For global companies seeking to hire talent in the United Arab of Emirates, the benefits are substantial. With the strongest economy in the Gulf region, the UAE welcomes foreign investment with low borrowing costs and free zones that grant businesses complete foreign ownership and several tax exemptions.
However, complex labor laws present a list of challenges for employers interested in hiring talent in the UAE. Global employers must adhere to these laws to avoid noncompliance.
This guide highlights the main points of UAE labor law and your options for hiring talent in the UAE.
How Can I Hire Someone in the UAE?
To hire talent in the UAE, global employers have three options: establishing a legal entity, partnering with an employer of record, or engaging contractors.
1. Establish a Legal Entity in the UAE
Companies that want to hire talent in the UAE may choose to establish a legal entity in the UAE. Entity establishment is a smart choice for companies interested in growing a long-term presence in the UAE.
However, entity establishment is costly and time-consuming. Plus, the requirements to set up an entity in the UAE may vary depending on where in the country you choose to incorporate.
If you seek a faster, more cost-effective way to test the market and hire UAE talent, consider partnering with an employer of record.
2. Partner With an Employer of Record in the UAE
Partnering with an employer of record (EoR) is the simplest way to quickly and compliantly hire talent in the UAE without setting up an entity.
An EoR is a third-party organization that serves as the full legal employer of your UAE workforce. An EoR assumes all employer responsibilities on your behalf, such as onboarding, payroll, benefits administration, and risk mitigation, while you maintain day-to-day operations.
By partnering with an EoR, global employers fast-track their way to hiring talent and growing their business in the UAE without the burden of entity establishment or risking noncompliance.
Learn more: What Is an Employer of Record?
3. Engage Contractors in the UAE
Alternatively, employers may engage contractors in the UAE rather than hire full-time employees. Engaging contractors requires less commitment and offers more flexibility for employers with short-term needs who want to forgo entity establishment.
However, engaging contractors in the UAE comes with challenges. Employers must correctly classify the employment status of their talent to avoid misclassification risks. If UAE labor officials classify your contractors as employees based on their employment laws, you risk penalties such as fines, back pay, and reputational damage.
Read more: How to Avoid the Risk of Contractor Misclassification
What to Know Before You Hire in the UAE
Before hiring in the UAE, employers should familiarize themselves with topics such as UAE free zones, employment visa and permit requirements for foreign nationals, and UAE labor laws.
UAE Free Zones
Free zones, also known as free economic zones (FEZ) or free economic territories (FETs), are designated free trade zones in the UAE designed to attract foreign business. The UAE has dozens of free zones, with over 20 in Dubai alone.
When a foreign company chooses to operate in one of the UAE’s free zones, it enjoys benefits such as 100% foreign national ownership with no local affiliation and 100% exemption from personal, import, and export taxes.
Free zones are restricted to specific industry categories and have their own government regulations. Companies interested in doing business in one of UAE’s free zones must obtain a free zone residence visa and adhere to that zone’s specific labor laws to ensure compliance.
UAE Employment Visa and Permit Requirements
The UAE is a haven for expats, or foreign nationals, thanks to its simple visa requirements. In fact, expats make up over 88% of the UAE’s population. Companies that hire foreign nationals in the UAE must apply for and sponsor their employees’ visas.
The UAE offers a standard work permit that’s typically valid for two years. To obtain this work permit, foreign nationals must also obtain a residence visa and Emirates ID card.
The UAE also offers a 10-year visa, or Golden visa, for professional specialists like doctors, research scientists, and engineers. This visa not only grants long-term residency in the UAE for up to 10 years but also allows holders to acquire the visa without a sponsor.
Obtaining the appropriate visas for hiring expats or relocating foreign talent to the UAE is tricky and cumbersome. One way to simplify the process is by partnering with a full-service immigration partner like Velocity Global.
Learn more: How to Get a UAE Work Visa
UAE Labor Law
Companies wishing to expand into the UAE should have a firm grasp of UAE labor law. Below are several important considerations:
- Employment contracts. UAE labor law requires that employers and employees enter into a written contract before the employee begins working. All employment contracts must be fixed-term and up to three years in duration. They may be extended automatically with no limits to the number of extensions.
- Leave entitlements. Once an employee has worked six months to a year in the same position, they are entitled to two days off per month. If they have worked more than one year, they are entitled to 30 days off per year.
- Work hours. Work hours vary by jurisdiction. For example, in the emirates of Ajman, Ras Al-Khaimah, Sharjah, Fujairah, and Umm Al-Quwain, work hours must not exceed eight hours per day or 48 hours per week for a six-day workweek. In the free zones Dubai International Financial Center (DIFC) and Abu Dhabi Global Market (ADGM), work hours must not exceed 48 hours for a seven-day workweek.
- Termination. Termination notice by the employer or employee must typically be a minimum of 30 days and a maximum of 90 days, but this also varies by jurisdiction. For example, in the DIFC, the minimum notice period legally required from the employer and employee is seven days for less than three months of service, 30 days for at least three months but less than five years of service, and 90 days for five years or more of service.
- Severance. UAE labor law requires employers to pay severance depending on the length of employment. Employers must pay 21 days of wages for each year of service for the first five years of service and 30 days of wages for each following year of service.
UAE Taxes and Social Security
The UAE does not collect personal income tax. However, in early 2022, the Ministry of Finance enacted a federal corporate tax on business profits that applies to all emirates for domestic business. Foreign businesses in free zones are exempt from all taxes.
While no social security scheme is available in the UAE for expats, UAE residents and their employers must contribute to social security. Employers contribute 12.5% of their employee’s monthly income, and resident employees contribute 5%. The monthly maximum salary subject to social security contributions is AED 50,000.
The UAE’s General Pension and Social Security Authority (GPSSA) manages social security for residents and covers retirement, disability, death, and occupational illnesses. Employees are entitled to retirement funds if they are 50 years old or have been working for 20 years.
The UAE also imposes a VAT (value-added tax) of 5% on taxable goods and services throughout the country.
Learn more about UAE taxes and labor law here.
Compliance Risks When Hiring Talent in the UAE
While the UAE is an advantageous location for foreign businesses to build their workforce, they must comply with local labor laws to avoid noncompliance. Below are a few common compliance risks when hiring in the UAE:
- Misclassification. The UAE treats full-time employees and self-employed contractors differently by law. Contractor misclassification leads to penalties like fines and back pay.
- Permanent establishment. Establishing a fixed location outside of the UAE’s free zones triggers permanent establishment (PE). In the event of PE, you must adhere to corporate tax requirements to remain compliant.
- Navigating free zone employment laws. Free zones have different employment requirements and tax structures than the UAE mainland.
- Immigration requirements. Expats in the UAE must obtain the appropriate visas and permits before entering into an employment relationship.
Hire Talent in the UAE With Peace of Mind
Hiring talent in the UAE is a great business move, but it’s not easy. Fortunately, you don’t have to go it alone when you partner with Velocity Global.
Our Global Employer of Record (EoR) solution helps companies expand into new markets and hire talent anywhere without the burden of entity establishment or navigating complex labor laws. We handle everything from hiring and onboarding to payroll, immigration services, and ongoing HR support—all while staying on top of ever-changing labor laws to ensure compliance.
Simplify hiring talent in the UAE with Velocity Global. Contact us to get started.