly day of rest. Time
period cannot exceed six • Remuneration. employee, if any; provisions of the law. The structuring of the wage and spent by the employee in
months. During this time Employers frequently provide allowances in proportionate transport from his residence
either employer or employee The standard Ministry of Labour • Other conditions; allowances such as housing, ratios is significant with to the place of work however,
can terminate the contract contract contains a greater level travel and schooling. Many respect to termination gratuity shall not be included in the
without notice and without of administrative information, • Daily working hours; and employers also include medical benefits, which are calculated working hours.
the employee being entitled as follows: and health insurance although on the basic salary and not the
to any end of service benefits. • Non-competition undertaking most of the Emirates do not yet total wage. The daily working hours have to
• Contract number; if any. require it. It is mandatory in the be arranged so that employees
Typical provisions in an emirates of Abu Dhabi and There is no decree issued or are not required to work for
employment contract • Labour card number; It is common practice for Dubai. Pensions are not yet enforced by the Ministry of more than five consecutive
employers to often enter required for non-UAE nationals Labour with respect to minimum hours without breaks for rest,
a.Employment Contract with • Date on which the contract was into a more detailed contract although they are referred to wages and cost of living meals and prayers. The total of
an on-shore entity: made and in which Emirate; with the employee in addition in the Labour Law. allowances. such breaks must be at least one
and separate to, the standard hour which will not be included
The contents of the employment • Name and address and Ministry of Labour contract, Wages Social Security Payments in the daily working hours.
contract will depend on the nationality of the employer; as it is not permitted to add
contract that the employer and any more detail to that contract. As prescribed by the Labour The Social security regime is There are specific regulations
employee will be required to • Name, nationality and passport Law, the ‘basic salary’ is the applicable to all employees and practices including circulars
enter into in order to obtain number of the employee; b. Employment Contract with employee’s principal wage of GCC nationality. Provisions issued by the Ministry of Labour
sponsorship. The Labour Law a free zone entity: excluding all allowances of are made by law for regarding reduction of work
requires the following terms to • Job title; whatever nature and must be contributions to be made hours for construction labourers
be set out in the employment The contents of the employment specified in the employment for each national as per the during the summer months
contract at a minimum: • Basic salary; contract in a free zone may contract as such. The reference locally applicable rates and of June, July, August and
differ from the standard contract of total wage includes basic the registration is mandatory. September. In practice, small
• Start date of the contract; • Whether the contract is unlimited of the Ministry of Labour. salary with allowances such as Also refer to the section and retail businesses work on
or for a limited duration and Standard contracts between those for travel, accommodation, on ‘Taxation in the UAE’. a two-shift system. Larger
• Start date of the employment; where it is limited, the end date the different free zones may medical insurance and any other corporate bodies, commercial
of the contract; also vary. regularly recurring benefit the Working hours and professional firms work
• The nature of the work; employer has stipulated. Yearly 40-45 hours a week with a
• Length of probationary period; or monthly rate employees must Article 65 of the Labour Law two-day break on Fridays
• The place of work; be paid their wages at least stipulates that the maximum and Saturdays. Government
• The employer‘s obligation once a month. Hourly, daily and normal working hours (for adult ministries work around 35 hours
to repatriate the employee weekly rate employees must employees) to be eight per day a week.
at the end of the agreement; be paid at least once every or 48 per week. However, these
two weeks. hours may be increased to nine During the Muslim holy month
daily for people working in the of Ramadan, normal working
retail trade, hotels, restaurants hours are reduced by two hours
and other such commercial per day.
26Overtime wages Holidays Sick leave
Any work done in excess of the The Labour Law provides for The Labour Law permits sick
work hours described above, 10 days of public holidays (paid) leaves for employees in each
on the day of rest, or overtime in any year. The government year subject to the following
worked during the night attract could also, as and when payments:
payment of additional, ‘overtime’ applicable, declare additional
wages to most employees. days off during the year for • First fifteen days of sick leave:
The only class of workers exempt celebrations or mourning. allowed at full wages;
from such overtime wages
is that of persons in certain • Next thirty days of sick leave:
administrative or supervisory Prescribed leaves allowed at half wages; and
roles.
Annual leave • Days thereafter: allowed at
The computation of overtime no wage.
pay for work done in excess The employee‘s annual leave is
of the normal working hours two days for every month if his In practice, different organisations
every day is to be equal to the service is more than six months have different policies with
employee’s normal wage plus and less than a year. After every respect to the amount of
at least 25% of such wage. completed year of service, an sick leave they allow before
However, for overtime work employee is entitled to 30 days considering actions within the
done between 9pm and 4am, annual paid leave. Such leave ambit of the provisions of the
the employee is entitled to is in addition to public holidays, Labour Law.
receive overtime pay equal to his maternity leave for women and
normal wage plus at least 50%. sick leaves. Leave can also Mecca Pilgrimage/
Article 69 also specifically be carried forward without Religious leave
restricts employees from being restrictions. In practice
required to work for more than however, organisations can, The law also provides for leave
two hours of overtime per day if necessary, restrict such carry of not more than thirty days
unless such a measure is forward of leaves to a limited without pay, for making a
necessary to prevent substantial number every year. pilgrimage to Mecca once
loss or alleviate its consequences. during the employment period.
This leave period cannot be
Any work done on a public deducted from the employee’s
holiday or government declared other leave entitlements.
holiday entitles the employee to
his normal wage plus 50% and
an additional substitute day off
work. In the absence of such
substitute holiday or time off
in lieu, the employee is entitled
to receive his wages plus 150%
of such wage for the overtime
hours worked.
28Maternity leave employment. All foreign
expatriates are expected to
A female employee who has follow the procedures set out
completed one year of service in the Labour Law and by the
is entitled to maternity leave Ministry of Labour and Social
with full pay for a period of Affairs to work in the UAE.
forty-five days including the The basic requirements are
time before and after delivery. for organisations to obtain
In cases where the female approvals from the Labour
employee has not completed Department and a work permit
one year of service, the maternity from the Ministry of Labour
leave shall be with half pay. and Social Affairs in order
Such an employee, on the to consider employing non-
expiry of the maternity leave, nationals or foreign expatriates.
may discontinue work without
pay for a maximum period In 2003, Dubai, and the United
of one hundred consecutive Arab Emirates (UAE), started
or intermittent days on the making a determined push
production of a medical to increase the participation
certificate issued by a medical of locals in the work-force
authority attested by the under a policy known as
competent health authority or ‘Emiratisation‘. Under the
endorsed by such authorities Emiratisation programme’s
with respect to any illness implementation measures,
resulting from the pregnancy or employment quotas in the
delivery. Such maternity leave private sector were to meet
is in addition to the annual leave. prescribed percentages,
including: the banking sector
Recruitment of staff (4%), insurance companies
(local hires and foreign (5%) and in trade companies
expatriates) employing 50 workers or
more (2%). Full Emiratisation
The rules and procedures was intended for executive,
adopted for the licences to administrative, clerical positions
recruit foreign labour to work (and business ownership) of
in the UAE are applied in all the travel and tourism, manpower
Emirates. The UAE Labour Law supply and real estate agencies.
through the Ministry of Labour Currently, many organisations
and Social Affairs governs both use local Emiratis as the Public
the employment of nationals Relations Officers (‘PROs’)
and non-nationals. The Law to handle the dealings
provides in Article 9 that as with government bodies,
a matter of right, UAE nationals especially for immigration
have the first right to and visa formalities.Normally, hiring a non-national Issuance of a Residence Employees working for A female employee sponsoring renewed up to six times d.Introduction of new work
or foreign expatriate is fairly easy visa under the employer’s employers established in a her husband would require, in (subject to a specific fee and permits:
and quick, subject to the requisite sponsorship Free Trade Zone are sponsored addition to the documents bank guarantee). However, if
approvals being obtained. There As part of the residence visa by the relevant Free Zones mentioned above, a university the extension/renewal is not Five new work permits have now
is a large surplus of educated issuance process, a UAE Authorities and not by their degree (copy certified by the done on time, a penalty fee of been introduced by the Ministry
and experienced manpower employment contract must employers. Department of Foreign Affairs AED500 for every 10 days after of Labour and the Immigration
available in all the Emirates. be entered into by the and the UAE embassy in the the expiry date is levied on the Department, in an attempt to
Employment advertisements employer and the employee. The Free Zone Authority country of origin) and must sponsor. This facility is not liberalise the labour market while
are either placed in local and sponsoring the employees have a monthly salary of more extended to UAE or GCC giving a wider range of choices
international newspapers in a.Residence visa refers directly to the than AED10,000. nationals. to potential employers. These
circulation within the Emirates issuance procedures: immigration authorities and five new internal work permit
or through hiring and placement not to the Ministry of Labour. Emirates ID b.Non-requirement of consent categories include:
agencies. Internet-based HR It is the obligation of the The potential employees will A recent change in the from the previous employer for
service solutions are also company to process and obtain be under their sponsorship and immigration law requires that temporary work permits: 1. Multiple-entry Visa:
a reliable source of access the visa for its employees. will be registered with the Free every residence of the UAE is Multiple-entry Visas are availed
to such foreign expatriates. The company will carry out Zone Authority and not with the required to apply for an Emirates In the past, an NOC and to business visitors who have a
the following process: Ministry of Labour. ID. New residents / newcomers consent letter had to be relationship with either a
Immigration and visa rules need to procure this at the time obtained from the previous multinational or other reputable
• The Government Relations Residence visa for partners, of residence application. employer to avoid a six-month local establishments, and who
It is illegal to live in the UAE Officer or PRO in the assignment spouses and children Penalties are in force w.e.f. work permit ban. The amended are frequent visitors to the
without a residence visa. firm receives all of the The employer can obtain the 1 June 2012 for non-compliance law now allows new employers UAE. This type of visa is valid
Therefore a person should employee’s documents and residence visa for the employee’s with this requirement. the freedom to obtain an for six months from the date of
be sponsored either on the sends them to the Labour/ spouse and children. However, approval from the Ministry of issue and the duration of each
basis of the ownership of Immigration offices for the UAE only married couples can Employment law changes Labour for temporary work stay is 30 days. The validity is
a business in the UAE, or to apply for the residence visa; sponsor and obtain residence permits without the consent of non-renewable.
an employment contract with visas for one another and for As part of its ongoing reforms the former employer. This
an employer in the UAE. The • If approval is received from the their children. in the labour market , the approval can only be obtained if 2. Mission Visa:
sponsorship requirements Labour/Immigration offices, Ministry of Labour has issued the current residence visa and Mission Visa is a 90-day visa
include obtaining a residence the employee goes for a A male employee sponsoring notable changes to the UAE labour/employment card of the for the purposes of allowing
visa or work permit. medical test; his wife would require the employment regulations which employee are valid and clear. expats to work for a short time
following documents: will grant foreign workers more in the UAE, or for employees
Nationals from certain countries • If the results of the medical test freedom in the employment c.Retirement age limit increase on probation period, and is
may enter the UAE with a short are satisfactory, the employee • Residence visa; market. These changes have for expat employees: applied for at the Ministry of
visit visa issued upon their is issued with a residence visa. taken effect since January 2011. Labour by the sponsoring
arrival and it is very common • Employment contract certified Earlier limit for the retirement company. The Mission Visa is
for individuals to come to A labour card is issued by the by the UAE Ministry of a.Short-term/temporary age of expatriate employees valid 60 days before entry to
the UAE on secondment or Ministry of Labour and identifies Labour; and work permits: was fixed at 60 years. The the UAE, the holder can stay up
for business meetings on an employee and his/her place Ministry of Labour has now to 90 days after entry, and it is
a visit visa provided that the of work. • Marriage certificate issued Non-GCC nationals who are extended this limit for renewable once for another
assignment is less than 30 by the competent authorities, above 18 years of age can now expatriate employees to 65 period of 90 days. It can be
continuous days. The visit visa b.Issuance of a Residence notarised and certified by the enter the UAE on a short-term years of age. This gives converted into a residence visa.
can be topped up for another visa under a Free Zone Department of Foreign affairs work permit having validity for expatriate employees the right There is a grace period of 7
30 days. Authority’s sponsorship: and the UAE embassy in the 60 days. These valid short-term to obtain work visas up to the days after expiry of the Mission
country of origin and by the work permits can be extended/ new extended limit of 65 years. Visa within which the holder
Department of Foreign affairs must exit the UAE or obtain a
in the UAE. residence visa.
323. Temporary work permit: termination of employment. Notice continuous service is entitled to
Temporary work permits would Hence, the provisions of the a gratuity at the end of his/her
allow any non-UAE national to Law have to be strictly The minimum notice period service. This gratuity is calculated
be engaged on any projects or considered by both employers applicable for an indefinite-term on the basis of 21 days’ basic
assignments for a period not and employees before contract is 30 days, as per salary for each year of the first
exceeding six months. termination of the employment. Article 117, or whatever longer five years and 30 days wages
notice period has been agreed thereafter, on condition that the
4. Part-time work permit: Termination during probation upon by the parties. In this total of the gratuity does not
Under which employees can be instance, the parties are exceed the wages of two years.
employed on a part-time basis. As discussed above, both permitted to terminate the
an employer and employee employment provided the Article 137 cuts this gratuity
5. Permits for Juveniles: have the right to terminate notice period is observed. to a third in the event that the
A very specific permit for an employment contract As indicated above, the parties employee was on an unlimited
persons between 15 and 18 within the probationary period can extend the notice period term contract and left work
years of age provided custodian without notice and without or pay the employee in lieu voluntarily after a continuous
approval has been sought on end-of-service benefits. of notice, but cannot cancel service of not less than one
the minor’s employment and Normally, a six-month it or reduce its duration. This but not more than three years,
HSE restrictions are imposed. probationary period allows provision does not apply if the and to two thirds if his/her
There are restrictions in respect some flexibility in determining dismissal is based on grounds continuous service was more
of the types of work that can if an employee is right of the employee causing grave than three but not more than
be performed, the time of work for a certain position in a financial loss to the company, five years. After the five-year
and the hours of work. company and also allows time disclosing company secrets or mark, an employee receives
to terminate the employment having been found drunk and full gratuity. Furthermore, under
Trade Unions during that period if required. disorderly on the job. article 138, if the employee is
under a limited-term contract
Trade unions do not exist Termination after completion End-of-service benefits and leaves work voluntarily
in the UAE. In the case of a of probation before the end of the contract
dispute between employer and Upon termination of period, he shall not be entitled
employee, or in interpretation After the completion of the employment, the Labour to the end-of-service gratuity
of the Labour Law, the probationary period, the Law states that an employee unless the period of his
Ministry of Labour and Social termination of the employment must be reimbursed for all continuous service exceeds
Affairs will initially act as an by either party must be entitlements they have not five years.
adjudicator. Where either party preceded by at least 30 days’ been able to benefit from,
wishes to contest any such notice given to the other party such as unutilised leave. It is worth mentioning that the
decision, it can file its case before the termination of UAE law specifically states days of absence from work
in the Civil Court. Strikes and an employment contract. that on termination of a without pay are not included in
lockouts are forbidden. It may The Labour Law does not contract, an employer must computing the period of service.
be noted that the UAE Labour allow any room for negotiation return an employee to their
Law is generally perceived as in this respect, even for instance, country of origin, should the This end of service gratuity
an ‘employee friendly’ law. when the employer is willing employee fail to find alternative is calculated according to the
to consent to a shorter time employment within a set employee’s last basic salary
Terminating employment period. Any shorter contractual time period. prior to the date of termination
notice period is unlikely to of employment. This salary is
The UAE Labour Law regulates be enforceable. According to Article 132 of the the basis for calculating the
termination of employment. Labour Law, an employee who gratuity for the whole period
Most of the disputes in the completes one year or more of of an employee’s employment.
Labour courts arise from theYou can also read
