Dubai International Financial Centre (DIFC) is marking its 20th anniversary with a resounding declaration of its financial prowess. The DIFC has unveiled exceptional performance metrics for the first half of 2024, underscoring its pivotal role in shaping Dubai’s trajectory as a global financial titan.
This milestone achievement is a testament to the visionary leadership of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. With two decades of consistent growth and innovation, DIFC has not only solidified Dubai’s position on the world financial stage but has also emerged as a catalyst for regional economic development.
“Consistent with the goals of the Dubai Economic Agenda D33 to establish the city as one of the world’s top three urban economies and double its GDP over the next decade, we will continue to expand and diversify the financial services community in DIFC. We are also steadfast in our commitment to driving the growth of emerging sectors and advanced financial technologies. Over the coming years, we seek to further enhance DIFC’s industry ecosystem to meet the evolving needs of the global economy and enable businesses, entrepreneurs and investors to tap promising new opportunities,” said His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum.
Record-Breaking Growth and Innovation
For the first time, the number of active registered companies in DIFC has surpassed 6,000, representing an impressive 24% growth. This expansion includes 820 new companies joining DIFC in just six months. The Centre’s focus on FinTech and Innovation is evident, with firms in these sectors growing by 33% year-on-year. Attracting global talent, DIFC companies have created 4,647 new jobs over the past year, bringing the total workforce to 43,787.
Leading the Financial Sector
DIFC is home to the largest cluster of financial firms in the MEASA region, outperforming the market with remarkable growth. Over 370 wealth and asset management firms, including more than 50 pure play hedge funds, are now based in DIFC, originating primarily from the GCC, Europe, UK, and the US. The Assets Under Management in DIFC have surged by 58%. The insurance and reinsurance sector has also seen significant growth, with 125 companies now operating, up from 110, representing a 14% increase.
Accelerating AI Adoption with Dubai AI Campus
The recently launched Dubai AI Campus at the DIFC Innovation Hub is set to propel the Centre’s next phase of growth by fostering AI adoption across industries. The Dubai AI Campus offers dedicated co-working spaces to tech start-ups, including AI businesses, with 75 companies already operating there. Phase two of the campus expansion aims to attract 500 companies and create 3,000 jobs by 2028.
Pioneering Digital Asset Laws
DIFC continues to introduce groundbreaking laws, enhancing market confidence and certainty in FinTech and digital asset classes. The recent introduction of the world’s first Digital Assets Law exemplifies DIFC’s commitment to innovation and regulatory excellence.
Expanding Commercial Space
With properties in high demand, DIFC is addressing the need for A-grade, LEED certified commercial premises by adding 1.6 million sq. ft. of commercial space over the next three years. The DIFC has recently commenced construction on DIFC Square, a landmark development featuring three interconnected buildings, scheduled for handover in Q1 2026.
DIFC’s outstanding achievements in the first half of 2024 underscore its pivotal role in driving the future of finance and innovation. As it embarks on its next chapter, DIFC remains a beacon of growth, opportunity, and excellence in the global financial landscape and the the world watches with anticipation as the hub continues to redefine the future of finance.
The Dubai International Financial Centre (DIFC) took a significant step on July 15th, 2024, with the enactment of a new amendment in the existing Prescribed Company (PC) Regulations. This amendment expands and simplify the current regime in the DIFC, and the changes ensure that the companies are used as true holding company vehicles, rather than operational entities.
This landmark regulatory change aims to streamline investment processes and provide greater clarity for businesses operating within the DIFC. By strictly limiting PC activities to holding company functions, the center is ensuring a more focused and efficient investment environment.
To accommodate existing PCs and businesses seeking alternative structures, the DIFC has introduced transitional arrangements and a new commercial package, named “Active Enterprise” which provides flexible options and reduced fees for qualifying applicants seeking alternative structures with the option to have employees.
Let’s explore more about the DIFC Active Enterprises.
Understanding DIFC Active Enterprises
Previously, the DIFC’s Prescribed Company (PC) structure was primarily for passive holding companies. With the evolving business landscape, the DIFC recognized the need for a more versatile entity. Active Enterprises were introduced to fill this gap with the implementation of the new regulations.
An Active Enterprise is a private company that can be established by a qualifying applicant. Unlike PCs, Active Enterprises can:
Can employ staff.
Engage in proprietary investment activities.
Function as a holding company or managing office.
This broader scope allows for a wider range of business operations within the DIFC including activities across various sectors such as real estate, agricultural enterprises, management, and healthcare.
Key Benefits of DIFC Active Enterprises
Cost-Effective Setup: Establishing an Active Enterprise is relatively affordable. The DIFC charges a one-time application fee of US$ 100 and an annual commercial license fee of US$ 1,000. Additional costs may include Corporate Service Provider (CSP) fees for registered addresses and related services.
Flexible Address Options: An Active Enterprise has various address options. It can have its own DIFC office space, a co-working desk, share office space with a DIFC affiliate, or use an appointed DIFC corporate service provider, such as 10 Leaves, to provide a registered address.
Ability to Hire Employees: An Active Enterprise can hire employees, provided it secures office space. Visa allocations are generally calculated at 80 sq. ft. per visa.
Common Law Jurisdiction: The DIFC is a financial free zone with its own civil and commercial laws. It offers access to DIFC Courts, where proceedings are conducted in English under Common Law principles.
Quick Registration: In-Principal Approvals may be granted within three business days from the application submission. Establishing the legal structure of an Active Enterprise with the DIFC Registrar of Companies typically takes 3-5 working days.
Globally Competitive and Attractive Tax Regime: An Active Enterprise may qualify for zero tax, with the maximum tax liability being 9%.
Transfer of Domicile: The DIFC allows for the domicile of incorporated companies to and from the DIFC.
Other Advantages: No attestations are required for corporate documents, there are zero currency restrictions, 100% foreign ownership is permitted, and there are no restrictions on capital repatriation.
Types of Activities Allowed in DIFC Active Enterprise
Active Enterprises can be structured in three primary ways:
Holding Companies: These entities primarily hold shares or equity in other companies to exert control or influence over their management.
Managing Offices: Acting as strategic and organizational decision-makers, managing offices oversee other company operations. They can also provide services to their group, such as treasury, IT, and administration.
Proprietary Investment Companies: These companies invest their funds in various commercial activities like transport, contracting, and financing. They can also manage subsidiary companies.
Who Can Establish a DIFC Active Enterprise?
A DIFC Registered Entity other than a Prescribed Company, Foundation and a Non-Profit Incorporated Organization
Controlling shareholder or UBO of a DIFC Registered Entity, other than a Prescribed Company, Foundation and a Non-Profit Incorporated Organization.
3. A Government Entity – which means any of the following:
(a) the Federal Government, the government of Dubai or the government of any Emirate.
(b) a person in which a government entity listed above owns (directly or indirectly) an interest of at least twenty-five percent (25%) (or such other percentage approved by the Board of Directors of DIFCA).
(c) Controlled by a government entity listed above.
A Family Operated Business.
Setting Up a DIFC Active Enterprise
The process involves:
Document Preparation: Comprehensive Know Your Customer (KYC) verification of shareholders and directors is conducted, along with the compilation of necessary documentation.
Registered Address: This can be a physical address at the DIFC or can be provided by a CSP and Registered Agent. Do note that Active Enterprise will not be able to apply for visas if it uses a registered address provided by a CSP.
Initial Submission: Submission of the completed application to the DIFC Registrar of Companies.
Regulatory Review: Evaluation of the submitted application by the DIFC, including potential requests for additional information or clarifications.
Legal Documentation: Drafting of essential legal documents such as resolutions and articles of association.
Final Approval: Receipt of final approval from the DIFC, officially establishing the Active Enterprise.
DIFC is Ready. Are You?
The introduction of Active Enterprises marks a significant step forward for the DIFC. By offering greater flexibility and reduced barriers to entry, the DIFC aims to attract a wider range of businesses and solidify its position as a leading international financial center.
The Dubai International Financial Centre (DIFC) is a hive of ambition and opportunity. As a global financial hub, it attracts some of the brightest minds from around the world. Imagine sleek skyscrapers, vibrant networking events, and a dynamic work culture that pushes boundaries. But beyond the glamour, there’s a focus on providing a well-rounded experience for professionals.
That’s where the DIFC’s Employment Law comes in. This legal framework ensures fair treatment, competitive benefits, and a healthy work-life balance for all employees. Recently, in March 2024, the DIFC introduced some key amendments through DIFC Law No. 1 of 2024. Let’s delve deeper into these changes and explore how they further enhance the already impressive work life offered by the DIFC.
According to the recent amendment, DIFC employers must now make “top-up” payments to retirement schemes for their GCC national employees if the standard social security contributions are lower than what they would have received under the old law. This ensures GCC nationals get comparable benefits to non-GCC nationals. The law also covers situations where sanctions prevent contributions, requiring employers to accrue benefits until the sanctions are lifted. Finally, the update strengthens regulatory oversight within DIFC.
Good news for UAE/GCC national employees!
The new law requires DIFC employers to make top-up contributions into a Qualifying Scheme for eligible UAE/GCC national employees. This ensures they receive benefits comparable to non-UAE/GCC nationals, who are subject to mandatory Qualifying Scheme contributions.
How it works:
Employers will need to compare the Core Benefits that would be paid to a non-UAE/GCC national with the pension contributions currently being made to the GPSSA on behalf of the UAE/GCC national employee.
If there’s a gap (meaning the Core Benefits are higher than the GPSSA contributions), a top-up payment must be made to a Qualifying Scheme.
There’s a minimum top-up threshold of AED 1,000 per year for eligible employees.
Not complying with this can lead to penalties of up to USD 2,000 per employee.
End-of-service gratuity for sanctioned individuals
The law also clarifies how to handle end-of-service gratuity for employees classified as “Sanctioned Persons” (by the UN, UAE, or any entity managing the Qualifying Scheme). In such cases, employers must accrue these benefits until the sanction is lifted or the employment ends, whichever comes first. Once clear, the employer must transfer the accumulated amount to a Qualifying Scheme or directly to the employee.
What’s next?
DIFC employers should review their payroll practices to assess if top-up contributions are needed for their UAE/GCC national employees.
For employees impacted by sanctions, employers should start accruing their end-of-service gratuity separately. They are not liable for any investment gains or losses during this period.
Here’s a breakdown of how the DIFC law changes promote fairness, ensure compliance, and benefit businesses:
Fairness:
Equal End-of-Service Benefits: The “top-up” payments ensure GCC nationals receive retirement benefits comparable to non-GCC nationals, even though they contribute to a different social security system (GPSSA). This eliminates discrimination based on nationality.
Sanctions Protection: The law protects employees even during international sanctions. By requiring employers to accrue benefits during these periods, employees don’t lose out due to factors beyond their control.
Compliance:
Clearer Regulations: The amendments address specific scenarios like sanctions, providing clear guidelines for employers to follow. This reduces confusion and the risk of non-compliance.
Enhanced Oversight: Expanded powers for the RoC mean stricter enforcement of business regulations. This discourages non-compliance and promotes a fair and transparent business environment.
Benefits for Businesses:
Reduced Risk: Clearer regulations and stronger enforcement minimize the risk of legal issues for employers.
Talent Attraction & Retention: Offering competitive benefits like equal end-of-service helps DIFC businesses attract and retain skilled GCC nationals.
Reputation Boost: Following fair labor practices and complying with regulations enhances a company’s reputation, making it a more attractive employer.
Overall, these changes promote fairness and ensure compliance for DIFC businesses. By taking these steps, DIFC businesses can operate with greater confidence, attract top talent, and contribute to a more stable and fair business environment within the free zone.
Things to know about Prescribed Company in the DIFC, Dubai
The Dubai International Financial Centre (DIFC) is a leading world-class business and lifestyle destination in the Middle East, Africa, and South Asia (MEASA) region. DIFC has a close to 20-year track record of facilitating trade and investment flows across MEASA. The region comprises 72 countries with a combined population of around three billion people and a nominal GDP of approximately USD 8 trillion. The centre offers a wide range of opportunities for setting up operating, holding, and tech companies for those who are focusing on business success. Among those, the revised regulation for Prescribed Companies is now attracting entities with its peculiarities.
DIFC introduced the Prescribed Company Regulations to supersede and broaden the scope of the previous regulations, the Special Purpose Company Regulations (SPC) and the Intermediary Special Purpose Vehicle Regime (ISPVR) in 2019. As a result of the enactment of the DIFC Prescribed Company Regulations, all Special Purpose Companies under the SPC Regulations were reclassified as Prescribed Companies. A key feature of this new regulation is its flexibility, fostering a business-friendly environment that promotes efficiency in time and cost savings for companies operating within the DIFC.
On July 15th, 2024, DIFC enacted a key amendment in the existing PC Regulations which significantly expand and simplify the current regime in the DIFC. The changes ensure that the companies are used as true holding company vehicles, rather than operational entities.
Now, what exactly is the Prescribed Company?
What is a Prescribed Company in the DIFC?
A Prescribed Company in the DIFC is a private company established under the DIFC Prescribed Company Regulations. It can be set up by a Qualifying Applicant or for a Qualifying Purpose. Qualifying Applicants include DIFC-registered entities, affiliates of such entities, shareholders, ultimate beneficial owners controlling a DIFC-registered entity, authorized firms, funds, UAE government entities, or family-operated businesses.
New PC Regulations Unveiled!
Effective from July 15, 2024, the DIFC has introduced significant updates to its PC Regulations. One among them is the expansion of the eligibility criteria for Prescribed Companies. Previously, eligibility was restricted to specific types of entities (qualifying applicants) and activities (qualifying purposes).
To incorporate or continue a Prescribed Company in the DIFC, applicants must now satisfy one of the following criteria:
1. The Prescribed Company is controlled by one or more:
a) GCC Persons.
b) Registered Persons.
c) Authorized Firms.
2. The Prescribed Company is established or continued in the DIFC for the purpose of holding legal title to, or controlling, one or more GCC Registrable Assets.
3. The proposed Prescribed Company is established or continued in the DIFC for a Qualifying Purpose; or
4. The Prescribed Company established or continued in the DIFC has a director appointed from a DFSA-registered Corporate Service Provider
How Does a CSP Facilitate the Establishment of a Prescribed Company?
Any individual or corporate entity that does not qualify for a Prescribed Company under the qualifying requirements can still establish one, regardless of their country of residence. This is possible if the PC appoints a director who is an employee of a DFSA-regulated CSP. This CSP must also have an agreement with the DIFC Registrar of Companies to undertake specific compliance and AML functions on behalf of the PC.
Key Changes from the Old PC Regime
Previously, the PC regime restricted eligibility to entities with a strong DIFC nexus or those involved in specific qualifying activities, limiting the product’s appeal to the existing DIFC client base. The new regulations have significantly expanded the eligibility criteria, allowing for the formation of PCs under broader circumstances.
DIFC believes these changes will expand the appeal of this vehicle to a global investor base while maintaining necessary ties to the DIFC and GCC. To accommodate potential increased demand, DIFC is enhancing its AML procedures and risk management framework.
What Happens to Existing PCs That Fall Outside the New Regime?
Existing PCs will be restricted to their designated purpose as holding companies, prohibiting employment. This ensures their function as pure holding vehicles. PCs that no longer align with these criteria will benefit from transitional arrangements and a new commercial package offering continued licensing advantages similar to the previous regime. The package, named “Active Enterprise,” provides flexible options and reduced fees for qualifying applicants seeking alternative structures with the option to have employees.
Active Enterprise is a private company that can be established by a Qualifying Applicant. This structure is suitable for Holding Companies, Managing Offices, and Proprietary Investment activities across various sectors such as real estate, agricultural enterprises, management, and healthcare. The package has:
Option to have employees: In the case that Active Enterprise or its affiliate has an office in the DIFC.
Reduced licensing fees: USD 100 Application Fee (one time) and an annual commercial license fee of USD 1000 (Data protection fees USD 750 – if applicable).
Flexible registered address: An Active Enterprise can have its own DIFC office space, co-working desk, share office space with its DIFC affiliate or, if the entity has no employees, use an appointed CSP’s registered address in DIFC.
Common law jurisdiction with independent DIFC Courts
Quick and easy, fully digital registration process: In-principal approval may be granted within three business days from the application submission.
No attestation is required for corporate documents.
Globally competitive and attractive tax regime.
Zero currency restrictions and 100% foreign ownership.
Zero restrictions on capital repatriation.
Why a Prescribed Company in DIFC?
There are several compelling reasons to opt for a Prescribed Company setup in DIFC:
Low-Cost Setup and Maintenance Costs: The cost of setting up and maintaining a DIFC Prescribed Company is considerably lower compared to a standard DIFC operational license.
Flexible Office Requirements: Prescribed Companies enjoy flexibility in office arrangements, allowing them to have their own DIFC office space, share space with individuals fulfilling qualifying requirements, or appoint a CSP for registered address services.
Favorable Tax Environment: The company benefits from 0% taxation on dividends and qualifying income, along with access to DIFC’s comprehensive network of double taxation treaties.
Legal Certainty and Efficiency: Operating within the DIFC’s English common law-based legal system, the company enjoys greater flexibility and innovation compared to other UAE free zones.
Fast-Track Application Process: Prescribed Companies benefit from an expedited application process, being exempt from auditing and filing accounts with the DIFC Registrar of Companies.
Exemptions for Crowdfunding and Structured Financing Activities
A Prescribed Company in DIFC with a crowdfunding structure enjoys several exemptions, further highlighting the benefits of a Prescribed Company in DIFC.
Crowdfunding Exemptions: A PC with a crowdfunding structure is exempt from the Companies Law requirement to have no more than 50 shareholders. Additionally, if its annual turnover is no more than USD 5 million, it is exempt from the need to prepare and file audited accounts, even if it has more than 20 shareholders.
Structured Financing Exemptions: PCs involved in structured financing are exempt from filing and auditing requirements. Furthermore, PCs issuing bonds or sukuk to the public can bypass the usual prohibition against private companies making public offers and the 50-shareholder limit.
Reduced Fees and Cost Efficiency
The PC regime in the DIFC offers a low-cost structure with significantly reduced fees. The application fee is a one-time payment of USD 100, and the annual license fee is USD 1,000. This cost efficiency, combined with the flexibility and exemptions provided by the PC structure, makes it a highly attractive option for businesses seeking a cost-effective entry into the DIFC.
Application Process for the set up of Prescribed Company in the DIFC
DIFC is Ready. Are You?
With the introduction of this new PC regime, DIFC aims to balance requiring substantive economic activity and providing access to flexible corporate structures for legitimate purposes. In the new UAE Corporate Tax era, which addresses substance concerns, the DIFC believes that expanding the PC regime is timely and beneficial.
Disclaimer:
The information provided in this article is for general informational purposes only and should not be considered legal or professional advice. As always, we recommend that you consult with your legal/incorporation, financial and/or tax advisors
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.
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.
Master Trustee: Equiom: Equiom ensures the DEWS plan meets members’ needs, acting as the independent legal owner of contributions and overseeing investment options.
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.
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.
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.
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.
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.
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:
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.
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.
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.
Streamlined Management: By centralizing control over multiple subsidiaries, holding companies simplify financial reporting, governance structures, and decision-making processes, leading to enhanced operational efficiency.
Access to Capital: The DIFC’s strong regulatory framework and its reputation as a financial hub boost investor confidence and facilitate access to capital.
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:
Business Name Selection: Choose a unique name that complies with DIFC regulations.
Director & Shareholder Appointment: Appoint at least one director and one shareholder, who can be either individuals or companies.
Share Capital Definition: Determine the authorized share capital, defining the maximum amount the company can raise through share issuance.
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.
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.
Is the DIFC Tech Innovation License a right start for your Indian tech startups to go global?
The world of technology is constantly evolving, and Indian startups are at the forefront of this exciting journey. But for many, the dream of expanding their reach beyond India can be difficult. This is where the DIFC Innovation License steps in, offering a compelling opportunity for Indian software startups, FinTech firms, and other tech-driven enterprises to establish a global presence and foster innovation in a nurturing environment.
The DIFC acts as a strategic bridge, connecting Indian businesses to the vast and diverse markets of the Middle East, Africa, and South Asia (MEASA) region. This opens doors to a multitude of potential customers and collaboration opportunities to the Indian firms, accelerating your startup’s growth trajectory.
Why DIFC Tech Innovation License for Indian startups?
A haven for innovation: The DIFC goes beyond just providing a license; it fosters an entire ecosystem dedicated to nurturing innovation. Imagine a world with access to state-of-the-art co-working spaces, accelerator programs that provide valuable guidance and resources, and a network brimming with potential investors and collaborators. This supportive environment empowers Indian startups to refine their ideas, develop groundbreaking solutions, and thrive in a community that understands the language of innovation.
Testing grounds for bold ideas: The DIFC Innovation License understands that innovation thrives on experimentation. That’s why they offer the Innovation Testing License (ITL), a regulatory sandbox that allows startups to test their groundbreaking products and services in a controlled environment. This invaluable tool mitigates risks and provides crucial feedback before a full-scale launch, ensuring your product is market-ready and poised for success.
Strategic location, Limitless potential: Dubai’s strategic position as a global business hub is a major advantage offered by the DIFC Innovation License. With unparalleled connectivity to international markets, Indian tech startups and FinTech companies gain a significant edge in terms of business expansion and growth opportunities. Adding more to this, there is a access to AED 1 billion Dubai Future District Fund. Imagine the possibilities – efficient logistics, easy access to international talent, and the ability to tap into global resources and access to funding – all within your reach.
A thriving ecosystem for collaboration: Dubai isn’t just a business hub; it’s a vibrant ecosystem teeming with innovation and finance. By obtaining the DIFC Innovation License, Indian startups gain access to a network of potential investors, collaborators, and industry experts. Imagine a collaborative workspace where you can interact with other innovative companies, share ideas, and spark new breakthroughs. This shared environment fosters creativity, collaboration, and a sense of community, all essential ingredients for a thriving tech startup.
This opens doors to valuable mentorship, potential funding sources, and collaborative projects that can propel your startup to new heights.
Cost-effective launchpad for success: The DIFC Innovation License recognizes the financial constraints that many startups face. That’s why they offer a subsidized fee structure, making it significantly more affordable for Indian startups to establish a presence in Dubai. Lower registration fees, discounted visa costs, and access to co-working spaces all contribute to minimizing the financial burden, allowing you to focus your resources on what matters most – innovation and growth.
Mentorship and support for every step: The DIFC doesn’t just hand you a license and leave you to navigate the complexities of the business world. They provide ongoing mentorship and support to license holders. This expert guidance covers crucial aspects like product development, fundraising strategies, and effective business scaling. With this invaluable support system in place, Indian startups can navigate challenges with confidence and make informed decisions that propel them towards success.
Data security as top priority: In today’s digital age, data security is paramount. The DIFC understands this and has implemented robust data protection regulations. This ensures that Indian startups dealing with sensitive information can operate with peace of mind, knowing their data is safe and secure.
The DIFC Innovation License can be a comprehensive package designed to empower Indian tech startups to compete on a global scale through simple steps. From market access and a supportive ecosystem to cost-effectiveness and expert guidance, the DIFC offers everything you need to launch your innovative ideas onto the world stage. So, if you’re an Indian tech entrepreneur with dreams of global domination, the DIFC Innovation License might just be the key that unlocks your future success.
MS as your partner for availing DIFC tech innovation license
MS empowers tech startups in India to secure their DIFC Innovation License swiftly. Leveraging expertise in business strategy, compliance, and local regulations, we provide personalized advisory services to craft strong business plans meeting license criteria. MS also fosters collaboration and networking within the Dubai tech startup community, accelerating the licensing process and allowing startups to focus on innovation. Partnering with MS simplifies navigating DIFC requirements and unlocks the full potential of your Dubai tech venture.
