Category: inBriefs

UAE Corporations and Businesses Tax – Registration of Taxable Persons

The Federal Tax Authority (FTA) has launched early registration for corporate and business tax (CT) through the EmaraTax platform for digital tax services pursuant to Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (CT Law). The CT Law states that Taxable Persons will become subject to CT from the beginning of their first financial year that starts on or after 1 June 2023.

 

The FTA has stated that the early registration period is available from January 2023 to May 2023 for certain categories of companies operating in the UAE. These selected companies are to receive invitations from the FTA by email and SMS, allowing them to register via the EmaraTax platform.

 

Following this phase, the FTA has stated that it will announce when registration will open for other companies and businesses, with priority being given to companies and businesses that have a financial year starting on 1 June 2023. ■

Sharjah Law No. 2/2022

What has happened?

 

On 27 October 2022 Sharjah Law No. 2/2022 was issued by Sultan Bin Mohammed Al Qasimi, Ruler of the Emirate of Sharjah expanding the rights of ownership of real estate within the Emirate to foreigners.
In this inBrief, we look at the implications of this new law and what the expansion may mean for the real estate market in Sharjah.

 

Previous Position

 

Previously under the laws of Sharjah, foreign ownership of real estate was limited to the right to hold a usufruct over property in specified areas for a maximum period of 100 years only. Non-UAE or GCC nationals were not permitted to own property on a freehold basis. A usufruct right is a limited right that permits the right holder to use and enjoy land owned by another subject to various contractual and legislative restrictions.

 

Therefore, whilst foreign nationals could hold such a property right, the right itself was quite restrictive and limited the foreign nationals’ ability to deal with the property. The preclusion of foreign investors from participating fully in the Sharjah real estate market has meant that it has not experienced the same level of growth as that of its neighbor Dubai, which has permitted such investment in designated areas for some time and has experienced a further surge in foreign investment since the beginning of the conflict in Ukraine.

 

What has changed?

 

Sharjah Law No. 2/2022 amending Article 4 of Sharjah Law No. 5/2010, has restated the general position that the right of property ownership in Sharjah is limited to UAE and GCC nationals. However, it provides for a number of exceptions whereby the right of ownership can also occur, this includes areas and projects specifically determined by Sharjah Executive
Council. It is anticipated that this will extend to the provision of rights of full ownership to foreign nationals in the specific areas and projects identified. We have summarised these exceptions as follows:

 

a. transfer by inheritance by virtue of a sharia inheritance notice;

 

b. through assignment by the owner to one of the relatives up to the first degree, as set forth in the implementing Regulation of the law; and

 

c. ownership in areas and projects of real estate development, as per the controls determined by the Sharjah Executive Council.

 

Conclusion

 

Whilst the specific areas and projects remain to be fully identified by the Sharjah Executive Council, the granting of full ownership rights to foreign nationals is a positive step toward the encouragement of direct foreign investment in the Sharjah real estate market. Foreign investors that have been priced out of the Dubai market due to increasing property prices may now be more inclined to invest in the Sharjah market.

 

It should be noted that the tested legal and administrative framework that exists in Dubai which provides protection to foreign investors through various laws concerning the ownership and maintenance of jointly owned property, the sale of off-plan properties and the governance of escrow accounts relating to same has not been fully implemented in Sharjah thus far. Therefore, whilst Law No. 2/2022 is a welcome development, it may take some time before a complementary legal structure is in place that will provide foreign investors with the necessary comfort to significantly invest in this market. ■

 

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For more detailed information, please do not hesitate to contact Shahram Safai at ssafai@afridi-angell.com.

Video inBrief: Merger Control in the UAE

In this video inBrief, Abdus Samad discusses Merger Control in the United Arab Emirates.

 

 

 

Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.

Hiring an employee in the UAE – key considerations to be mindful of

The United Arab Emirates (UAE), a sought-after destination by foreign businesses for establishing their regional offices, consists of multiple jurisdictions for incorporation/establishment of entities. Each Emirate of the UAE has its own licensing authority and, additionally, there are more than 40 free zones in the UAE. Each Emirate and each free zone can be regarded as a separate jurisdiction for the incorporation and establishment of entities.

 

Federal Decree-Law 33 of 2021 on Regulation of Labour Relations (as amended) (the new Labour Law), which repealed and replaced Federal Law 8 of 1980 concerning the Regulation of Labour Relations (as amended) (the old Labour Law), applies to all jurisdictions within the UAE except for the Dubai International Financial Centre (DIFC) free zone and Abu Dhabi Global Markets (ADGM) free zone, both of which have their own employment laws.

 

In this inBrief, we discuss certain fundamental points which are commonly raised by employers headquartered outside of the UAE and with little familiarity with the new Labour Law. Although commonalities exist in all jurisdictions, points covered in this inBrief apply to entities established in the UAE excluding the DIFC and the ADGM.

 

UAE Residency Visa and Work Permits

The majority of the workforce in the UAE is comprised of foreign nationals (excluding Gulf Cooperative Council (GCC) countries nationals) who are sponsored by their employers. To sponsor an employee, a UAE employer will arrange residency visas and work permits for such foreign national employees. Subject to complying with certain procedural requirements and passing a routine health and security check, UAE residency visas and work permits are readily issued by the appropriate UAE authorities.

 

Use of Standard Form of Employment Contract

Most jurisdictions within the UAE require the use of standard form of employment contracts. For entities operating in mainland UAE (outside of the free zone areas), the UAE Ministry of Human Resources & Emiratisation (MOHRE) has published a standard form employment contract. Similarly, Jebel Ali Free Zone Authority (JAFZA) (the authority which regulates Jebel Ali Free Zone) and a number of other free zones have issued standard forms of employment contracts.

 

The standard form employment contracts are invariably basic documents covering the minimum provisions required for an employment contract. Therefore, it is common for an employer and an employee (such as senior employees) to enter into a more sophisticated contract covering additional points not covered in the standard form contract or providing greater detail on standard provisions than what is typically included in the standard form contract.

 

Term of Employment Contracts

Under the old Labour Law, it was permissible to enter into either limited term employment contracts or unlimited term employment contracts. However, under the new Labour Law, the concept of unlimited term employment contracts has been removed. There is no limit on the minimum or maximum number of years of a term. It is permissible to renew an employment contract for similar or shorter periods as agreed between the parties.

 

Probation Period

The probation period of an employee can be a maximum of six months. Under the old Labour Law, either party could terminate an employment contract during probation period without notice. Under the new Labour Law, however, notice of termination of employment is required to be served and notice period will vary depending on the circumstances.

 

Salary and End of Service Gratuity

Salary is generally divided in two components, basic salary and allowances. Allowances can be further divided into different types of allowances and can be any amount the employer chooses and are not required to be the actual amounts incurred by the employee. For example, the monthly housing allowance is not required to be equal to the actual monthly rent of an employee.

 

Employees are entitled to an end-of-service gratuity (a benefit which an employer is required to pay at the end of an employee’s service) which is calculated on the basis of basic salary. The higher the basic salary, the higher will be the end-of-service gratuity. It is common to split the monthly basic salary and allowances to, say, 40-60, 50-50 or 60-40 ratios. An employer has discretion to keep a further lower basic salary and offer higher allowances.

 

Once agreed in an employment contract, the employer will not be able to unilaterally reduce or adjust the basic salary and allowances to the detriment of an employee.

 

Pension contributions are mandatory for employees from GCC countries. End of service gratuity is not required to be paid to employees from GCC countries.

 

Termination at Will

The Labour Law does not provide for termination of employment at will. The Labour Law provides for grounds on which an employment contract may be terminated by either party. In case of wrongful termination of an employment contract by an employer, the UAE courts may award compensation to an employee which is capped at a maximum of three months of current salary[1].

 

Governing Law and Dispute Resolution

All employment contracts must be governed by the laws of the UAE and be subject to UAE local courts. In case of a dispute, irrespective of the provisions of an employment contract, UAE courts will have jurisdiction and will apply the laws of the UAE. An employment dispute cannot be subject to resolution through arbitration.

 

Reliefs of Injunction and Specific Performance

The UAE courts generally do not grant remedies of injunction and specific performance. In case an employee, in breach of his non-compete obligations, joins a competitor of his previous employer, the previous employer will need to file a case before the UAE courts and prove and claim damages (which is often difficult) from the employee.

 

A detailed inBrief on the new Labour Law can be accessed here. ■

 

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[1] Other provisions may apply for termination of employment of UAE nationals.

 

Beneficial Ownership Registers for Ontario Corporations

As of 1 January 2023, all privately held corporations in Ontario must maintain a register of their beneficial owners, namely individuals who exercise “significant control” over these corporations. The changes were introduced as amendments to the Business Corporations Act (Ontario)[1] which were introduced in Bill 43 (Build Ontario Act, Budget Measures, 2021). In this note, we look at the implications of the new rules, both practically speaking and in the context of the global transparency movement.

 

Backdrop

 

Like other OECD countries, Canada is making efforts to tackle money laundering and abusive tax structures by enhancing the transparency of ownership and control of Canadian corporate entities. The relative ease of establishing corporations anonymously in Canada was highlighted by Transparency International in 2015. In 2019, federally registered private corporations were required to begin keeping a register of individuals with significant control, to be made available to certain tax and law enforcement authorities upon request. Several provinces have followed suit in respect of provincially incorporated entities, Ontario being most recent.  Importantly, the registries are not available to the public. The focus on beneficial ownership transparency in Canada and worldwide is being driven by OECD anti-money laundering and tax avoidance initiatives in recent years.[2] The establishment of beneficial ownership registers in particular reflects 2020 revisions and guidance to FATF Recommendations number 24 and number 25 (which relate to ensuring that accurate and up to date beneficial ownership information is available to appropriate authorities).

 

Ontario requirements

 

Under the new rules, a person with “significant control” is someone who is the registered or beneficial owner of, or who has direct or indirect control or direction over 25 per cent of the corporation’s shares by votes or value.    It also includes any individual who has any direct or indirect influence that if exercised would result in de facto control of the corporation as well as an individual whose circumstances meet the definition as set out in the regulations (not yet established). What is “direct or indirect control or direction over” shares, or “control in fact” are not defined but further guidance may be set out in the regulations; however, it is clear that joint ownership arrangements, ownership by family members, voting agreements and shareholders’ agreements and any comparable contractual arrangements will qualify.

 

The register must include names, birthdates, tax jurisdiction and a description of how the individual meets the definition of significant control. The corporation must ensure the register is kept up to date by taking steps to refresh the information in the register at least once every financial year. There are penalties (monetary and potential imprisonment) for directors and officers who knowingly allow the corporation to fail to maintain correct records and for shareholders who knowingly fail to provide accurate information in response to requests for information from the corporation. That is, Ontario corporations are required to request such information from their shareholders, and the shareholders are required to respond.

 

The register must be kept at the corporation’s registered office and be made available to requests from tax authorities, regulatory bodies and law enforcement.

 

It should be noted that no such similar requirements have been introduced in respect of partnerships or limited partnerships in Ontario as of the date of writing.

 

Are public registries next?

 

Although the new Ontario rules place a greater burden on corporations to ensure that they hold accurate records about their beneficial owners, the fact that such information must be available to authorities upon request is not a particularly novel concept given the existing powers of such authorities to require disclosure from corporations. Pragmatically speaking, the new rules can be viewed as somewhat cosmetic. A far more dramatic and controversial issue is whether such records will be required to be made available to the public (and the press), but it seems unlikely for now that this will occur in Ontario (or other Canadian provinces, with the possible exception of Quebec) without substantial further debate and the allocation of significant funding from the federal and/or provincial budgets.

 

The federal government had previously announced a publicly accessible beneficial ownership registry of federally registered corporations to be established by end of 2023. However, it has yet to announce any details of when and how this will occur or to allocate the required budgeted funding. In the intervening years the controversy around making such beneficial ownership registers public has grown, as doing so raises potentially serious privacy concerns and questions about whether making such information public carries benefits that outweigh those concerns (particularly when such information is already available to relevant tax and law enforcement authorities). The UK was the first to implement such a public registry, which continues to operate now. On the other hand, a recent landmark ruling of the Court of Justice of the European Union[3] invalidated a provision of the EU Anti-Money Laundering Directive guaranteeing public access to beneficial ownership information on the basis that such public access violated privacy rights. While it is far from certain, it may be that the Canadian government and many others around the world will reconsider the establishment of such a public registry for similar reasons.

 

The implementation of publicly accessible beneficial ownership registries in Canada remains controversial and, for now, not imminent in the near term.

 

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[1] Implemented in sections 140.2, 140.3, 140.4 and 258.1 of the Business Corporations Act (Ontario).

 

[2] In particular the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (transparency focused); the Financial Action Task Force (FATF) (anti-money laundering focused); and, a third major work stream, known as the base erosion and profit shifting (BEPS) initiative, which is led by the OECD Committee on Fiscal Affairs (tax avoidance focused).

 

[3] The full ruling can be found here:   https://curia.europa.eu/juris/document/document.jsf?text=&docid=268059&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=1291

Video inBrief: Unemployment Insurance Scheme in the UAE

In this video inBrief, Saurbh Kothari, partner, breaks down the mandatory unemployment insurance scheme in the United Arab Emirates.


Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.

Federal cabinet decision concerning the regulation of Virtual Assets issued

The UAE Federal Cabinet has issued Cabinet Decision 111 of 2022, concerning the regulation of virtual assets (the Virtual Assets Decision). The Virtual Assets Decision was issued on 12 December 2022 and will come into force 30 days following its publication in the Official Gazette.

 

The Virtual Assets Decision aims to regulate virtual assets and virtual asset businesses at a Federal level in the UAE. It is anticipated that the Virtual Assets Decisions and any implementing regulations issued pursuant to it will operate together with Emirate-level regulations (such as those issued by the Virtual Assets Regulatory Authority in the Emirate of Dubai).

 

The Virtual Assets Decision requires (this is not an exhaustive list) that businesses within its scope:

 

  • implement measures to safeguard data in accordance with current global cybersecurity standards and technological best practices;
  • have sufficient capital and satisfy any further or specific requirements imposed by law (including any prescribed by the Emirates Securities and Commodities Authority);
  • provide sufficient information involving the risks concerning investments or dealings in virtual assets in a clear, fair and non-misleading manner;
  • comply with Federal Decree-Law 20 of 2018, as well as the guidelines and recommendations issued by the Financial Action Task Force; and
  • notify the concerned authorities in the event of a security risk, security breach, or any activity that falls within the scope of electronic crimes.

 

The introduction of federal legislation on the regulation of virtual asset businesses is a welcome development and should go some way in establishing a common standard for the regulation of such businesses across the United Arab Emirates. As with all such legislation, it remains to be seen how this legislation will be enforced and applied in practice. ■

Litigation 2.0 – Significant changes in onshore litigation from January 2023

On 2 January 2023, three pieces of federal legislation came into effect which, if implemented as envisaged, will arguably make the most significant changes to litigation in the on-shore Dubai Courts since the UAE was established.

 

The three laws are:

  • Federal Decree Law 42/2022 on Civil Procedures (the CPC);
  • Federal Decree Law 35/2022 on Evidence in Civil and Commercial Transactions (the Evidence Law); and
  • Federal Decree Law 34/2022 on Regulating the Advocacy and Legal Consultancy Professions (the Advocacy and Legal Consultancy Law).

 

While there is plenty in the laws to interest practitioners, what follows is an overview of some of the more significant changes introduced by each of the laws from the perspective of litigants.

 

Federal Decree Law 42/2022 on Civil Procedures (the CPC)

 

Perhaps the most significant change introduced by the CPC, and certainly the one that has captured the public attention, is the provision for the creation of courts that will function in the English language. Strictly speaking, these courts have not yet been created, and Article 5(2) of the CPC provides that the President of the Federal Judicial Council or the head of the local judicial authority to establish courts which will hear disputes regarding (as yet unspecified) specialised matters. The importance of this development is difficult to understate, as parties not conversant in Arabic have long been apprehensive of proceedings which they are unable to comprehend without the assistance of translation. It will also help bring down the cost of litigation by eliminating the need to translate all documentary evidence into Arabic. It is worth noting that Abu Dhabi has had dual language (English-Arabic) courts in operation for a few years now.

 

Article 29 of the CPC does away with the distinction between plenary and small claims cases before the courts of first instance (an administrative decision based on the value of the claim), and all matters in the first instance will now be heard by a single judge, whose decision will be final if the claim value is under AED 50,000. Previously, courts of first instance were comprised of three judges for plenary claims. In a jurisdiction where dissenting opinions are rare, the constitution of single judge courts to hear cases of first instance should hopefully free up judicial resources to create more circuits to hear disputes more efficiently.

 

Article 32 makes provision for the creation of a new circuit to hear inheritance cases and civil, commercial or real estate disputes arising out of inheritance matters. Decisions of the court will not be subject to appeal, but may be the subject of petitions for reconsideration. This amendment likely reflects the recent growth of the UAE population, and the UAE’s increasing popularity as a jurisdiction to reside in for the longer term.

 

Continuing the trend of the amendments made to the old civil procedures law (notably including the 2019 regulations), the CPC contains provisions aimed at making litigation a faster process. Some examples include:

 

(a) Where parties overseas are required to be summoned through diplomatic channels, Article 11(2) provides that the parties are deemed to be summoned once 21 working days have passed from the UAE Ministry of Foreign Affairs making the request for service to the diplomatic mission of the foreign country in the UAE. The previous practice was to wait for confirmation of summons being served in the foreign jurisdiction, which caused significant delays. It should be noted that service through diplomatic channels is now a last resort, where summons through other means (e.g. electronic communication) have failed.

 

(b) The powers of the supervising judge of the case management offices have been enhanced to include issuing orders to appoint experts, hear witnesses, refer disputes to conciliation, or rule that claims have been waived or abandoned. Previously, these orders could only be issued by the court, which led to delays.

 

Major changes have been made to the appeals process. Appeals to the Court of Appeal formerly entailed a complete re-hearing of the dispute as a matter of course, but this will no longer necessarily be the case.

 

Article 167 provides that the Court of Appeal shall, within 20 working days of the appeal being referred to it by the case management office, make a decision on whether to dismiss the appeal or call for further submissions. It possible, therefore, that an appeal could be determined with only a single round of submissions made to the Court of Appeal. Consequently, as a practical matter, parties will be required to present comprehensive arguments, together with supporting evidence, with its first submission. For more details, please see our inBrief of 9 January 2023.

 

Article 178 requires appeals to the Court of Cassation to be made within 30 days, as opposed to 60 days as previously provided for. If a Cassation appellant makes an application for a stay of execution, Article 177(3) requires that it must be decided on within 15 days by the Court of Cassation, whereas previously there was no time limit.

 

Time limits applicable to execution proceedings have also been truncated. A judgment debtor now only has seven days within which to satisfy a judgment debt or object to its execution before the court makes orders for attachment of assets etc. This period used to be 15 days.

 

Federal Decree Law 35/2022 on Evidence in Civil and Commercial Transactions (the Evidence Law)

 

The changes made by the Evidence Law are equally important, perhaps more so, as they more likely to have a direct bearing on the outcome of cases.

 

Perhaps the most significant change is the one made through Article 35 which provides that, in commercial disputes, a party may seek production of documents from its opponent, provided that the document must be identified clearly (or as a clear category of documents), the document must relate to the underlying commercial transaction, and the production should not infringe trade secrets or related rights. The court may draw an adverse inference in the event a party refuses to produce documents. The limitations regarding document disclosure and production were often cited as a weakness in the onshore court system, and the position now under Article 35 (which will be quite familiar to common lawyers) ought to go some distance in redressing this weakness.

 

Article 5 of the Evidence Law requires the courts to give evidence to any rules of evidence that the parties may have agreed to in writing, unless it is contrary to public order.

 

There appears to be an emphasis on oral evidence in the new Evidence Law. Article 78 in particular contains detailed provisions on the examination and cross-examination of witnesses. It is also encouraging to see specific provisions in Article 9 of the Evidence Law on how persons with speech impediments may give testimony.

 

Subject to the UAE’s treaty obligations and considerations of public order, Article 12 provides that a court may accept ‘evidentiary procedures’ implemented overseas, which could include, for example, affidavits or witness statements executed overseas. These provisions would be of particular interest to parties who wish to tender evidence from overseas (e.g. from parent companies headquartered overseas, or where the dispute relates to an international transaction, both which are quite common in the UAE).

 

Federal Decree Law 34/2022 on Regulating the Advocacy and Legal Consultancy Professions (the Advocacy and Legal Consultancy Law)

 

Given the introduction of a framework for English language courts, it is not particularly surprising that the Advocacy and Legal Consultancy Law makes provision for foreign lawyers to appear in the onshore courts. Article 10 provides that foreign lawyers who, among others, have a minimum of 15 years’ experience, have a valid registration in the country in which s/he is qualified as an advocate, and is a partner in a firm which has branches in at least three different countries with at least 25 partners in total and two partners in the UAE, may appear in the onshore courts. However, these rights of audience are limited to ‘specialised circuits’ (almost certainly the English language circuits provided for in the CPC) and do not extend to criminal or family matters. Previously, rights of audience in the onshore courts were limited to UAE nationals and certain Arab nationals.

 

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The implementation of these legislative changes will be scrutinised with interest and, in addition to making the process of litigation more efficient, it is hoped that that the changes will also lead to better outcomes. The new Evidence Law is likely to be quite important in this respect, and it will be particularly interesting to see how the provisions on witness examination and document production will be treated by civil law judges. Going forward, the creation of specialist commercial and technical courts will be an important, if not essential, reform to facilitate better outcomes, and it is encouraging to see the concept of specialist courts being recognised under the CPC with the creation of courts that will have jurisdiction over inheritance-related disputes. ■

Are appeals to the court of appeal a matter of right under the new Civil Procedure Law?

The UAE has introduced a new law on civil procedure (Federal Decree-Law 42/2022) which repeals Federal Law No. 11 of 1992 on civil procedure and its executive regulations issued under Cabinet Resolution No. 57 of 2018. The new law came into force on 2 January 2022.

 

As a firm that has an extensive practice before on-shore UAE Courts, the routine advice given to a client on the UAE Court system is that an appeal to the court of appeal is generally available as a matter of right (provided the monetary threshold of the claims are met), and that there is no concept of ‘leave to appeal’, as can be seen in other jurisdictions.

 

While it appears that this position remains, the new law provides for an added level of scrutiny of the appeal, where the court of appeal is required to deliberate on the appeal in chambers (Article 167 of the new law). This deliberation occurs after the appeal is referred to the judge by the Case Management Office. Generally, the Case Management Office is required to ensure that summons is served on the appellee, and that the appellee is given an opportunity to respond to the appeal.

 

The new law imposes a 20-working day time-line for such deliberation, and the court may either decide on the appeal, or schedule a hearing for the examination of the merits. If the court decides that the appeal is inadmissible or that the judgment appealed is to be affirmed, the court is required to render a reasoned judgment.

 

Parties therefore will need to ensure that its submissions filed before the Case Management Office are comprehensive, as there is a possibility that the appeal will be decided based only on the submissions filed before the Case Management Office.

 

Apart from this additional level of scrutiny, Article 167 of the new law clarifies the following:

 

  • relief that has not been sought before the court of first instance cannot be included in the court of appeal – Article 167(5);

 

  • addition of parties to a dispute, including applications to intervene are not permitted in the court of appeal – Article 167 (6); and

 

  • an appeal to the court of appeal necessarily entails a re-trial, where all decisions and judgments rendered in the court of appeal will be reviewed. ■

UAE Unemployment Insurance Law

In September 2022, the UAE introduced an insurance scheme pursuant to Federal Decree No. 13 of 2022 concerning unemployment insurance. This law was followed by Cabinet Decision No. 97 of 2022 concerning the mechanisms and controls for implementing the unemployment insurance scheme, and Ministerial Resolution No. 604 of 2022 concerning the unemployment insurance scheme (together with the Federal Decree, the Unemployment Insurance Law).

 

Applicability of the Unemployment Insurance Law

 

The Unemployment Insurance Law came into effect on 1 January 2023. It applies to all employees in the private sector and the UAE Federal government sector. However, certain categories are exempt from the applicability of the Unemployment Insurance Law, such as: investors (i.e., individuals who own their companies and work at such companies), domestic workers, workers under temporary contracts, etc.

 

As of now, the Unemployment Insurance Law is not applicable to employees of free zone companies.

 

Is it mandatory to subscribe to the insurance scheme?

 

It is mandatory for an employee (unless the employee is under one of the exempt categories) to subscribe to the unemployment insurance scheme.

 

What are employers’ obligations under the Unemployment Insurance Law?

 

There is no obligation on an employer to register its employees. However, employers are expected to encourage and direct their employees to subscribe to the scheme.

 

How much an employee is required to contribute?

 

Insurance premiums are calculated based on the basic salary of employees. Contribution of not more than UAE Dirhams 5 per month for employees earning a monthly basic salary not exceeding UAE Dirhams 16,000 (the Category 1) and contribution of not more than UAE Dirhams 10 per month for employees earning a monthly basic salary exceeding UAE Dirhams 16,000 (the Category 2), will be required to be paid.

 

Insurance payout

 

The insurance payout will be on monthly basis and will be equal to 60 per cent of an employee’s monthly basic salary subject to a maximum of UAE Dirhams 10,000 per month for the Category 1 employee and UAE Dirhams 20,000 for the Category 2 employee.

 

The insurance payout will be for a maximum period of three months for each claim.

 

Criteria for claiming compensation

 

The following criteria are required to be met by an employee to claim compensation:

 

(i) employee must have been insured for not less than a consecutive 12-month period;

 

(ii) premiums must be paid by the employee as per the payment schedule;

 

(iii) employee should not have voluntarily resigned;

 

(iv) employee’s employment should not have been terminated for disciplinary reasons;

 

(v) employee must be in UAE at the time of making a claim;

 

(vi) insurance claim should be submitted within 30 days from the date of termination of the employment or the decision from a UAE court;

 

(vii) employee should not have an existing complaint of interruption from work; and

 

(viii) claim for compensation should not be made through deception or fraud and place of establishment should not be fictitious.

 

Penalties for non-compliance

 

An employee who fails to subscribe to the insurance scheme will be fined UAE Dirhams 400. An employee who fails to make payment of the insurance premium for more than three months from the due date will be fined UAE Dirhams 200.

 

If an employee fails to pay the fine for three months from the due date, then the fine will be deducted from the employee’s wages through the Wage Protection System, end of service gratuity, or any alternative system.

 

Further, an employee will not be eligible for a new work permit until all due fines have been paid within the specified timelines.

 

Timelines for subscription

 

All current employees who fail to enroll themselves under the scheme by 30 June 2023 will be fined as per the aforementioned penalties. Employees who are starting employment after 1 January 2023, are required to enroll themselves within four months from the date based on the criterion mentioned in the Unemployment Insurance Law. ■