Payroll Taxation in the UAE: Compliance and Reporting Essentialss

In the future, the UAE payroll taxation will get much more detailed, adding another layer of complexity for the expatriates. The tax system in the UAE is greatly distinct and demarcates the country on the map from all the other countries around the world. Therefore, this article will take an in-depth look at payroll taxation in the UAE, which will comprise all the compliance and reporting requirements that are made mandatory.

Payroll Taxation in the UAE

Individuals are not subject to income tax in the UAE. On the other hand, a value-added tax of 5% is imposed on all purchases, starting with the producer and continuing all the way to the customer. Corporations and other entities in the UAE are subject to a corporate tax on their net revenue or profit, and the country additionally imposes an excise tax on some commodities that are detrimental to health.

The ‘UAE Labour Law’, which comprises Federal Decree Law No. 33 of 2021 Regarding the Regulation of Employment Relationships and its amendments, regulates the labour rights of private sector employees. It applies to all workers, foreign or national, who are based in the United Arab Emirates. Some types of workers, however, are excluded from the general rules and may be subject to additional requirements.

Compliance and Reporting Requirements

While there is no specific payroll tax law to adhere to, employers still have obligations under local labor regulations. The Federal Decree Law No. 33 of 2021 on Labour Regulation governs employment contracts and wage payments in the UAE. Key provisions include:

Wages Protection System (WPS): The WPS was established by the UAE government to ensure that workers receive their salaries in a manner. Employers must enroll in the WPS. Share their payroll details, with the system.

Labor Contracts: Labor agreements are mandatory for employers to provide to their staff outlining the terms and conditions of employment.

Payroll Records: Employers must keep payroll records for each employee detailing salary, allowances and deductions.

Tax Returns: While tax returns are not compulsory for employers, in the UAE they may need to submit details to the government if requested.

Minimum Wage: There is no federally established minimum wage.

Wage Payment Frequency: Salary payment frequency varies by industry but typically occurs once per month.

Overtime Compensation: Private sector employees are expected to work for 8 hours every day or a total of 48 hours per week. However, if an employee is required to work beyond their normal working hours, they are entitled to receive pay equivalent to their normal working hours plus an additional 25% of that pay.

End of Service Gratuity: Upon termination of service, employees are entitled to receive gratuity calculated based on length of service and final basic salary.

Read More : Ultimate Guide to UAE Payroll Tax

Calculating Employer Payroll Taxes

As mentioned earlier, there aren’t any direct employer payroll taxes in the UAE. Instead, businesses focus primarily on ensuring accurate calculations and timely remittance of mandatory contributions, which includes:

Table 1: Summary of Mandatory Deductions from Employee Salary

Type	Description	Example Rate
GPSSA’s pension scheme	Retirement Benefits	11% employee – 15% employer
End of service benefits	Savings scheme	5.83% of their employees’ monthly basic salary if the employee has not completed five years of service 8.33% if the employee has served more than five years.
Social security contributions	social security	20% 5% is payable by the employee 12.5% is payable by the employer 2.5% contribution is made by the government
Unemployment Insurance scheme	insurance/social security	Employees with a basic salary of AED 16,000 or less will need to pay a monthly insurance premium of AED 5, i.e. AED 60 annually. Those with a basic salary exceeding AED 16,000 will need to pay AED 10 per month, i.e. AED 120 annually.

FAQs

Are expatriates taxed by the UAE government?

The tax rate on expatriate employees who work in the UAE does not apply to their income.

What is the salary tax rate for Dubai?

Dubai does not have any taxes based on an employee’s salary.

How do I calculate employer payroll taxes in the UAE?

Since there are no direct employer payroll taxes in the UAE, you need only to accurately calculate and remit mandatory contributions, such as pension scheme contributions and social security contributions.

Are there penalties for non-compliance with payroll regulations in the UAE?

Yes, failure to comply with payroll regulations in the UAE could result in fines, legal action, and even deportation for non-compliant employees.

Conclusion

In the United Arab Emirates, payroll taxes are a complicated subject that necessitates close attention to reporting and compliance requirements. Employers may seek the services of Payroll consultants to stay out of legal trouble and to ensure compliance with payroll services in the UAE by familiarizing themselves with the legislation.