A] Prelude*
* For more detailed and general information about the pension and tax situation in AUE, feel free to visit our dedicated webpages: https://expatpensionholland.nl/united-arab-emirates-expat-pensions
The United Arab Emirates (UAE) has recently undergone a comprehensive reform of its legislative framework. It aims to address shifts in the work environment and align UAE relations with international best practices.
The most recent and radical change to the pensions landscape is the implementation of a new pensions law, UAE Federal Decree Law No. 57 of 2023 (the 2023 Law). The 2023 Law was officially published on October 2, 2023. This legislation represents the most substantial change to pension regulations since the introduction of UAE Federal Law No. 7 of 1999, as amended (the 1999 Law).
Notwithstanding this, it is important to be aware that the 1999 Law will remain in force and apply to Emiratis hired and/or registered with the General Pensions and Social Security Authority (GPSSA) before October 2.
Despite this, the GPSSA has confirmed that October 31, 2023, should be considered the effective date. This is a clear discrepancy between the provisions of the 2023 Law, and it remains to be seen whether the GPSSA will change its position and align with the effective date set out in the 2023 Law in this regard.
The GPSSA is the authority responsible for registering Emiratis and GCC nationals employed in the UAE across all Emirates (except those companies incorporated in Abu Dhabi and Sharjah, which are subject to a separate authority). Considering this, the 2023 Law applies solely to Emiratis, and GCC nationals are not impacted.
B] What are the new Key provisions?
Under the 2023 Law, both employers and employees must pay mandatory monthly contributions to the GPSSA.
This will be calculated, with respect to an employee’s total fixed monthly salary, as follows:
- The employer’s contribution is 15% (albeit where an employee earns below AED 20,000 per month, 2.5% of the employer’s contribution will be paid by the government);
- The employee’s monthly contribution is 11%. The employer usually deducts the employee’s contributions at source and pays directly to the GPSSA.
The monthly pensionable cap under the 2023 Law has increased to AED 70,000, compared to AED 50,000 under the 1999 Law.
Notably, the 1999 Law obliges an employer to make good any difference between the payments made under the 1999 Law and a potential end-of-service gratuity entitlement where the salary exceeds AED 50,000. The purpose is to ensure an employee who earns more than AED 50,000 per month is not disadvantaged by the payment cap. The 2023 Law does not provide for a similar benefit.
According to the 2023 Law, contributions (employer, employee, and government) should continue during leave, even if unpaid, and during periods of secondment and study leave.
Exceptions apply to individuals suspended without pay, those on agreed-upon periods of unpaid leave, or those not entitled to a salary. For individuals under the 2023 Law, unpaid leave for study or childcare allows the continuation of contributions if the employee pays all requisite contributions.
Upon retirement, pensions for employees falling under the remit of the 2023 Law will be calculated at a rate of 2.67% of the pension account salary for each year of the contribution period.
Upon reaching 30 years, this rate is increased by 4% annually up to a maximum of 100% of their salary. If the total subscription period exceeds 35 years, the individual shall be paid at a rate of three months for each year above the 35-year period, calculated based on the pension account salary.
C] Ensuring compliance
It is clear that these legislative milestones represent a significant reform, demonstrating the UAE’s commitment to adaptability and alignment with global best practices.
As the legal landscape undergoes this transformation, the focus is particularly keen on pension regulations, where substantial modifications are set to redefine the benefits and structures for new Emirati and GCC hires.
Employers in the UAE should familiarize themselves with the 2023 Law to ensure compliance. Although an employer’s general obligations have not been radically changed from the 1999 Law, employers should be aware of their obligations and the potential penalties and sanctions for non-compliance.
In particular, employers should be aware of the obligation to:
- register eligible employees with GPSSA within one month of employment commencement;
- update the GPSSA within 15 calendar days of an employee’s termination;
complete the de-registration procedure; - employers must provide the necessary documentation for accurate contribution calculations within 10 calendar days of initial registration;
- any delay will result in fines being imposed by the GPSSA;
- employers must pay contributions to the GPSSA on a monthly basis.
Significantly, the 2023 Law provides that in the first and last month of employment, and even where the full month is not worked by the employee, the contributions should not be pro-rated.
Failure to comply with the provisions of the 2023 Law may result in various sanctions being imposed, including but not limited to fines that will accrue on a daily basis. This is in addition to a one-off lump sum fine of up to AED 50,000 per employee, depending on the nature and scope of the non-compliance.