Types of Companies in DIFC

The main types of companies you can set up in DIFC include:

Requirements for Hiring Employees

Before hiring employees in DIFC, you must fulfill the following criteria:

• Company License: Keep a valid license to operate and comply with UAE and DIFC laws.
• Employee Verification: Ensure candidates have the necessary qualifications and meet UAE residency requirements.
• Salary and Health Insurance: Provide timely salary payments and health insurance to employees.
• Sponsorship Fees: Pay required fees for employee sponsorship, including a cash deposit of AED 2,500 per employee based on your Employee Allocation permits.

Office Space Requirements

Every company must secure a physical office space to maintain its license, which also determines the number of employee visas you can apply for.

Options for Office Spaces in DIFC

There are different options that you can choose in the most sought after real estate area in the business district of Dubai.

You can choose from several options in Dubai’s premier business district:

• Commercial office spaces: Traditional office environments.

• Retail space: For businesses that sell directly to consumers.

• Co-working spaces: Shared office environments; generally, one visa per desk.

• Business Centre (serviced offices): Fully furnished spaces with support services.

• Event spaces and Data centres: Specialized venues for specific business needs.

Step-by-Step Checklist for Securing Office Space

1. Evaluate your business needs and team size.
2. Explore available office space options in DIFC.
3. Contact DIFC for specific space requirements and visa allotments.
4. Choose and secure your preferred space.

Company Establishment Card

A valid Establishment Card is necessary for all visa-related services within the Government Services Office. This card is valid for one year or until your DIFC commercial license expires.

Key Points About the Establishment Card

• Renewal: You must renew it annually as part of your DIFC license renewal process.
• Amendments: Update your card if there are changes to your company's trade name.‍
• Fines: If you fail to renew within one month of expiry, you will incur fines of AED 100 per month.

Step-by-Step Checklist for Applying for a New Establishment Card

Log into the DIFC portal.
Select 'Apply for Establishment Card' under 'Employee Services.'
Fill out the application with accurate information and upload the required documents.

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Receive an email to sign the Personnel Sponsorship Agreement (PSA) through DocuSign.

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Sign the document electronically and submit it.

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Wait for an email/SMS notification when your Electronic Establishment Card is ready.

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Fees and Service Time

Note: Service time may vary due to unforeseen delays from the Federal Authority for Identity and Citizenship – Dubai.

Visa Application Process

After securing your Establishment Card, the next step is applying for the company owner’s Residency Visa and Emirates ID. This process is straightforward.

Step-by-Step Checklist for Visa Application

1. Log into the DIFC portal.
2. Upload required documents in the specified format.
3. Undergo a medical test.
4. Wait for medical fitness results.
5. Register for Health Insurance.
6. Complete biometrics for the Emirates ID (if required).

Common Mistakes to Avoid

1. Not renewing the Establishment Card on time: Failing to renew can lead to fines and disruptions in visa services.
2. Overlooking employee verification: Ensure candidates meet qualifications to avoid hiring delays.
3. Ignoring sponsorship fees: Unpaid fees can halt your ability to sponsor employees.‍
4. Choosing the wrong office space: Select a space that matches your team size and visa requirements to avoid complications later.

Creating an Offer Letter
Once you’ve chosen a candidate to hire, it's time to make an official offer. The offer letter should clearly outline the employment terms and conditions, including the salary, benefits, working hours, and start date. Give the candidate a specific deadline for responding to the offer.

Example:
"We are pleased to offer you the position of Marketing Manager with a starting salary of AED 15,000 per month. Please confirm your acceptance of this offer by returning a signed copy by [insert date]."

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Drafting the Employment Contract

After the offer is accepted, you must provide a written employment contract in English within seven (7) days of the employee starting work. This contract should include the following details:

• Names of the employer and employee
• Start date of employment
• Salary and pay period
• Working hours and days
• Vacation leave entitlement
• Notice period for termination
• Job title
• Contract duration (indefinite or fixed-term)
• Workplace location
• Reference to disciplinary procedures
• Any probation period (maximum of six months)

Example Contract Clause:
"Your employment will begin on [date] with an annual salary of AED 180,000. You will be entitled to 30 days of paid vacation leave per year."

If any changes are needed after the contract is signed, they must be made in writing and signed by both parties.

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Applying for a Visa

Once the employment contract is in place, you can apply for a residence visa for your employee. The process involves logging into the DIFC portal and selecting the appropriate visa option:

1. New visa from outside the UAE
2. New visa from within the UAE
3. Visa transfer (government or other free zones)
4. Visa transfer (within DIFC)

Required Documents:

1. Passport copy
2. Passport-sized photo (jpg format, white background)
3. Signed employment contract
4. Attested highest educational certificate
5. Additional documents (Emirates ID, Good Conduct Certificate for certain nationalities)

You can opt for either the normal or express visa processing service, with fees varying accordingly. Expect the process to take 3-10 working days, depending on the number of applications being processed.

Addition resources
Please check the section related to Employment Visa services in the Dubai Government Services Handbook found on the DIFC website. Please refer to pages 15-34 to understand of additional services such as Transferring visas, Renewal, Cancellation & Amendment.

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Medical Exam
To complete the visa process, your employee will need to pass a medical fitness test. For standard applications, the test is done at the DIFC Medical Center (Level B1, The Gate). For express applications, the test can be scheduled at Smart Salem Medical Centre (Level 1, Index Tower).
The Dubai Health Authority will share the test results directly with DIFC.

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Updated Visa Stamping Process
As of June 2022, DIFC no longer requires physical passport submission for visa stamping. Instead, employees will receive an electronic residence visa permit.

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Registering with the DIFC
After the visa is issued, the employer must register the employee with DIFC and obtain an identification card. This card allows access to DIFC premises and must be kept up-to-date.

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Applying for an Emirates ID

The Emirates ID is an essential document for all UAE residents. It’s used for identification and accessing government services.

Steps to Apply:

1. Submit the application: Complete the process online via the ICP website or through a registered typing center.
2. Pay fees: Payment will depend on the type of visa.
3. Biometric scan: If this is the employee’s first Emirates ID, they must visit an ICP center for a biometric scan.
4. Collect the ID: After processing, the employee will receive SMS and email updates on when and where to collect their Emirates ID from the post office.

The visa and Emirates ID process typically takes 7-10 working days, provided all documents are in order.

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An employment contract can be terminated:

Notice periods

If a company decides to terminate an employee, it must provide written notice. The notice period depends on the employee’s length of service:

• Less than 3 months: Minimum of 7 days' notice.
• Between 3 months and 5 years: Minimum of 30 days' notice.‍
• More than 5 years: Minimum of 90 days' notice.

Important:

• The company can offer compensation instead of requiring the employee to serve the notice period, but the employee must agree to this in writing.
• Notice periods do not apply in the following cases:
  • During the probation period.
  • At the end of a fixed-term contract.
  • If the employee takes excess sick leave.

Example of Notice Period in Action:

Let’s say an employee has worked for a company for 6 years. If they are terminated, they must be given 90 days' notice or paid an equivalent of 90 days' salary if both parties agree to end the contract early.

End-of-Service Gratuity (ESG)

End-of-service gratuity is a payment made to an employee when their employment ends, calculated based on their basic salary and years of service. It applies unless the employee is under the DIFC Employee Wellness Program, which replaced the ESG for employees hired after 2020.

How to Calculate End-of-Service Gratuity:

1. For the first 5 years of service, the employee is entitled to 21 days of basic wage for each year.
2. After 5 years, the employee is entitled to 30 days of basic wage for each additional year of service.

Example Calculation

An employee has worked for 7 years, earning AED 12,000 in basic salary per month:

• For the first 5 years: 21 days × 5 years = 105 days of wage.
  • AED 12,000 ÷ 30 (days in a month) × 105 = AED 42,000.
• For the additional 2 years: 30 days × 2 years = 60 days of wage.
  • AED 12,000 ÷ 30 × 60 = AED 24,000.

Total Gratuity = AED 42,000 + AED 24,000 = AED 66,000.

Disbursing Final Pay and Benefits

Before terminating employment, you need to:

1. Pay any outstanding wages and accrued leave.
2. Ensure the end-of-service gratuity (if applicable) is calculated and paid.
3. Settle any other benefits owed to the employee.

Example:

An employee's final pay should include their last month's salary, unused vacation days, and gratuity. For instance, if the employee has 10 unused vacation days and earns AED 10,000 per month, the payout for the vacation days would be:

Unused Vacation Pay = AED 10,000 ÷ 30 × 10 = AED 3,333.

Canceling Work Permit and Residency Visa

For non-UAE nationals, you must cancel their work permit and residency visa within 30 days of the termination date.

Steps to Cancel a Work Permit and Visa:

1. Ensure any dependents (spouse, children, etc.) on the employee’s visa are canceled before canceling the employee’s visa.
2. Log in to the DIFC portal and submit a request to cancel the work permit and residency visa.
3. Confirm the visa cancellation with relevant authorities.
4. Allow 3–5 business days for processing.

Understanding Recruitment Costs in DIFC

What Costs Employers Can’t Recover:

Employers cannot charge employees for:

• Finding them a job.
• Providing them with information about available jobs.

Employers also can’t recover recruitment costs such as agency fees, visa processing fees, or any other expenses related to hiring the employee.

When Costs Can Be Recovered:

If an employee leaves voluntarily within 6 months of starting (except for termination for cause), the employer can recover reasonable recruitment costs if:

1. The costs were directly incurred during recruitment (e.g., visa fees).
2. The costs are supported by documentation (receipts, invoices).
3. The employment contract specifies that these costs are recoverable in such circumstances.

Example Clause for Recruitment Cost Recovery:
"If the employee terminates the contract within 6 months of employment, they agree to repay AED 10,000 in recruitment costs incurred by the employer, as detailed in the receipts provided."

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Contract Types and Templates

Under UAE Labour Law, two types of contracts exist: Limited Term and Unlimited Term.

• Limited Term Contracts: These contracts have a specific end date, making them suitable for fixed-term roles like projects or temporary positions. For instance, if you're hiring someone for a project expected to last six months, a Limited Term contract is ideal. Upon completion, the contract ends automatically unless renewed.‍
• Unlimited Term Contracts: These contracts have no set end date, making them preferable for long-term or permanent positions. They continue until either party chooses to terminate the contract, typically with a notice period. This is a common choice for ongoing roles without a fixed duration

Termination Differences:

• In a Limited Term contract, early termination might require compensation or notice unless the contract includes specific termination clauses.
• In an Unlimited Term contract, the notice period is typically outlined in the contract and must be followed for termination

Tax Implications in DIFC

The UAE generally does not impose personal income tax. However, starting June 2023, the UAE government introduced a 9% corporate tax on profits exceeding AED 375,000. This applies to businesses operating outside free zones.

DIFC Tax Benefits:
DIFC-registered companies are exempt from this corporate tax for 50 years, starting from the implementation of the law. This tax holiday offers a competitive advantage, especially for international businesses.

• For Employees: There is no personal income tax in the UAE, meaning employees keep 100% of their earnings.‍
• For Employers: While you are exempt from corporate taxes in DIFC, it’s important to keep proper records of profits and ensure compliance in other areas, such as VAT, which applies to some goods and services at a rate of 5%.

Potential Questions:

Do businesses in DIFC have to file tax returns?: Yes, while the 50-year exemption applies to corporate tax, companies still need to comply with other DIFC regulations, including filing financial statements.

Non-Disclosure Agreements (NDAs)

A Non-Disclosure Agreement (NDA) is a contract used to protect confidential information shared between parties. It can be either:

• Mutual NDA: Both parties agree to keep shared information confidential.‍
• One-Way NDA: Only one party is bound to confidentiality.

Creating an Enforceable NDA in DIFC:

To ensure enforceability, an NDA must meet the following criteria:

1. Written Agreement: The NDA must be in writing and signed by all parties involved.
2. Clearly Defined Confidential Information: Specify what constitutes confidential information (e.g., client lists, business strategies).
3. Time Period: Clearly state how long the confidentiality obligation lasts (e.g., 2 years).
4. Consequences of Breach: Include penalties for breaches, such as fines or legal action for damages.

Example Clause:
"The receiving party agrees to maintain confidentiality for a period of 2 years after the end of this agreement and may not use the disclosed information for any purpose outside of the defined scope."

If breached, the offending party may face damages or an injunction, preventing further disclosure.

Equipment Provision

Employers are responsible for supplying necessary equipment, such as laptops or phones, to their employees for work. This can be done in two ways:

• Company-Owned Equipment: Employers provide employees with equipment solely for work purposes.‍
• Equipment Stipend: Employers offer a financial allowance for employees to buy their own equipment.

Key Responsibilities of Employers:

1. Provide Safe and Suitable Equipment: Ensure all equipment is in working order and complies with safety regulations.
2. Training: Offer necessary training for the safe and effective use of equipment, including relevant software.
3. Maintenance: Regularly update and maintain equipment to ensure continued safety and compliance with data protection laws.

Exclusivity Clauses

An Exclusivity Clause prevents an employee from working for competitors or engaging in activities that conflict with their current role.

When is an Exclusivity Clause Used?:
Typically, these clauses are used in competitive industries, such as finance, where employers want to protect sensitive information or trade secrets. For example, a financial firm may include an exclusivity clause to prevent employees from sharing valuable client information with competitors.

What is Reasonable and Proportionate?

An exclusivity clause must be reasonable in terms of:

• Duration: For example, restricting an employee from working for a competitor for 12 months after leaving.
• Geographic Scope: It should not unfairly limit the employee’s ability to work in the industry altogether.

Example Clause:
"The employee agrees not to engage in any work for a competitor within a 50-mile radius for a period of 6 months following the termination of this contract."

Important to Note:Exclusivity clauses are not enforceable for certain employees, such as domestic workers (e.g., maids and drivers) in the DIFC.

When managing compensation in the Dubai International Financial Centre (DIFC), understanding the regulatory framework and optimizing salary structures is crucial for both compliance and attracting top talent. DIFC employment regulations mandate that basic salary must constitute at least 50% of the total salary, with the remaining portion covered by allowances. However, in practice, many companies implement a 60/40 split—allocating 60% to the basic salary and 40% to allowances. This split offers flexibility while aligning with market expectations, allowing companies to remain competitive.

Key Components of Allowances in DIFC

Allowances are designed to provide employees with additional financial support for specific expenses beyond their base salary. For HR and finance professionals, structuring these allowances appropriately not only ensures compliance but also supports employee satisfaction and retention.

• Housing Allowance: This covers rent or accommodation expenses, often pegged to the employee’s job grade or family status. It plays a significant role in expatriate employee packages.
• Transportation Allowance: A stipend to offset the cost of commuting or other travel-related expenses, typically depending on the nature of the employee’s role.
• Utility Allowance: Some companies offer allowances to cover electricity, water, and other utility expenses, particularly for expatriate employees.

For HR professionals, these allowances can also serve as recruitment and retention tools, especially for expat talent, by making your compensation packages more attractive and competitive in the market.

Strategic Considerations for Salary Structuring

Basic Salary: The core of your employees’ income, which also serves as the basis for calculating end-of-service gratuity, overtime pay, and other statutory benefits. As a best practice, ensuring that the basic salary is set at a competitive market rate is crucial, as it directly affects your company’s ability to attract and retain talent.

Allowances: These should be structured to provide financial relief for employees, particularly in high-cost-of-living areas like Dubai. For instance, robust housing allowances can be a key differentiator when recruiting senior or expatriate talent.

Overtime Pay and Bonuses: A Strategic View

For finance teams, it’s essential to factor in how additional compensation—such as overtime pay and bonuses—can impact your payroll budget and forecasting.

• Overtime Pay: Calculated based on the employee's basic salary, overtime is mandatory for any work exceeding the standard hours as per DIFC regulations. This needs to be tracked and processed accurately to ensure compliance.
• Bonuses: DIFC companies have flexibility in structuring their bonus schemes. Some organizations may offer performance-based bonuses linked to KPIs, while others may adopt profit-sharing mechanisms. Given there are no government-mandated cycles, finance teams should ensure that bonus structures align with company goals and are budgeted for appropriately.

Deductions: Ensuring Compliance

When processing payroll, deductions are a key consideration. Your payroll system must accurately account for any deductions, including:

• Taxes: Depending on the employee’s home country, certain tax liabilities may apply, especially for expatriates subject to double taxation agreements.
• Social Security Contributions: For GCC nationals, pension contributions must be managed in compliance with the GPSSA (General Pension and Social Security Authority) requirements.
• Other Deductions: These may include deductions for benefits, insurance premiums, or any other statutory deductions as required by law.

A transparent and compliant payroll process that factors in these deductions is crucial to avoid legal risks and ensure employee satisfaction.

Currency: Optimizing Salary Payments for Employees

While UAE Labor Laws allow salary payments in any currency (as long as it is specified in the employment contract), most DIFC companies opt for AED or USD. This flexibility can be advantageous for both employers and expatriate employees, but there are key considerations:

Strategic Importance of Currency Choice

• Currency Stability: For expatriate employees, fluctuations in exchange rates can affect the value of their salaries. For example, employees paid in USD but living in Dubai may find their real purchasing power affected by shifts in currency values.
• Local Currency Payments: Paying salaries in AED can provide stability and reduce the risk associated with currency fluctuations, particularly for expatriates who live and spend locally.

HR and finance teams should discuss potential currency risks with employees to ensure that compensation agreements account for potential fluctuations, and that employees understand how these could impact their take-home pay.

Wage Protection Service (WPS)

The Wage Protection Service (WPS) is a system implemented by the UAE government to ensure that salaries are paid to employees on time via approved channels such as banks or financial institutions. However, this system is mandatory only for companies registered in Mainland UAE and Jebel Ali Free Zone (JAFZA), not for those in DIFC.

Why is DIFC Exempt?

DIFC operates under a separate legal framework with its own employment laws and financial regulations, which differ from those in Mainland UAE and JAFZA. This exemption doesn't mean that DIFC companies are less regulated; they are still required to ensure timely salary payments under DIFC law.

DIFC Employee Workplace Savings (DEWS)

The DIFC Employee Workplace Savings (DEWS) scheme replaced the old end-of-service gratuity system. DEWS is a professionally managed savings plan where employers contribute a percentage of an employee’s salary every month, creating a more structured approach to long-term savings for employees.

Why Was DEWS Introduced?

DEWS was introduced to modernize the old gratuity system, which only provided a lump-sum payment at the end of an employee’s service. Now, both employers and employees have a transparent, secure savings plan to track monthly contributions and manage investments.

Key Points to Know:

• Employer Contributions:
  • For employees with less than 5 years of service, employers contribute 5.83% of the employee’s monthly salary.
  • For those with more than 5 years, the contribution increases to 8.33%.
• Employee Contributions: Employees can also voluntarily contribute up to 100% of their salary during a payroll period, which is invested according to the employee’s choice.
• Tracking and Withdrawal: Both employees and employers can track contributions and investments through the DEWS system. The platform provides full visibility over contributions, portfolio valuations, and instructions for withdrawals.

Simplified Process:

• Employers deposit the contributions into a Master Trust managed by Equiom, with funds held in USD at Standard Chartered Bank. When a company joins DEWS, they receive a dedicated Virtual Bank Account Number (VBAN), making the process easy and transparent.
• Opting Out: Some employers may wish to opt out of DEWS if they prefer to manage employee benefits through a different qualifying scheme. To do this, they must implement an alternative savings plan and apply for a Certificate of Compliance from the DIFC Authority (DIFCA).

Why Would Employers Opt-Out?

Employers might choose to opt out if they already have a comprehensive employee benefits package or if they wish to tailor a savings plan more aligned with the company’s financial objectives.

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Insurance

Employers in Dubai’s DIFC (Dubai International Financial Centre) are legally required to provide health insurance for every employee under their employment, as mandated by federal and Dubai law. This also applies to employee dependents who are sponsored by the employer's visa, even though this is not always required by law, it’s a common practice that significantly enhances employee satisfaction.

Practical Tip for Employers:

Offering health insurance to dependents can be a great retention strategy, as it adds value to your employees’ overall compensation package.

Practical Example:

Imagine you're working in Dubai on an employment visa. Your company provides health insurance, which covers not only you but also your spouse and children. This means your family’s healthcare is secured, saving you thousands of dirhams a year on medical expenses.

Pension for GCC Nationals

If you have a UAE or GCC national working for you, there’s an important distinction to note: these employees must be registered with the General Pension and Social Security Authority (GPSSA). Employers are required to contribute to the employee’s pension fund based on their salary. This contribution replaces the traditional end-of-service gratuity, which expatriates are entitled to.

Practical Example:

As an employer, when hiring a UAE national, you’ll contribute to their pension fund each month. For instance, if the employee earns AED 20,000 per month, a percentage of that salary goes directly into their pension plan. Upon retirement, they’ll draw a monthly pension instead of receiving a one-time gratuity.

Key Point for Employees:

If you're a GCC national, this pension contribution means you are building a retirement fund while working, but you won’t be eligible for the usual end-of-service gratuity.

Workers’ Compensation

If an employee is injured or passes away while working due to negligence on the part of the employer, they are entitled to compensation. This can amount to up to two years of the employee’s annual wage, depending on the severity of the incident, and would be determined by a court.

How it Works:

Let’s say an employee suffers a workplace injury due to improper safety measures. If the employer is found negligent, the employee may be awarded damages equal to two years' salary.

Allowances

Employers in the DIFC are free to set up allowance structures as part of their overall compensation packages. Common allowances include housing, transportation, and phone expenses. These allowances are often part of the salary package and may significantly impact an employee’s net income.

Typical Allowances Include:

• Housing: Some companies offer a housing allowance to cover accommodation costs.
• Transportation: Fuel or transportation costs are commonly covered.
• Phone: Monthly mobile allowances are often provided.
• Other Benefits: This might include children's education, annual flights back home, or even overtime compensation.

Example of a Typical Allowance Package:

If you’re working as a senior manager, your company might provide you with a housing allowance of AED 60,000 per year, transportation costs of AED 1,000 per month, and a phone allowance of AED 300 per month.

Company Holidays

Employers in the DIFC must provide their employees with various types of leave, including annual leave, public holidays, maternity and paternity leave, sick leave, and special leave for the Hajj pilgrimage.

Types of Leave and Holidays:

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This section contains details about Visa types, Steps to cancel visa, Renew visa, Space - Visa allocation, Golden Visa

Visa Types

In a DIFC free zone contract, employers may sponsor employees for a work visa to legally work and reside in the United Arab Emirates. It is important to note that holders of a residence visa must not be away from the UAE for more than 180 consecutive days. There are several visa types that are available for employees in the DIFC free zone, including:

• Employment Visa: This is a visa that is issued to foreign nationals who have been sponsored by an employer to work in the UAE. The employment visa is usually valid for two years and can be renewed.
• Dependent Visa: This visa is available for the family members of an employee who holds a valid employment visa. The dependent visa is usually valid for two years and can be renewed.
• Visit Visa: This is a short-term visa that is issued to foreign nationals who wish to visit the UAE for tourism, business, or other purposes. The visit visa is usually valid for 30 days and can be extended for an additional 30 days.

Apply for a Visa

Information available here.

How to Renew a Visa

This service request allows you to apply for employment visa renewal of a DIFC sponsored employee. Please ensure that the required original documents for the visa renewal is submitted prior to the expiry of the visa to avoid overstay fines.

The steps involved are:

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Log into the DIFC portal and select the service ‘Apply for Establishment Card’ under ‘Employee Services’. Fill in the request with accurate information, upload the required documents, and submit.

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E-mail and SMS notifications will be sent once Emirates ID registration is completed and medical fitness test has been scheduled.

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Complete the medical fitness test at the DIFC medical center located at level B1, The Gate. Dubai Health Authority will share the medical test result with the DIFC.

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Visa stamping will be processed once medical fitness result is issued by Dubai Health Authority.

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An e-mail notification will be sent once the visa stamping process is completed and DIFC Employee card is ready for delivery.

Visa Allocation by Space

In the UAE, the number of residence visas that a company can apply for is determined by the physical space that is available for each person working at the company. Firms may decide to rent a physical space, or a flexi-desk from a co-working facility or business center. If you choose the flexi-desk option, there will be a fixed cap on the number of visas and if you need to increase that quota, you will likely have to either move to a bigger space or look at options to increase your visa quota. According to the DIFC, if you are based out of a business center, the allocation is 1 visa/desk.

You can read more information about this on the DIFC website.

Golden Visa

This service request allows you to apply long term residence visa for high profile executives (with a monthly salary of more than AED 30,000) under the sponsorship of the DIFC entity, or investors with a minimum investment of AED 2 million in the DIFC entity or Property owners in the DIFC, for a long term Golden Visa. Approval of Golden Visa nominations is at the discretion of the General Directorate of Residency and Foreign Affairs.