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DEWS in DIFC Advantage: A Modern Approach to End-of-Service Benefits

DEWS in DIFC Advantage: A Modern Approach to End-of-Service Benefits
DEWS in DIFC Advantage: A Modern Approach to End-of-Service Benefits

Have you ever wondered why top talent from around the world is flocking to Dubai? Various factors contribute to this trend, with one of the key reasons being the Dubai International Financial Centre (DIFC). The DIFC’s proactive approach, consistently reviewing and refining its policies, fosters an exceptional environment for attracting and retaining top-tier international talent. Aligning with the forward-thinking vision of the United Arab Emirates’ National Agenda and Dubai Plan 2021, the DIFC prioritizes the creation of a global hub for talent and innovation.

Beyond competitive salaries, the DIFC acknowledges the importance of long-term benefits that contribute to employees’ financial security and professional development. A cornerstone of this commitment is the implementation of the DIFC Employee Workplace Savings (DEWS) plan. Introduced in February 2020, the DEWS plan marks a significant transformation in how the DIFC manages end-of-service benefits for its workforce.

Benefits of the DEWS in DIFC

The DEWS plan offers a structured approach to accumulating end-of-service benefits by mandating employer contributions based on employees’ basic salaries and length of service. Additionally, employees have the option to make voluntary contributions to further enhance their savings, providing them with a flexible and robust tool to achieve their financial goals.

DEWS in DIFC: Key Entities Involved

DEWS Supervisory Board: This board oversees the plan, ensuring it meets the needs of members and aligns with international standards. It comprises an independent chairperson, representatives from Dubai’s Department of Finance, Dubai Government Human Resources, DIFC Authority, a DIFC employer, and a DIFC employee.

  1. Plan Administrator: Zurich Workplace Solutions (ZWS): ZWS administers the DEWS plan, handling enrolment, contributions, investments, and withdrawals. They provide real-time access to plan information through an online portal and support via a DIFC-based team.
  2. Master Trustee: Equiom: Equiom ensures the DEWS plan meets members’ needs, acting as the independent legal owner of contributions and overseeing investment options.
  3. Investment Adviser: Mercer: Mercer provides independent investment advice, managing a range of dynamically managed investment portfolios.

Employer Contributions

Participation in DEWS is mandated by law for all DIFC employers. Employers contribute a percentage of employees’ basic salaries to their DEWS accounts monthly. The contribution rates are:

  • 5.83% for employees with less than 5 years of service.
  • 8.33% for employees with 5 years or more of service.

Voluntary Contributions

Employees can enhance their DEWS savings by making voluntary contributions through salary deductions. This is a simple way to achieve long-term financial goals. Employees can contribute up to 100% of their basic monthly salary, either regularly or as a lump sum.

Investment Options

The DEWS plan offers a range of investment options to suit different risk appetites and financial goals. Employees can choose from conservative, moderate, and aggressive investment funds managed by professional asset managers.

Fees and Charges

The DEWS plan has fixed fees for service providers and variable fees based on investment choices. The fixed fees are:

  • 0.80% for the Plan Administrator (Zurich).
  • 0.20% for the Trustee (Equiom).
  • 0.23% for the Investment Advisor (Mercer).

Variable fees for investment management range from 0.03% to 1.88%.

Default Investment Strategy of DEWS in DIFC

By default, all contributions are invested in the DEWS Low Moderate Growth strategy, which aims for medium to long-term growth using a balanced approach with exposure to both growth and defensive assets. Employees can remain in the default strategy or switch to other available strategies using their online DEWS account. Employers seeking to opt out of DEWS will have to implement a Qualifying Scheme and apply to DIFC Authority (DIFCA) to obtain a Certificate of Compliance.

The DEWS in DIFC plan exemplifies the DIFC’s commitment to attracting and retaining top international talent. By offering a structured, transparent, and flexible approach to end-of-service benefits, the DEWS plan empowers employees to take control of their financial future while ensuring a secure and competitive work environment. This innovative solution aligns perfectly with the DIFC’s vision of becoming a global hub for talent and innovation, fostering a thriving and dynamic ecosystem that benefits both employers and employees.

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Dubai’s DIFC Employment Laws: What You Need to Know Before You Start

Dubai’s DIFC Employment Laws: What You Need to Know Before You Start
Dubai’s DIFC Employment Laws: What You Need to Know Before You Start

Dubai’s impressive skyline and reputation for innovation attract professionals from around the globe who are seeking ideal career opportunities. However, before embarking on a new career path in Dubai, a thorough understanding of the city’s employment regulations is essential. Dubai operates under a unique legal framework, and the Dubai International Financial Centre (DIFC) presents a distinct set of employment laws specifically tailored to the international business community.

Key Aspects of the DIFC Employment Law

  • Written Employment Contracts: The DIFC Employment Law mandates written employment contracts for all employees. These contracts must clearly outline essential terms like job title, duties, remuneration, working hours, and notice periods. Clear and comprehensive contracts help prevent misunderstandings and disputes down the line.
  • Minimum Employment Standards: The law establishes minimum employment standards covering working hours, rest breaks, annual leave entitlements, sick leave, and end-of-service gratuity. Employers must comply with these standards to ensure fair treatment of their workforce.
  • Termination Procedures: Specific procedures govern termination of employment in the DIFC. Employers must provide notice to the employee, pay outstanding wages or entitlements, and issue a termination certificate. Understanding these procedures helps ensure lawful termination practices.
  • Dispute Resolution: The DIFC provides a robust system for resolving employment disputes through its Employment Tribunal. Employers should be prepared to engage with the Tribunal and comply with its decisions to avoid further legal issues.

DIFC Employment Laws: Understanding Recruitment and Hiring Practices in DIFC

  • Compliance with Anti-discrimination Laws: Job postings and recruitment practices must comply with anti-discrimination laws, ensuring fairness and equal opportunities for all candidates.
  • Work Permits and Visas: Foreign employees require the necessary work permits and visas to be employed legally. Employers must follow the procedures for obtaining these.
  • Background Checks and Qualifications: Conducting background checks and verifying qualifications helps ensure candidates are suitable for the position.
  • Minimum Wage and Working Hours: Employers must adhere to the minimum wage requirements and working hours regulations set forth by the DIFC Employment Law.
  • Probationary Period: A probationary period of up to six months is allowed to assess new hires. The terms of the probationary period should be clearly outlined in the employment contract.
  • Onboarding Process: A comprehensive onboarding program helps new employees acclimate to their roles and responsibilities, setting them up for success.

Employment Contracts and Offer Letters in DIFC

  • Governing Law: DIFC Employment Law No. 2 of 2019 governs employment contracts in DIFC. It outlines the rights and obligations of both parties.
  • Essential Elements of Employment Contracts: Key elements to include in an employment contract are names of parties, job title and description, start date, contract duration (if applicable), salary and benefits package, and notice period for termination. Specific terms relevant to the industry or role can also be included.
  • Offer Letters: Offer letters formally propose a position to a candidate before they sign the employment contract. They should detail the job title, salary, start date, and any other relevant terms.
  • Execution and Legal Advice: Both parties must sign the documents, and it’s advisable to provide each party with a copy of their records. Seeking legal advice before finalizing contracts ensures they are legally sound and compliant.

DIFC Employment Law: The Wage and Salary Regulations in DIFC

The DIFC Employment Law safeguards employee rights regarding wages and salaries. Here’s a breakdown of the key points for employers:

  • Timely Payment of Wages: Wages must be paid at regular intervals, not exceeding one month. Employers must also provide pay slips detailing wage breakdown, deductions, and bonuses, and should be in a printable format.
  • Payroll: The payroll should be processed within 7 days of the payment period.
  • Benefits and Leaves: The DIFC Employment Law mandates several benefits and leave entitlements for employees:
  • Annual Leave: A minimum of 20 days of paid annual leave is mandated, with some companies offering more.
  • Sick Leave: Employees are entitled to paid sick leave for a limited period, as outlined in the employment contract or company policy.
  • Maternity Leave: Female employees are entitled to paid maternity leave, with specific durations and conditions defined by law.
  • Paternity Leave: Fathers are also entitled to a period of paid paternity leave, although typically shorter than maternity leave.
  • End-of-Service Gratuity: Employees are entitled to a gratuity upon termination, calculated based on their salary and length of service. The DIFC has launched the DIFC Employee Workplace Savings (DEWS) plan to modernize the end-of-service benefits system for employees. By reflecting global best practices, DEWS replaces the traditional, unfunded end-of-service gratuity structure with a transparent, professionally managed, and regulated savings plan.
  • Termination of Employment: Both employers and employees can initiate termination of employment, adhering to the legal procedures:
  • Notice Periods: Minimum notice periods for termination are stipulated in employment contracts or as per the law.
  • Redundancy: In case of redundancy, employers must follow specific procedures and provide severance pay.
  • Disciplinary Action: Termination due to disciplinary issues requires following fair procedures and due process.
  • Termination Certificates: Upon termination, employers must issue a termination certificate to the employee.
  • Dispute Resolution: The DIFC Employment Tribunal provides a mechanism for resolving employment disputes between employers and employees.
  • Steps for Dispute Resolution: Employees can file a claim with the Tribunal if they believe their rights have been violated. The Tribunal will then hear the case and issue a binding decision.
  • Alternative Dispute Resolution (ADR): Employers and employees can explore ADR options like mediation or conciliation before taking the matter to the Tribunal.

Dubai’s DIFC stands out with its distinctive employment regulations designed to support an international business environment. For professionals looking to advance their careers in this thriving metropolis, understanding these legal requirements—from detailed employment contracts and fair wage practices to robust dispute resolution processes—is essential. Compliance with DIFC Employment Law not only ensures adherence to legal standards but also contributes to a positive and efficient work environment. By being proactive in understanding and applying these regulations, both employers and employees can explore Dubai’s job market with confidence, making the most of the opportunities this innovative city has to offer.

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Family Offices in the UAE: A Game Changer for Entrepreneurs

Why Family Offices in the UAE Thrive at Business Environment
Why Family Offices in the UAE Thrive at Business Environment

From its emergence back in the 6th century to being the leading players in private wealth management advisory, Family offices in the uae have undergone a remarkable revolution. With their operational flexibility, family offices are now reshaping global trade opportunities. In recent times, many countries worldwide have supported family businesses with institutional and policy backing, raising awareness, educating, and ensuring regulatory frameworks to ensure their continuity.

An introduction to family offices in the UAE

The growth of family offices in the UAE has been organic. The country holds the potential to influence the future of global business in the years to come. High Net-Worth Individuals (HNWIs), businesses, and family business owners are increasingly considering migration to the UAE. Backed by several factors, the UAE makes an ideal destination for your entrepreneurial dreams.

The UAE government is dedicated to supporting family offices by providing legislative, structural, and regulatory tools essential for the private sector’s success, crucial to the broader UAE economy’s health.

Family Offices in the UAE – a legislative revolution

A new UAE Federal Decree Law No.37 of 2022 on Family Businesses (the “Law”) was issued in October 2022 and came into force on 11 January 2023.

  • Establish a robust legal framework for ownership and governance of family businesses.
  • Facilitate smooth transfers of ownership between generations.
  • Support the continuity and sustainability of family businesses in the private sector.
  • Introduce mechanisms for resolving family disputes effectively.
  • Enhance the economic contribution and competitiveness of family businesses in the UAE.

Top freezones for your Family office in the UAE

  • Abu Dhabi Global Market (ADGM)

The Abu Dhabi Global Market (ADGM) is one of the premium destinations for family offices.  ADGM allows Single Family Offices (SFOs) under its Commercial Licensing Regulations, even though specific SFO regulations are absent. SFOs function as private companies with limited liability for shareholders. They provide services such as wealth and asset management, legal and accounting support, and administrative services exclusively to the family and their entities. This setup aids in protecting wealth tax-efficiently, alongside other ADGM wealth management options like SPVs and foundations.

  • Dubai International Financial Centre (DIFC)

The Dubai International Financial Centre (DIFC) has introduced new regulations for family offices under the Family Arrangements Regulations 2023. These regulations, effective from 31 January 2023, replace the previous Single-Family Office Regulations (SFO Regulations) of 2011. One significant change is the removal of the requirement for family offices to register with the Dubai Financial Services Authority (DFSA) as a Designated Non-Financial Business or Profession. This update aims to enhance the regulatory framework for family offices within the DIFC, supporting the initiatives of the Global Family Business and Private Wealth Centre.

DIFC Family Wealth Centre

The DIFC Family Wealth Centre (DFWC) supports family businesses and Ultra High Net Worth Individuals (UHNWIs) by offering tailored solutions aligned with the UAE’s commitment to these sectors. Their “Family Arrangements Regulations” aim to sustain and expand family enterprises and wealth, providing personalized services, education, networking opportunities, and advisory to guide families effectively.

Government initiatives for Family offices in the UAE

1)Unified Family Business Registry

The UAE Ministry of Economy introduced a unified registry for family businesses, supported by four cabinet resolutions aimed at enhancing governance and competitiveness. This initiative aims to establish the UAE as a preferred destination for local, regional, and global family enterprises.

They play a crucial role in driving the national economy forward, supporting its shift towards a knowledge-based future. The unified registry launch marks a significant step in enhancing governance and streamlining registration processes for family enterprises in the UAE. It’s about creating a cohesive system that builds on their existing strong legislative and technological foundations.

2)Dubai Family Business Management Programme

The Dubai Family Business Management Programme is designed to support the growth of Dubai’s business community by nurturing innovative leaders capable of addressing future challenges. This program supports Dubai’s business community by developing innovative leaders in Dubai capable of addressing future challenges. It focuses on preparing the next generation of family business leaders by enhancing governance, sustainability, global trade strategies, legal education, social responsibility, networking, media presence, and overall success preparation.

3)Abu Dhabi Family Business Index

The Abu Dhabi Department of Economic Development (ADDED) on a collaboration with the United Emirates University (UAEU) has signed an MoU to launch the Abu Dhabi Family Business Index.

An initiative to rank and evaluate family-owned and family-controlled businesses in Abu Dhabi, this index will assess factors like revenue, industry impact, employment, governance structures, leadership diversity, succession planning, longevity, and socio-economic contributions. By combining the expertise of UAEU and the economic development focus of ADDED, this initiative aims to enhance Abu Dhabi’s reputation as a hub for innovation and economic prosperity. It’s about understanding and improving how family businesses operate and contribute to the local economy.

The UAE has become a top spot for Family offices, with financial assets growing fast, especially from UNHWI’s. With projections indicating further expansion by 2026, the country’s appeal is strengthened by its progressive regulatory frameworks, legal innovations, and favorable tax policies. As global interest intensifies, the UAE is on track to be a key place for family offices offering great chances for wealth management and growth in the years ahead.

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ADGM Employment Regulations: Key Requirements and Best Practices

ADGM Employment Regulations: Key Requirements and Best Practices
ADGM Employment Regulations: Key Requirements and Best Practices

The United Arab Emirates has long been a leader in advocating for both employee and employer rights. Within this progressive landscape, the Abu Dhabi Global Market (ADGM) distinguishes itself with advanced employment regulations that ensure compliance while fostering a mutually beneficial environment for all stakeholders. This premier financial centre provides a sophisticated legal framework, integrating local and international best practices. For businesses, this means streamlined operations and efficient workforce management. ADGM’s dedication to transparency and balance enables businesses to attract and retain top talent, driving them towards greater success.

ADGM Employment Regulations 2019

ADGM’s employment regulations are governed by the ADGM Employment Regulations 2019, which ensure a fair balance between employer and employee obligations, including payroll. Unlike other parts of the UAE, the UAE Federal Law No. 33 of 2021 concerning labor relations does not apply to ADGM. Instead, ADGM has its own set of employment regulations, making precise and comprehensive payroll management crucial for compliance.

Key aspects of these regulations include:

  • Timely Payment of Wages: Employers must ensure timely payment of wages to employees.
  • Pay slips: Employers are required to provide detailed pay slips to employees.
  • End-of-Service Gratuity: This is calculated based on an employee’s tenure and is a mandated benefit.

Employment Contracts and Visas

ADGM generally follows a contract-based employment system. Employers and employees must have a written contract outlining the terms and conditions of employment, remuneration details, probation, benefits, duties, working hours, notice periods, and termination conditions. This contract must be provided within one month of the commencement of employment.

Employers are responsible for obtaining work permits for their employees and covering all associated costs. Visa applications in ADGM are handled through the Corporate Relations Office at ADGM.

Duties and Obligations

The ADGM Employment Regulations detail the duties and obligations of both employers and employees. Employers must ensure health insurance coverage for their employees and adhere to health and safety standards in the workplace. Discrimination and harassment based on gender, race, religion, or disability are prohibited, promoting a safe and inclusive work environment.

Overtime:

  • The maximum working time is 48 hours per week with no opt-out option.
  • Overtime applies to employees, excluding managers and supervisors, for hours worked over 832 in four months.
  • Overtime compensation can be monetary, time in lieu, or both, with rates of 25% (daytime) and 50% (9 pm to 4 am).
  • Payments must be made within one month after the four-month period.
  • Employers must keep time records for employees nearing or exceeding the Threshold.

Sick Pay:

  • Sick leave is divided into:
    • 10 business days at full pay.
    • 20 business days at half pay.
    • 30 business days without pay.
  • Employers can terminate employees exceeding 60 business days of sick leave in 12 months, except for Disability-related leave.

Minimum Notice Period:

  • The notice must be in writing:
    • Seven days for employment under three months.
    • 30 days for employment of three months or more.

Fines and Potential Compensation:

  • Employers failing to pay wages within 14 days may be ordered to pay compensation up to the last Daily Wage for each day of delay.

 Discrimination:

  • Color is now a protected class according to ADGM Employment Regulations.
  • Breaches can result in compensation for up to three years of Basic Wages and fines of up to USD 20,000 for non-compliance with court recommendations.

Termination of Employment and End-of-Service Gratuity

Termination procedures in ADGM require a 30-day notice period. Immediate termination without notice is permissible for justifiable cause. Employees are entitled to end-of-service gratuity if they have completed at least one year of continuous employment, provided the termination is not due to employee misconduct.

Non-Employee Engagement

The Registrar of ADGM has outlined rules for engaging non-employees, including secondees, outsourced individuals, interns, and temporary freelancers. These rules set conditions for temporary work permits, applicable fees, and fines for non-compliance.

The UAE, with its diverse jurisdictions, operates under various rules and regulations that form the backbone of its business environment. Understanding these regulations is essential for achieving business excellence. The Abu Dhabi Global Market (ADGM), in particular, has established employment regulations that provide a robust framework for employment within its jurisdiction, setting minimum employment standards, balancing employer and employee rights and obligations, and aligning with international best practices. This comprehensive framework covers aspects such as employment contracts, visas and work permits, duties and obligations, remuneration, working hours, leave entitlements, labor rights, and termination procedures.

For businesses operating in ADGM, precise and comprehensive payroll management is crucial to ensure compliance with these unique regulations. Adhering to these standards not only ensures legal compliance but also fosters a fair and conducive working environment, safeguarding the rights and interests of both employers and employees. By maintaining high standards in payroll management, businesses can contribute to a stable and attractive labor market within ADGM, promoting long-term success and sustainability.

MS for Payroll Precision in ADGM

Understanding the ADGM Employment Regulations ensures compliance with regional regulations, mitigating risks of non-compliance such as fines, legal issues, and reputational damage. Compliance with the ADGM builds trust and credibility, crucial for attracting and retaining international stakeholders. By using our expert payroll services in MS, you can confidently manage payroll and focus on driving business success, one of key factors of the ADGM Employment Regulations.

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Qualifying for a 0% Corporate Tax Rate in the DIFC: What Operational Companies Need to Know

Qualifying for a 0% Corporate Tax Rate in the DIFC: What Operational Companies Need to Know
Qualifying for a 0% Corporate Tax Rate in the DIFC: What Operational Companies Need to Know

Choosing the right business structure and location is a crucial yet initial step when starting a business in the United Arab Emirates (UAE). Out of the seven Emirates, Dubai stands out with its excellence in areas like tourism, real estate and trade etc. attracting the crowd including High Net Worth Individuals around the globe.  For the last 20 years, the Dubai International Financial Centre (DIFC) in Dubai has offered numerous incorporation benefits, making it the best choice for many, and with the option to establish an operational company. Setting up a business in the DIFC provides several advantages over other parts of Dubai.

The DIFC offers benefits such as proximity to major markets, flexible company structures, strong intellectual property protection, a streamlined visa process, access to funding, and a supportive environment for business growth. These advantages can significantly help companies succeed in today’s competitive business landscape.

Corporate Tax Rate in the DIFC for Operational Companies

The UAE’s new federal corporate tax system offers significant advantages to businesses operating within its Free Zones including DIFC. These entities can enjoy a 0% corporate tax rate, but specific criteria need to be met. In contrast, companies located outside Free Zones face a standard 9% tax on their taxable income exceeding AED 375,000. However, Free Zone businesses including operational companies can maintain this attractive 0% tax rate on their qualifying income by achieving Qualifying Free Zone Person (QFZP) status. It’s important to note that any income earned by a QFZP that doesn’t meet the qualifying criteria will be taxed at the standard 9% rate. This system provides a clear incentive for Free Zone companies to comply with QFZP requirements and continue benefiting from a competitive tax environment.

To understand the Corporate Tax implications for Free Zone operational companies, let’s first explore the core features of the new UAE Federal Corporate Tax system.

Which of the DIFC entities Qualifies for a 0% Corporate Tax Rate?

The good news is that possibly most of the operational companies in the DIFC can benefit from a 0% corporate tax rate on their qualifying income. To qualify as a Qualifying Free Zone Person (QFZP) and enjoy this tax advantage, your company must meet specific criteria:

  • Substantial Presence in the UAE: Demonstrate a strong physical presence in the UAE with a local office and employees.
  • Qualifying Income Generation: Your primary source of income must stem from compliant business activities conducted within the DIFC or with international clients.
  • Opting Out of Standard CT Rates: You cannot choose to be taxed under the standard corporate tax rates that apply outside Free Zones.
  • De Minimis Threshold: Any non-qualifying income must be below 5% of your total revenue or AED 5 million, whichever is lower.
  • IFRS-Compliant Audits: Maintain accurate financial records and have them audited according to International Financial Reporting Standards (IFRS).
  • DIFC Authority Requirements: Ensure compliance with any additional stipulations set forth by the DIFC.

What Activities of operational companies in the DIFC qualify for the 0% Tax Rate?

The UAE Ministry of Finance categorizes business activities for corporate tax purposes. Here’s a focus on qualifying activities that benefit from the 0% tax rate in the DIFC or any other Free Zone.

  • Manufacturing and Processing
  • Trading of Qualifying Commodities
  • Investment Holding
  • Ship Ownership and Management
  • Reinsurance and Fund Management Services
  • Wealth and Investment Management
  • Headquarters and Treasury Services to Related Parties
  • Financing and Leasing of Aircraft
  • Distribution and Logistics Services
  • Ancillary Activities Supporting the Above

It’s important to note that there are also excluded activities listed in the official documentation that may not qualify for the 0% tax rate benefit.

Understanding Qualifying Income for Operational Companies in the DIFC

Qualifying income refers to the portion of your company’s earnings that is eligible for the 0% corporate tax rate in the DIFC. Here’s a breakdown to help you determine what qualifies:

  • Transaction with another Free Zone person: If your business transactions are with another business entity within the same Free Zone, the income generated from these transactions can be considered as qualifying income.
  • Transaction with a non-Free Zone person: If your business transactions are with an entity outside the Free Zone, the income from these transactions may not be considered as qualifying income.
  • Income from all other transactions: All other income, provided they satisfy the de minimis requirements, can be considered as qualifying income.

However, qualifying income does not include income generated from domestic (mainland) or foreign permanent establishments, immovable property outside the Free Zone, and certain other activities like income from non-commercial properties.

Corporate Tax: Filing and Payment Procedures for DIFC Companies

  • Registration: Applications for corporate tax registration are submitted through the DIFC’s Corporate Registry. They will assess your eligibility for a Corporate Tax Registration Certificate (OCRT).
  • Required Documents: The registration process involves submitting an application, paying fees, and providing detailed financial information, including income, expenses, assets, liabilities, and capital.
  • Ongoing Obligations: Once registered, you must comply with the relevant tax rules and regulations set by the Federal Tax Authority (FTA). This includes filing yearly tax returns reporting your taxable income and profits. You may also need to submit annual financial statements and audited financials upon request from the FTA.
  • Simplified Filing: The FTA offers various e-services for DIFC taxpayers, including online registration, tax return submission, and online tax payments. They also have a Voluntary Disclosure Program for rectifying past non-compliance.

MS for corporate tax compliance Operational companies in the DIFC

Uncertain about the impact of the UAE’s new Corporate Tax Law on your operational company in the DIFC? MS can be your trusted advisor. We provide comprehensive support, from maximizing the 0% tax benefit offered by Free Zones to ensuring compliance with transfer pricing regulations.  Our experts simplify tax record keeping and reporting, keeping you informed of any future changes in the tax environment.  Let MS guide your operational company towards success in the DIFC.

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Payroll Best Practices in the UAE Financial Freezones: ADGM and DIFC

Payroll Best Practices in the UAE Financial Freezones: ADGM and DIFC
Payroll Best Practices in the UAE Financial Freezones: ADGM and DIFC

The UAE Constitution and societal values are foundational in upholding and protecting workers’ rights. As a member of the International Labor Organization (ILO), the Arab Labor Organization, and other international bodies dedicated to employment rights, the UAE remains committed to transparency and fairness in its obligations toward all workers. The UAE continuously reviews various work-related aspects, including recruitment, hiring processes, and the living conditions of expatriate workers. Significant strides have been made to ensure that workers are treated with respect and equality and have accessible, confidential avenues for reporting labor disputes and abuse.

Employment Benefits and Sector Differences in the UAE

Employees in the UAE, whether local or expatriate, are generally entitled to a range of benefits. However, some benefits are exclusive to local employees, and there are notable differences between public and private sector employment. Furthermore, specific regulations apply to employees working in areas such as the Dubai International Financial Centre (DIFC), the Abu Dhabi Global Market (ADGM), and the other UAE Free Zones.

While the UAE constitution and its membership in international labour organizations establish strong employee rights, these rights translate into concrete obligations for employers. One key area of obligation is ensuring fair and transparent compensation and benefits. This is where payroll services come into play. Understanding UAE labour laws related to payroll, such as minimum wage, overtime, and end-of-service benefits, is crucial for employers to fulfill their obligations and maintain a compliant and positive work environment.

Wage Protection System in the UAE

In the UAE, the Wage Protection System (WPS) is a government initiative designed to ensure timely and full payment of employee wages. Implemented by the Ministry of Human Resources and Emiratisation, WPS mandates that all private sector employers pay their employees’ salaries through an approved electronic system, typically through banks or financial institutions. This system aims to enhance transparency, protect workers’ rights, and streamline payroll processes by providing a reliable and secure mechanism for wage disbursement. Compliance with WPS is crucial for businesses to avoid penalties and ensure adherence to labor regulations.

Grasping Legal Essentials for Payroll Services in the UAE

Know the UAE Labor Laws: Understanding the UAE’s labor laws and regulations related to payroll, such as minimum wage standards, overtime rules, and end-of-service benefits, is crucial. Ensuring compliance helps avoid penalties and legal issues.

Keep Informed: Stay updated on any amendments or new regulations from relevant UAE authorities, such as the Ministry of Human Resources and Emiratization (MOHRE).

Maintain Detailed Records: Accurately document employee information, including personal details, contracts, salary structures, and attendance. Errors in this data can lead to payroll mistakes and legal issues.

Regular Updates: Update employee records regularly to reflect changes in salary, benefits, allowances, and tax status, ensuring payroll calculations are accurate and compliant.

Follow Payroll Schedules: Ensure salaries are paid on time according to employment contracts and UAE labor laws. Delayed payments can hurt employee morale and lead to legal disputes.

Automate Payments: Implement automated payment systems to ensure prompt salary disbursements, considering banking holidays and other relevant factors.

Secure Payroll Data: Ensure the confidentiality of payroll information in compliance with UAE data protection laws, such as Federal Law No. 2 of 2019 on Information and Communication Technology.

Implement Security Measures: Use robust security measures to protect payroll data from unauthorized access, breaches, and cyber threats, including encryption, access controls, and regular backups.

Flawless Payroll: Ensuring Smooth Operations in ADGM

The significance of payroll services in ADGM is multifaceted, addressing both legal compliance and operational efficiency in this prominent international financial center. ADGM operates under a regulatory and legal framework, which includes its employment laws and standards distinct from other parts of the UAE. The ADGM Employment Regulations 2019 ensure a fair balance between employer and employee obligations including the payroll. Other key aspects include timely payment of wages, and payslips, along with a mandated end-of-service gratuity calculated based on an employee’s tenure. This uniqueness necessitates precise and comprehensive payroll management and employee rights to ensure full compliance with local regulations, including specific requirements for salary disbursements, end-of-service gratuities, and tax obligations.

Efficient DIFC Payroll Solutions with DEWS

In the DIFC, the importance of payroll services extends beyond mere compliance to encompass critical aspects of regulatory adherence and operational efficiency. The DIFC maintains a distinct legal and regulatory environment, encompassing specific employee compensation mandates such as the DIFC Employee Workplace Savings (DEWS) scheme. DEWS is a mandatory savings plan designed to provide financial security to employees upon the termination of their employment.

Under DEWS, DIFC employers are mandated to contribute a percentage of their employees’ salaries, including allowances and benefits, into a designated savings account. Accurate management of these contributions is essential for regulatory compliance, as failure to adhere to DEWS requirements can lead to substantial fines and legal issues. Professional payroll services play a pivotal role in this process by ensuring that DEWS contributions are correctly calculated, processed, and reported in line with DIFC regulations. These services also facilitate clear communication with employees about their DEWS entitlements and streamline the integration of DEWS management with overall payroll operations. By ensuring precise DEWS administration, businesses in DIFC can enhance employee satisfaction and retention while maintaining a competitive edge in the global financial market.

Payroll Precision with MS

Professional payroll services of MS in ADGM and DIFC are equipped to handle all the complexities, ensuring that all statutory requirements are met accurately and on time. This mitigates the risk of non-compliance, which can result in substantial fines, legal disputes, and damage to a company’s reputation. Given ADGM and DIFC’s global stature and most reputed regulatory environment, maintaining compliance is not just about avoiding penalties but also about fostering trust and credibility among international stakeholders and clients.

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Why DIFC Holding Company: A Game-Changer for Global Investors

Why DIFC Holding Company: A Game-Changer for Global Investors
Why DIFC Holding Company: A Game-Changer for Global Investors

The Dubai International Financial Centre (DIFC) in Dubai has rapidly become a leading global business hub, drawing international investors with its prime location, progressive regulations, and top-tier infrastructure. Central to this success is the DIFC holding company—a flexible corporate structure offering substantial benefits for investors aiming to manage and expand their asset portfolios.

What is a Holding Company?

A holding company is a legal entity created primarily to own shares in other companies, referred to as subsidiaries. Unlike the passive holding structures that produce goods or provide services, pure holding companies focus on managing investments and exerting control over their subsidiaries without engaging in direct commercial activities.

Why Choose a DIFC Holding Company?

The DIFC provides a unique value proposition for establishing a holding company, featuring several key advantages:

  1. Tax Efficiency: The DIFC offers a highly attractive tax regime. Holding companies enjoy a 0% corporate tax rate on certain conditions, resulting in significant tax savings.
  2. Strategic Location: Positioned at the intersection of East and West, the DIFC is ideal for managing global investments. Its location offers easy access to a wide network of financial institutions and supports seamless cross-border transactions.
  3. Operational Flexibility: DIFC holding companies can hold a diverse range of assets, such as shares in other companies, intellectual property (IP), and real estate. This flexibility allows investors to efficiently manage varied portfolios from a single, centralized location.
  4. Streamlined Management: By centralizing control over multiple subsidiaries, holding companies simplify financial reporting, governance structures, and decision-making processes, leading to enhanced operational efficiency.
  5. Access to Capital: The DIFC’s strong regulatory framework and its reputation as a financial hub boost investor confidence and facilitate access to capital.
  6. Visa Benefits: Unlike traditional offshore companies, DIFC holding companies are recognized as operational entities, enabling them to obtain visas for employees and their families, thereby fostering a robust and dynamic workforce.

Why the UAE is a Premier Destination for Your Holding Company

The DIFC is located in the UAE, one of the strategic hubs for setting up a holding company. The UAE offers a highly competitive tax environment for holding companies, with no corporate or personal income taxes for most businesses and a zero percent tax rate in free zones. This minimizes the tax burden and simplifies compliance compared to jurisdictions like London, New York, Singapore, and Hong Kong. Additionally, the UAE’s extensive network of double taxation agreements prevents double taxation on the same income.

Beyond taxes, the UAE’s free zones provide 100% foreign ownership, repatriation of profits, and exemptions from import and export duties. Strategically located, the UAE offers access to emerging markets in the Middle East, Africa, and South Asia, creating significant growth opportunities.

The UAE’s political and economic stability, commitment to international standards like BEPS, and transparent regulatory environment make it a secure and advantageous location for establishing a holding company.

Ideal Activities for DIFC Holding Companies

DIFC holding companies are suitable for a broad range of activities, including:

  • Investment Management: Efficiently manage investments in a diversified portfolio of companies across various sectors.
  • Mergers & Acquisitions: Serve as the central entity for structuring and managing mergers and acquisitions.
  • IP Management: Hold and manage intellectual property rights such as patents, trademarks, and copyrights for subsidiaries.
  • Real Estate Investment: Own and manage real estate assets both domestically and internationally.
  • Family Offices: Establish structures for managing family wealth across generations.

Steps to Establish a DIFC Holding Company

Setting up a DIFC holding company involves a straightforward process:

  1. Business Name Selection: Choose a unique name that complies with DIFC regulations.
  2. Director & Shareholder Appointment: Appoint at least one director and one shareholder, who can be either individuals or companies.
  3. Share Capital Definition: Determine the authorized share capital, defining the maximum amount the company can raise through share issuance.
  4. Document Preparation & Submission: Prepare and submit the necessary legal documents, including the Memorandum of Association (MOA) and Articles of Association (AOA), to the DIFC Registrar.
  5. Corporate Bank Account Opening: Open a corporate bank account in the UAE to manage the company’s financial transactions.

Key Considerations and Regulations

While the benefits of establishing a DIFC holding company are numerous, there are important considerations to keep in mind:

  • Qualifying Activities: To benefit from tax advantages, the holding company’s activities must be classified as “qualifying activities” under DIFC regulations, typically involving investment management or financial services.
  • Substance Requirements: DIFC holding companies must demonstrate a physical presence and adequate economic substance within the DIFC, which may include maintaining office space, employing staff, and conducting genuine business activities for availing 0% corporate tax rate.
  • Qualifying Income: To qualify for the 0% rate, your income must come from approved sources such as Free Zone transactions (excluding certain activities) and qualifying business activities. Additionally, owning or exploiting qualifying intellectual property can grant the 0% tax advantage. If your non-qualifying income stays below the de minimis threshold, you can still benefit from the favourable tax rate.

A DIFC holding company can be an effective tool for global investors looking to optimize their investment strategies, streamline operations, and tap into a dynamic financial hub. By leveraging the DIFC’s unique advantages and adhering to its regulatory framework, investors can unlock significant growth opportunities and achieve lasting success.

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Reviving M&A in 2024: How to Conduct Smart Due Diligence

Reviving M&A in 2024: How to Conduct Smart Due Diligence
Reviving M&A in 2024: How to Conduct Smart Due Diligence

Heading into the second half of 2024, there are encouraging signs of recovery in Mergers and Acquisitions (M&A) activity. This comes after M&A activity fell to its lowest level in ten years in 2023 and due to high interest rates and macroeconomic volatility.

The recent surge in deal activity underscores a renewed optimism in the market. This presents a strategic opportunity to revisit best practices for conducting due diligence. By ensuring a robust due diligence process, investors can approach opportunities with increased agility and conviction.

Given the inherent volatility and shifting market dynamics, thorough research and validation of potential investments are important. Comprehensive due diligence minimizes information gaps, identifies potential risks and red flags, and ultimately fosters a competitive advantage in capital deployment.

Let’s explore some of the most pertinent qualitative and quantitative criteria to incorporate into your due diligence checklist.

1. Cracking the Financial Code:

  • Evaluate the audited financial statements (3-5 years’ worth) for a clear understanding. Analyze cash flow, assets, liabilities, and profitability trends to understand the target company’s financial health.
  • Identify outstanding debt, unrecorded liabilities, and financing details. Knowing the company’s financial commitments is crucial for informed decision-making.

2. Unveiling the Operational Engine:

  • Examine agreements with subsidiaries, joint ventures, and partnerships. Uncover any potential hidden costs or complexities.
  • Review contracts with key personnel and affiliates.
  • Understand the company’s supply chain and any potential restrictions. Identify vulnerabilities or bottlenecks that could impact operations.

3. Shedding Light on Sales & Marketing:

  • Analyze competitor strengths, weaknesses, and market position. A clear understanding of the competitive landscape is essential.
  • Evaluate current marketing programs, budgets, and distribution channels. Assess the effectiveness of the company’s sales engine.
  • Gauge customer satisfaction and retention strategies. A loyal customer base is a valuable asset.

4. Examining the Workforce:

  • Review employee headcount, salaries, and compensation trends. Analyze turnover data and employee morale surveys to understand the company’s human capital.
  • Identify any union affiliations and understand the company’s approach to employee benefits programs.

5. Safeguarding Intellectual Property:

  • Unearth all patents, trademarks, copyrights, and trade secrets. Intellectual property is a cornerstone of many businesses.
  • Review licensing agreements and potential IP infringement claims. Ensure the company has measures in place to protect its intellectual property.

6. Legal Loopholes:

  • Scrutinize pending litigation, judgments, and regulatory inquiries. Uncover any potential legal headaches.
  • Review insurance policies, licenses, permits, and compliance documentation. Ensure the company is operating within legal boundaries.
  • Analyze board and shareholder meeting minutes for any red flags that might indicate past issues.

7. Property & Real Estate: Brick by Brick:

  • Understand the company’s ownership of physical assets.
  • Map out the company’s real estate holdings and ownership structure. Identify any potential liabilities or limitations.

8. Illuminating the Cyber Health:

  • Assess the company’s IT infrastructure, security protocols, and disaster recovery plans. Evaluate its preparedness for potential IT disruptions.
  • Review data security measures and the company’s history of cyber breaches. Ensure the company has robust defenses in place.
  • Examine software licensing agreements and compliance standards. Identify any potential software-related risks.

Thorough due diligence is critical for successfully navigating the exciting, yet potentially challenging, landscape of M&A transactions. These resources can uncover essential business information, provide valuable industry and company insights, and equip you with the knowledge needed to make informed investment decisions.

Make smarter M&A decisions with MS

Our team of experts provides in-depth due diligence services, giving you the information you need to confidently navigate the UAE’s unique business environment. We minimize risks and identify opportunities to help you achieve successful Mergers and Acquisitions, propelling your business growth. Partner with MS and unlock the potential of profitable M&A deals.

Making deals work for you!

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UAE: A Half Year of Growth – A Look Ahead after H1 2024

UAE: A Half Year of Growth
UAE: A Half Year of Growth

As we hit the halfway mark of 2024, the UAE is powering ahead as an economic frontrunner, driven by relentless innovation, strategic investment, proactive policies and expansive growth across key sectors. In 2023, the country’s GDP soared to Dh1.68 trillion, showing a growth rate of 3.6 percent. This strong momentum has continued into 2024, with favourable trends seen across all key economic indicators. The UAE economy has shown remarkable resilience and growth potential amidst global uncertainties. The national economy is expected to grow by 4 percent in 2024 lead by strong activities in sectors like tourism, construction, manufacturing and finance. Clearly, the UAE isn’t just keeping up—it’s leading the charge in the global economic landscape.

The Current Economic Landscape

GDP Growth: Achieved 3.6% growth in 2023, with forecasts indicating further growth in 2024. The Central Bank of the UAE (CBUAE) initially projected a 4.2% economic growth for 2024 but revised it down to 3.9%, indicating a slight slowdown expected. Looking to 2025, they foresee a substantial acceleration in growth to 6.2%, driven by increased oil production and ongoing expansion in non-oil sectors.

Key Sector Contributions to the UAE Economy

1) Oil Sector: the UAE’s oil and gas sector, constituting 40% of the GDP, will continue to serve as a critical economic pillar. The country aims to ramp up oil production to 5 million barrels per day by 2027 to meet global energy needs, with a projected growth in oil output of 5.8% expected in 2024.

2) Non-Oil Sector– The UAE’s non-oil GDP, adjusted for inflation, reached Dh1.25 trillion, marking a 6.2% growth rate by the end of first half. This places the country fifth globally in terms of real GDP growth (according to the 2023 ranking).

-Tourism

Leading tourists’ destination: The UAE is a top tourist destination in the Middle East, contributing Dhs220 billion to its GDP in 2023, representing 11.7% of its economy. Ranked 18th globally in the World Economic Forum’s Travel & Tourism Development Index (TTDI), the UAE stands first in the MENA region.

The UAE expects tourism to contribute Dh236 billion to its economy in 2024, with plans to reach Dh450 billion by 2031 under the National Tourism Strategy 2031. This initiative aims to elevate the UAE as a premier global tourism destination in the coming decade.

-Financial Sector

The financial sector significantly boosted the UAE’s GDP last year, with total assets exceeding AED 4 trillion, marking an 11.1 percent growth. Banking, amid ongoing digital transformation, remained a pillar of strength, demonstrating robust fundamentals through strong capitalisation, profitability, and ample liquidity.

Diversification from Oil Dependence: The finance sector actively encourages diversification away from oil-dependent revenues, thus promoting a more resilient and sustainable economy.

Regulatory stability: The UAE’s Central Bank and regulatory bodies maintain a stable financial environment with effective regulations, fostering investor confidence, attracting foreign investment, and ensuring financial stability.

-Aviation

The aviation sector plays a crucial role in boosting the UAE’s economy by enhancing tourism, trade, and investment flows, both domestic and international. The UAE civil aviation sector soared in the first quarter of 2024, boasting a remarkable 14.7% increase compared to the corresponding period last year.

As a global hub, it facilitates seamless connectivity, supporting the nation’s economic ambitions. Additionally, the sector’s capabilities in areas such as engine maintenance, financing, leasing, air traffic management, and airport security contribute significantly to overall economic growth.

Dubai and Abu Dhabi, as two of the most powerful emirates in the UAE, equally contribute to the country’s economy. Dubai leads the UAE in greenfield FDI projects, hosting a substantial 81% of the country’s new investments in this category. Meanwhile, Abu Dhabi has risen as the MENA region’s fastest-growing startup hub, enhancing its ecosystem value by 28%. These achievements not only attract global investments but also stimulate local innovation, significantly bolstering the UAE’s economic influence on a global scale.

The UAE has risen to the top 10 globally in several GDP-related competitiveness indicators, achieving sixth place in the GNI Index of the UNDP’s 2024 Human Development Index Report. Economic diversification remains pivotal for reducing reliance on oil revenue, leveraging significant contributions from non-oil GDP and successful Foreign Direct Investment.

As we enter the next phase, the UAE is set to take the lead with its strong non-oil sector, strategic investments, and smart initiatives driving stability and innovation. Positioned for regional and global prominence, the nation sets a compelling example of economic resilience and forward-thinking leadership.

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UAE Input VAT: The Hidden Benefit Businesses Missing Out in the VAT Landscape

UAE VAT Registration
UAE VAT Registration: 5 Pitfalls to Avoid for Your Successful Compliance

The recent introduction of corporate tax in the United Arab Emirates (UAE) has sharpened the focus on the existing Value Added Tax (VAT) system. It’s crucial to understand the distinction between these two taxes. VAT, implemented in 2018, applies to most goods and services in the UAE at a standard rate of 5%. There’s a twist, businesses registered for VAT can claim input tax credits, significantly reducing their overall VAT burden.

As many are already familiar with this aspect, let’s brush up on the key insights of the Input VAT.

What is Input VAT?

Input VAT refers to the VAT a business pays on its purchases of goods and services used for taxable supplies. This mechanism ensures that businesses only pay VAT on the value they add at each stage of the supply chain.

How Input VAT Recovery Works

In the UAE, input tax recovery allows VAT-registered businesses to reclaim credit for the VAT paid on eligible business-related purchases and expenses.

  • Registration Thresholds: Businesses are required to register for VAT within 30 days if their annual taxable income exceeds AED 375,000. Voluntary registration is an option for businesses with turnovers between AED 187,500 and AED 375,000 to take advantage of input tax recovery.
  • Claiming the Credit: Registered businesses can claim credit for the VAT paid on all taxable purchases, reducing their overall VAT burden and ensuring a transparent system where the final consumer pays the VAT.

Steps to Recover Input VAT in the UAE

Recovering input VAT in the UAE involves a few key steps:

  1. Eligibility Check:
  • Only businesses registered as taxable persons under UAE VAT regulations can claim input tax recovery (mandatory registration for exceeding AED 375,000 annual taxable sales or voluntary for turnovers between AED 187,500 and AED 375,000).
  • The purchased goods and services must be exclusively used for making taxable supplies (not personal use or exempt supplies).

2. Maintain Proper Records:

  • Retain valid tax invoices for every business purchase, clearly showing
  1. Supplier’s VAT registration details
  2. Description of purchased goods or services
  3. Taxable value of the purchase
  4. Applicable VAT
  • A system to organize these documents (digital or physical) is crucial for a smoother claim process and reduces audit stress.

3. Calculate Input Tax:

  • Businesses managing accounts manually need to carefully review each invoice to identify the VAT amount and calculate the total input tax claimable for that tax period.
  • Consider using a spend management solution to streamline this process by tracking expenses, storing invoices securely, and automating VAT calculations.

4. Submit VAT Return and Claim Recovery:

  • The UAE FTA mandates that registered businesses file a VAT Return within 28 days after the tax period’s end.
  • This return should detail your taxable supplies, output VAT collected from customers, and input tax paid on purchases. Ensure accurate mention of the total input VAT to avoid discrepancies.
  • The claimed input tax is typically refunded directly to your registered bank account by the FTA within a few weeks of filing the return.

Timeframe for Recovery

You can claim input tax in your first VAT return as soon as you have:

  • A valid tax invoice.
  • The intention is to make payment against the invoice within six months of the agreed payment date.

Correcting Past Returns

The FTA’s ‘Voluntary Disclosure’ provision allows businesses to correct errors or omissions in submitted VAT returns without penalties. This can be done by completing an online form on the FTA website, detailing the errors, and providing the correct information.

Maximizing Input VAT Recovery

For a smooth input tax recovery process, follow this checklist:

  • Ensure purchased goods and services are used for taxable sales as per the UAE VAT Law.
  • Always request a Tax Invoice for purchases where you plan to claim input tax.
  • The tax invoice should have all the details for input tax recovery consideration.
  • You must pay or intend to pay the full amount due for the supplies, aiming to settle the invoice within 6 months.

Be VAT Compliant in the UAE with MS

MS takes the complexity out of VAT regulations and ensures your business is fully compliant in the UAE, so you can focus on what matters most – growing your business. Our team will streamline your processes, making everything smooth and collaborative. With MS, you get more than just a service. You get a partner who understands your specific business in the ever-changing UAE market. We’ll support your growth and success every step of the way.