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All Essential Information Regarding the New UAE Labor Law

It is important for employers and employees understand the nuances of UAE Labour Law. We will cover everything you need to know about that.

In this article we will go over everything from employment contracts and working hours to the key elements that shape employment in the UAE. Whether you are an employer aiming to comply with UAE labour law or an employee seeking to protect your rights. We have got you covered. Our goal is to assist you in understanding your rights and obligations; so you can work in a harmonious relationship within the framework of UAE labour law. Each section of this guide builds on the previous one, providing you with the information you need to navigate confidently and legally. Let us dive in.

UAE Labor Law Benefits

uae labour law

The new UAE Labour Law introduces a spectrum of benefits, ushering in a positive paradigm shift for employers and employees. Underpinning this progressive legislation are several key elements that redefine the employment landscape.

One notable change includes increasing flexibility in employment contracts, enabling the customization of agreements to suit the needs of both parties. Employers now have the flexibility to structure contracts based on specific job roles and requirements. Promoting an environment at work that is more flexible and dynamic.

Furthermore, the new UAE Labour Law brings about enhanced job security, delineating clearer guidelines on termination procedures. This not only ensures fair treatment for employees but also instills confidence in the workforce. Additionally, the legislation introduces provisions for remote work, acknowledging the evolving nature of work in the digital age.

In the realm of leave entitlements, the updated law extends its embrace by offering increased annual leave benefits. This provision recognizes the importance of work-life balance, promoting employee well-being.

As we navigate the landscape of what is the benefits of labour law. It becomes evident that these changes collectively contribute to a more progressive professional ecosystem. Employers and employees alike stand to benefit from this forward-looking legislation, fostering a harmonious and mutually rewarding work environment.

New Guidelines and Regulations in the Private Sector

In the evolving landscape of the UAE labour market, the year 2023 ushers in new guidelines and regulations in the private sector. Particularly addressing the crucial aspect of annual leave. The UAE Labour Law 2023 brings forth a comprehensive framework that redefines the parameters of annual leave entitlements. Notably, these guidelines aim to strike a balance between employee well-being and operational efficiency for employers.

Under the updated regulations, employees can anticipate increased annual leave benefits, reflecting a commitment to fostering a healthier work-life equilibrium. This strategic move aligns with contemporary notions of employee satisfaction and productivity. The law not only specifies the extended leave duration but also underscores the importance of fair and transparent leave approval processes.

Employers, as they navigate the intricate terrain of these new regulations. They have an opportunity to cultivate a workplace culture that prioritizes the welfare of their workforce. Simultaneously, employees find themselves in a more empowered position Benefiting from an enhanced leave structure that acknowledges the significance of rest and rejuvenation.

Labour Law in UAE Importance

The significance of the UAE Labour Law cannot be overstated, particularly when it comes to termination benefits and gratuity. This legal framework serves as a cornerstone, delineating the rights and entitlements in the termination process.

Under the umbrella of the UAE Labour Law, the provisions regarding termination benefits ensure a fair and structured approach. Employers must adhere to the stipulated guidelines during termination. Providing employees with a clear understanding of the reasons and ensuring due process is followed. This not only safeguards the interests of employees but also fosters an environment of transparency and accountability.

Crucially, the concept of gratuity, ingrained in the UAE Labour Law, stands as a testament to the commitment to employee welfare. It serves as a financial safety net. Offering employees a lump sum amount upon completion of their service, based on the duration of employment. This not only acknowledges the dedication of employees but also provides them with a sense of financial security as they transition between roles.

Hiring and Employment Agreements in UAE

When navigating hiring and employment agreements in the UAE, understanding the benefits of the labour law is paramount. The UAE Labour Law offers a robust framework that shapes the employment landscape. Giving clarity and security for both employers and employees. Here are key highlights:

  • Termination Benefits: The law stipulates clear guidelines for termination, ensuring fairness and transparency in the process, protecting the rights of both parties.
  • Annual Leave Entitlements: Employees benefit from enhanced annual leave provisions, reflecting a commitment to work-life balance and employee well-being.
  • Legal Safeguards: Employment agreements in the UAE benefit from legal safeguards provided by the Labour Law, reducing ambiguity and potential disputes between parties.
  • Enhanced Employee Welfare: Overall, the provisions of Labour Law on termination benefits and annual leave contribute to enhanced employee welfare, creating a conducive environment for sustainable and positive employer-employee relationships.

Contracts of Employment

Contracts of employment play a pivotal role in the professional landscape of the UAE, especially in light of the new UAE Labour Law. This legislation introduces a fresh perspective, enhancing the dynamics of employment agreements between employers and employees. The UAE Labour Law acts as the guiding force, ensuring that contracts align with its updated provisions.

Under the new UAE Labour Law, contracts of employment gain a renewed significance as they serve as the foundation for a transparent and mutually beneficial working relationship. Employers, armed with the clarity provided by the legislation, can tailor contracts to meet specific job roles and industry requirements. This flexibility enables a more dynamic and adaptive approach to employment agreements.

Furthermore, the contracts become instrumental in implementing the nuanced aspects of the law, ranging from working hours to leave entitlements. Employers and employees alike benefit from contracts that embody the spirit of the UAE Labour Law, creating a framework that fosters compliance and clarity.

In addition, this landscape it becomes evident that contracts of employment, under the influence of the new UAE Labour Law. Are not merely legal documents but dynamic tools that shape a progressive and harmonious professional environment.

Probation period

The probation period, a crucial facet in employment dynamics, undergoes a redefinition with the new UAE Labour Law. Under the updated legislation, the probation period serves as a strategic phase allowing employers to assess the suitability of the employee for the role. Setting the stage for a more informed and beneficial working relationship.

Furthermore, the new UAE Labour Law introduces clarity regarding the duration of the probation period. Providing a standardized approach that aligns with industry best practices. This brings a sense of predictability to both employers and employees, fostering an environment conducive to fair evaluation.

Moreover, during the probation period, employers have the opportunity to gauge the performance from employees, adherence to company policies, and overall suitability for the position. It becomes a pivotal time for constructive feedback and adjustments, ensuring a smoother integration into the organizational culture.

Crucially, the influence of UAE Labour Law on the probation period extends to considerations of gratuity. By clearly outlining the parameters during this initial phase, the law contributes to a transparent understanding of entitlements, promoting fairness and equitable treatment.

The probation period, under the new UAE Labour Law, emerges as a dynamic tool that aligns organizational needs with employee expectations, fostering a foundation for long-term professional collaboration.

Employment Termination

uae labour law

Navigating employment termination under the UAE Labour Law 2023 is pivotal for both employers and employees. The updated legislation introduces clarity and fairness into the termination process, reshaping the dynamics of professional exits.

Firstly, employers are obligated to comply with the stipulated regulations, ensuring fair compensation and notice periods. The law emphasizes transparent communication, reducing ambiguity and potential disputes.

Moreover, one notable aspect of the UAE Labour Law 2023 is its focus on termination benefits Employers are obligated to adhere to the specified regulations. Ensuring that employees receive their due compensation during the notice period. This approach not only safeguards the rights of employees but also fosters an environment of accountability and respect.

During this period of transition, the law acts as a safeguard, offering a structured framework that aligns with contemporary employment practices. It promotes a balanced approach that considers the interests of both parties, contributing to a more stable and predictable professional landscape.

It reflects a forward-looking approach that prioritizes clarity, communication, and the well-being of the workforce, creating a foundation for a more harmonious employer-employee relationship.

Termination with Advanced Notice

Termination with advance notice, as outlined in the UAE Labour Law termination benefits, is a critical aspect of the employment landscape, fostering transparency and fairness in the cessation of employment contracts. The law mandates that employers provide a stipulated notice period to employees, ensuring a smooth transition and allowing individuals adequate time to prepare for their departure.

In addition, under the provisions of the UAE Labour Law 2023, the requirement for advance notice serves as a safeguard Promoting open communication between employers and employees. This approach minimizes abrupt disruptions to work routines and provides a period to address any outstanding matters.

Notice periods

Notice periods, under the new UAE Labour Law, have undergone significant refinement. Introducing a more structured and transparent approach to employment cessation. The updated legislation outlines clear guidelines regarding the duration of notice that employers must provide to employees, fostering a balanced and fair transition process.

One notable aspect of the new UAE Labour Law is the emphasis on standardization. By clearly defining the notice periods, the law contributes to predictability in employment contracts. This not only facilitates smoother transitions but also ensures that both employers and employees are aware of their respective obligations.

Furthermore, the new UAE Labour Law acknowledges the diverse nature of employment contracts and job roles. Allowing for a tailored approach to notice periods. This flexibility aligns with the evolving dynamics of the modern workforce.

Employers, guided by the new Labour Law UAE, are required to communicate termination with the stipulated notice period. Offering employees clarity and time for planning. This strategic move not only upholds the principles of fairness but also minimizes potential disruptions to work processes.

Notice periods, as delineated by what is the new UAE Labour Law. Embody a commitment to fostering a professional environment characterized by clear communication, fairness, and mutual respect. Ultimately contributing to a harmonious employer-employee relationship.

Summary dismissal

Summary dismissal, as governed by the UAE Labour Law, represents an immediate and serious termination without notice. This decisive action is typically invoked in cases of gross misconduct or serious breaches of employment terms. The law underscores the gravity of such situations and provides a framework for employers to exercise this right judiciously.

Under the UAE Labor Law, when summary dismissal occurs, employees are not entitled to gratuity. The law establishes a direct link between severe violations of employment terms and the forfeiture of certain benefits. This ensures that the consequences align with the severity of the breach.

Moreover, the regulations regarding in the UAE Labour Law annual leave remain pertinent even in cases of summary dismissal. Employees are entitled to their accrued UAE Labour Law annual leave, emphasizing the commitment of the law to recognizing and safeguarding the rights in challenging situations.

Completion of service gratuity

The completion of service gratuity, as outlined in the new UAE Labor Law. Stands as a significant component in the termination benefits landscape. This provision acknowledges an employee dedicated service and provides financial entitlement upon the completion of employment.

Furthermore, under the new UAE Labor Law gratuity is calculated based on the length of employees of service and final basic salary. This clear formula enhances transparency, ensuring that employees receive a fair and proportionate gratuity in recognition of their commitment.

This aspect of termination benefits becomes particularly crucial as it establishes a link between an employee tenure and financial rewards. The law, by specifying the calculation method for gratuity, minimizes ambiguity and aligns with principles of fairness.

The new UAE Labour Law not only emphasizes the importance of completion of service gratuity but also underscores the legal obligation for employers to provide this entitlement.

For more information or inquiries on related topics, explore our insights. If you are interested in another topic, feel free to contact us.

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What is Economic Substance Regulations (ESR) in UAE

Economic Substance Regulations UAE

The Economic Substance Regulations UAE are guidelines that oversee the economic activities of companies. These regulations aim to protect consumers and prevent fraudulent company practices. The rules also have to protect investors and prevent companies from engaging in illegal activities. Additionally, the MOF ESR exists since April 2019, in response to an assessment of the UAE’s fiscal framework.

In this article, we will explain what is ESR in UAE and how it affects companies. Especially, those that carry out the specific relevant activities in the regulations. We will show you the compliance requirements and obligations that entities subject to the regulations must follow. In addition, the possible sanctions for non-compliance. We will also give you some tips to demonstrate an ideal economic presence in the UAE. Of course, about the activities you do.

How Economic Substance Regulations in UAE? Works

Economic Substance Regulations UAE

Among the functions of the Economic Substance Regulations UAE are the following:

Notification: All entities in the UAE that have one of the relevant activities as their function must submit a notification. This has to be done within six months of the end of the financial year (FY). For this, you have to log in to the online ESR portal of the Ministry of Finance (MoF). As part of this presentation, entities have to disclose the relevant activities that were carried out.

Specifically, whether there is any income from there and whether that income is subject to tax outside the UAE. For entities with multiple branches in the UAE, you only need to submit one consolidated notification.

Economic Substance Tests: Entities in the UAE with income from activities have to demonstrate adequate substance. Of course, it has to be about said activities meeting the requirements of three Economic Substance tests (ES Tests). Below, you will see what these requirements are.

  • Basic income generating activity (CIGA) test: Requires the main activities carried out in the UAE.
  • Directed and managed test: Requires that the company be directed and managed from the UAE about the Relevant Activities.
  • Adequacy test: Requires evaluation of ideal resources in the UAE. For instance, expenses, assets, and employees.

Reports: Entities with income from any of the relevant activities must submit a report. This report has to be submitted to the Ministry of Finance’s online Economic Substance Regulations UAE. You have a period of twelve months following the end of the relevant fiscal year. Entities have to disclose different details in these reports. For instance, whether or not you passed the ES tests, details of providers, specific CIGA details.

Who is subject to the Economic Substance Regulations?

There are different categories of business entities that come under the ambit of the UAE ESR. The classification of these is the term licensee and there are two types of licensees. One is the typical licensee who must comply with ESR requirements and exempt licensees.

In this way, entities will be classified as licensees if:

  • A corporation without legal personality or a legal entity within or outside the state.
  • The company with registration in the United Arab Emirates, including the free zone/financial free zone.
  • Possess a legal license, permit, or other form of approval to conduct business.
  • That they carry out relevant activities.

On the other hand, an exempt licensee refers to a licensee exempt from reporting economic substances for certain reasons. An exempt licensee is a licensee who has the following:

  • Investment fund.
  • Tax resident in a jurisdiction that is different from that of the UAE.
  • An entity that is wholly owned by UAE residents is not part of a multinational group. In addition, it has activities only carried out in the UAE.
  • Branch of a foreign entity and its relevant income subject to tax in a different jurisdiction.

However, you can find other practical cases to the aforementioned. For this reason, you must seek expert guidance or the help of a business center.

What is required under the Economic Substance

Economic Substance Regulations UAE

If you want to start a business, you must know about this. Thus, an entity that is not a controlling entity and entities that carry out intellectual property business, for which there are different criteria; If they carry out a relevant activity, they will meet the economic substance requirements if:

  • It is managed and directed in the jurisdiction.
  • Basic income-generating activities are carried out in the jurisdiction of the activity that is relevant.
  • Maintains premises that are physically adequate in the jurisdiction.
  • There are suitable employees in the jurisdiction and they have adequate qualifications.
  • You incur expenses that are appropriate in the jurisdiction in respect of the relevant activity.
  • Submits a confidential report of economic substance annually to the applicable authority in your jurisdiction. This will help the authority evaluate compliance.

Those relevant entities that act as pure equity holding vehicles are subject to a less onerous compliance test. Furthermore, those who carry out intellectual property activities; particularly high-risk intellectual property businesses, are subject to a stricter test.

For this reason, it is important to know the UAE economic substance regulations or look directly at the Ministry of Finance ESR.

Defining Rules and Regulations

The Economic Substance Regulations UAE are a group of regulations issued by the UAE government. In this way, there is a guarantee that companies operating in the country can have a sufficient economic presence. For this reason, companies with registration in the UAE, and carry out any of the following relevant activities, must maintain and demonstrate an adequate economic presence:

  • Banking
  • Insurance business.
  • Investment fund management business.
  • Financial leasing business.
  • Headquarters business.
  • Shipping business.
  • Intellectual property business.
  • Distribution and service center business.

In this way, the Economic Substance Regulations are applied to financial years beginning on or after January 1, 2019. For this reason, companies that are within the scope of the regulations must submit an annual notification form. This should be done to your regulatory authority.

Additionally, they must complete and submit an economic substance report to the same regulatory authority. All of this within 12 months of the end of your financial year.

Core Compliance Responsibilities

Basic ESR compliance responsibilities in the UAE include:

  • They must maintain an adequate economic presence in the UAE about the activity they carry out.
  • Submit a notification form annually to your regulatory authority.
  • They must complete and submit an economic substance report to the same regulatory authority. All of this, within 12 months of the end of your financial year.

Failure to comply with these regulations may result in penalties. In addition, spontaneous exchange of information with foreign competent authority. You may also suffer administrative sanctions such as suspension, revocation, or non-renewal of your UAE business license or entity permit.

Entity-Specific Mandates

The Economic Substance Regulations UAE includes several specific mandates, which you will see below.

Cabinet Resolution No. 31 of 2019: It is about the specification of the Requirements of real Economic Activities.

Ministerial Decision No. 215 of 2019: It is about the issuance of Directives for the implementation of the Provisions of Cabinet Decision No. 31 of 2019.

Cabinet of Ministers Resolution No. 57 of 2020: This determines the Economic Substance Requirements.

Ministerial Decision No. 100 of 2020: It is about the Issuance of Guidelines for the Implementation of the provisions of Cabinet Decision No. 57 of 2020. That is, about the requirements of economic substances.

Comprehending Criteria for Substance Testing

In the UAE, the economic substance test aims to evaluate the important objectives of the company. You have to know that the tests differ for different types of companies.

For this test, companies have to meet the following criteria:

  • The relevant activities are directed and managed by the licensee from the UAE.
  • Basic income-generating activities (CIGA) must be carried out in the UAE. You have to keep in mind that each relevant activity has a different CIGA set.
  • Finally, the entrepreneur has to have enough employees, operating expenses, and physical assets in the UAE.

To evaluate whether operating expenses and physical assets are ideal, sufficient and accurate records must be maintained for verification. The National Appraisal Authority has to review such records and other supporting documentation to decide.

Standards for Documentation and Reporting

Generally, an ES report must include the following information

  • Relevant activity
  • Type of income and amount of work on the relevant activity.
  • Type and amount of expenses concerning the relevant activity.
  • Assets according to the UAE to carry out the relevant activity,
  • The number of full-time local employees with sufficient skills to carry out the relevant activity.
  • Other details that the law requires.

On the other hand, intellectual property companies are somewhat risky, and require more information:

  • The experience, qualifications, and contracts of real-time employees. Specifically, those who permanently reside in the country and carry out relevant activities in the UAE.
  • Evidence of business decisions.
  • Finally, these businesses have to provide sufficient information to demonstrate that the entrepreneur exercises a high degree of control over the company. Specifically, on the exploitation, development, maintenance, protection, and improvement of intellectual property assets.

According to the Economic Substance Regulations UAE, licensees have to submit an ES report from time to time. That is, within 12 months after the end of the financial year. It is important to ensure compliance with ESR standards. Otherwise, you will have to give rise to severe sanctions.

Challenges and Pitfalls in Compliance

Compliance with the UAE Economic Substance Regulations (ESR) can present difficulties and challenges. According to the Ministry of Finance of the UAE, certain companies have to maintain and demonstrate an ideal economic presence in the company’s activities. This is for companies on the mainland and in free zones of the UAE that carry out any of the relevant activities.

Companies that do not comply with regulations may face sanctions. Specifically, the spontaneous exchange of information with the Foreign Competent Authority. In addition, other administrative sanctions. For instance, the revocation, suspension, or non-renewal of the entity’s business license or permit.

It is important to highlight that compliance with the UAE Economic Substance Regulations is a complex and constantly evolving issue. Therefore, a good recommendation is that companies have professional advice. Thus, they can guarantee ideal compliance with regulations.

Failure to comply with the Economic Substance Regulations UAE may result in different sanctions. For instance, licensees who do not submit a notification have to pay AED 20,000. Additionally, a fine of AED 50,000 must be submitted if licensees commit any of the following violations.

  • Failure to present the SE report with the essential documentation.
  • Failure to pass the ES test for each relevant financial year.

Finally, if the licensee continually commits the same infringement in the following financial year he has to pay a fine. This is a total of 400,000 AED.


In short, ESRs are a set of regulations that are issued by the UAE government. In this way, they can guarantee that all companies in the country can have a sufficient economic presence. Companies that are registered in the UAE and carry out one of the relevant activities mentioned above must maintain and demonstrate their adequate economic presence.

Additionally, failure to comply with these regulations may result in several penalties. In this way, you may suffer administrative sanctions such as the suspension, revocation, or non-renewal of your business license. Greatly affecting the entity that committed the infraction. For this reason, you must take into account all these regulations and avoid future problems with your company.