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United Arab Emirates
Hire in United Arab Emirates with Confidence
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in UAE.
We work with the best legal partners in United Arab Emirates to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with Sharia law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Independent Contractor Classification in UAE
Any business hiring in the UAE should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Businesses hiring contractors employees under the guise of contracting may be liable to pay missing pension (social security) contributions.
In the UAE, employment is still the norm. Independent contractors are relatively easily identified because they either hold a freelancer permit or visa; be registered as a sole proprietorship; or own an LLC. Understanding these distinctions is critical to compliantly engaging workers in the UAE.
It is important to work with a partner like Worksuite to ensure you have an engagement framework that properly classifies freelancers able to work as independent contractors. Alternatively, Worksuite can automatically alert you when freelance talent must be engaged directly as employees on payroll, or contractors.
Factors
Employee
Independent Contractor
Employment Laws
Employees in the UAE are subject to minimum employment standards as set out in Federal Labour Law No. 8 (1980). Commonly known as the Labour Law, it defines employment benefits for all employees in the UAE.
It is generally accepted that agreements between independent contractors and their employers operate outside the scope of the Labour Law.
Hiring Practice
Under the Labour Law, employers must sign a written employment contract with their employees. The contract must detail an end date, a start date, the work to be conducted, the workplace location, and remuneration due to the employee.
Independent contractors in the UAE must agree upon and sign an independent contractor agreement with their client. This agreement details the work required, the deadline, and the fee due to the independent contractor.
Tax Filing Documents
No personal income tax is levied in the UAE. As a result, employees do not need to file any form of tax return.
Businesses must register for VAT (charged at 5%) if their taxable income exceeds AED 375,000 (€105,000) per year. Returns are filed through the Federal Tax Authority portal.
Payer's Tax Withholding & Reporting Requirements
No income tax is withheld or reported. However, employers must withhold pension contributions for employees who are UAE citizens. Employees pay 5% of their salary; employers contribute a further 12.5%.
From June 2023, independent contractors operating as LLCs must pay 9% federal corporate tax on any income exceeding AED 375,000. No tax is due on any income under AED 375,000. Entities operating in established Free Zones may be exempt from corporation tax for up to 50 years. Most businesses in the UAE pay no corporation tax.
Renumeration
Employees are paid a monthly salary. This is often split into separate allowances, including housing and car allowances. In general, the basic salary normally represents at least half of the gross remuneration. Allowances make up the remainder of the gross remuneration. All salaries should be paid in AED.
Independent contractors in the UAE charge a fixed fee and submit an invoice after the completion of the work.
Workers Rights
Employees in the UAE benefit from significant provisions in the Labour Law, including:
A maximum eight-hour working day and 48-hour working week
Overtime paid at either 25% or 50% above their normal hourly rate
45 days’ maternity leave at half pay
Five days’ paternity leave at full pay
A notice period with full pay (or payment in lieu if termination is immediate)
End of service gratuity
Payment in lieu of any unused holidays
Independent contractors do not enjoy the same rights as employees. Instead, their rights are determined by the contents of their signed independent contractor agreement.
Benefits
Employment can only be terminated in line with the terms specified in the employment contract. Employees are entitled to 21 days’ severance pay if they have completed at least one year in the role, with a further 30 days’ pay due for every other year of employment completed before the termination.
Independent contractors in the UAE must seek private insurance if they wish to be financially protected against illness or workplace accidents.
When Paid
Employees in the UAE are paid at least once a month through the Wages Protection System regulated by the Ministry of Human Resources and Emiratisation (MOHRE).
Independent contractors are paid once they have completed their task and submitted an invoice. Standard payment terms in the UAE are 30 days.
Employee
Employment Laws
Employees in the UAE are subject to minimum employment standards as set out in Federal Labour Law No. 8 (1980). Commonly known as the Labour Law, it defines employment benefits for all employees in the UAE.
Hiring Practice
Under the Labour Law, employers must sign a written employment contract with their employees. The contract must detail an end date, a start date, the work to be conducted, the workplace location, and remuneration due to the employee.
Tax Filing Documents
No personal income tax is levied in the UAE. As a result, employees do not need to file any form of tax return.
Payer's Tax Withholding & Reporting Requirements
No income tax is withheld or reported. However, employers must withhold pension contributions for employees who are UAE citizens. Employees pay 5% of their salary; employers contribute a further 12.5%.
Renumeration
Employees are paid a monthly salary. This is often split into separate allowances, including housing and car allowances. In general, the basic salary normally represents at least half of the gross remuneration. Allowances make up the remainder of the gross remuneration. All salaries should be paid in AED.
Workers Rights
Employees in the UAE benefit from significant provisions in the Labour Law, including:
A maximum eight-hour working day and 48-hour working week
Overtime paid at either 25% or 50% above their normal hourly rate
45 days’ maternity leave at half pay
Five days’ paternity leave at full pay
A notice period with full pay (or payment in lieu if termination is immediate)
End of service gratuity
Payment in lieu of any unused holidays
Benefits
Employment can only be terminated in line with the terms specified in the employment contract. Employees are entitled to 21 days’ severance pay if they have completed at least one year in the role, with a further 30 days’ pay due for every other year of employment completed before the termination.
When Paid
Employees in the UAE are paid at least once a month through the Wages Protection System regulated by the Ministry of Human Resources and Emiratisation (MOHRE).
Independent Contractor
Employment Laws
It is generally accepted that agreements between independent contractors and their employers operate outside the scope of the Labour Law.
Hiring Practice
Independent contractors in the UAE must agree upon and sign an independent contractor agreement with their client. This agreement details the work required, the deadline, and the fee due to the independent contractor.
Tax Filing Documents
Businesses must register for VAT (charged at 5%) if their taxable income exceeds AED 375,000 (€105,000) per year. Returns are filed through the Federal Tax Authority portal.
Payer's Tax Withholding & Reporting Requirements
From June 2023, independent contractors operating as LLCs must pay 9% federal corporate tax on any income exceeding AED 375,000. No tax is due on any income under AED 375,000. Entities operating in established Free Zones may be exempt from corporation tax for up to 50 years. Most businesses in the UAE pay no corporation tax.
Renumeration
Independent contractors in the UAE charge a fixed fee and submit an invoice after the completion of the work.
Workers Rights
Independent contractors do not enjoy the same rights as employees. Instead, their rights are determined by the contents of their signed independent contractor agreement.
Benefits
Independent contractors in the UAE must seek private insurance if they wish to be financially protected against illness or workplace accidents.
When Paid
Independent contractors are paid once they have completed their task and submitted an invoice. Standard payment terms in the UAE are 30 days.
Who Classifies as an Independent Contractor in UAE?
Self-employment as an independent contractor, or freelancer, is a relatively new development in the UAE. Freelancing was made legal in November 2020. UAE residents need only to obtain a freelancer permit to start work. Non-UAE residents need to secure a freelancer visa.
Who is an Independent Contractor?
In the UAE, the licensing of independent contractors makes it clear who is an employee and who is an independent contractor. Independent contractors may hold a formal freelancer permit, which costs AED 7,500 (€2,100) each year. Alternatively, they may have secured a sole proprietorship business license or hold 100% ownership of a UAE-registered LLC. It is impossible to be an independent contractor in the UAE without meeting one of these three criteria. All other workers will hold formal employment contracts and be considered traditional employees.
Contracting Models
Independent contractors in the UAE work under one of three main categories: freelancer permit, sole proprietor, or LLC.
Freelancer Permit: Introduced in November 2020, the UAE’s freelancer permit enables a worker to act as a self-employed contractor. This means they are free to engage with multiple clients at a time. The permit costs AED 7,500 each year.
Sole Proprietor: Independent contractors operating as sole proprietors have secured a business license to engage commercially with both businesses and individuals. This model is very similar to what is often referred to as sole trading, in that the personal assets of the sole proprietor can be used to cover any financial liabilities the proprietorship may incur.
LLC: Independent contractors in the UAE can set up a limited liability company (LLC) and conduct their business through that. An LLC provides financial separation between the shareholders and the business, which means contractors do not have to envisage a risk of their personal funds being used to pay off business debts.
Engagement Models
There are two primary engagement models for working with independent contractors in the UAE:
Direct Engagement of the independent contractor, who either holds a freelancer permit, sole proprietorship, or UAE-registered LLC. Under these arrangements, the contractor agrees to provide a fixed service for a specified fee. They invoice the client when the work is complete and normally receive payment within 30 days.
A contractor can also be hired through an umbrella company, which formally acts as the contractor’s employer. The client pays the umbrella company for the completed work, and the umbrella company deducts its fees and any necessary social security contributions before paying the contractor.
Contractor Payments
Independent contractors in the UAE are paid directly (without deductions) once they have completed their work and issued a relevant invoice. The fee is fixed in the contract between the two parties. Standard payment terms in the UAE are typically 30 days.
Tax and Social Security
No income tax is levied on any individual in the UAE, so no personal tax returns are filed. Local employees must pay pension (social security) contributions. Employees pay a 5% contribution from their salary, with employers contributing a further 12.5%.
Independent contractors operating through an LLC may be liable to corporation tax, although this is highly unlikely because most free zones, which is where LLCs are normally registered, offer corporation tax holidays for up to 50 years. Furthermore, corporation tax is generally only ever applied to foreign oil companies and foreign banks. So the vast majority of businesses in the UAE do not pay any corporation tax. VAT is levied at 5% on all taxable profits above AED 375,000.
