Dubai amends DIFC Employment Law, requiring employer 'top-up' payments

Executive summary

On 1 March 2024, His Highness Mohammed bin Rashid Al Maktoum, Vice-President, Prime Minister and Ruler of Dubai, enacted Dubai International Financial Centre Amendment Law (DIFC Law No. 1 of 2024 or Amendment Law (pdf)), which came into force on 8 March 2024.

The amendments to the existing DIFC Employment Law require DIFC employers to make "top-up" payments into a Qualifying Scheme (such as the DIFC Employee Workplace Savings or DEWS scheme) for their GCC national employees (in addition to making their General Pension & Social Security Authority (GPSSA) contributions) if the employees' GPSSA contributions are lower than they would have received as monthly end-of-service contributions under the DIFC Employment Law if they were not GCC nationals.

Detailed discussion

Background

According to DIFC Employment Amendment Law No. 4 of 2020 (2020 Law), the employer shall, on a monthly basis for the benefit of each employee who is not an exempted employee, pay to a Qualifying Scheme an amount equal to at least their core benefits. Core benefits shall be calculated at 5.83% of employees' monthly basic wage for the first five years of their service and 8.33% for each additional year of services. Schedule 1 of the 2020 Law considers an employee registered with the GPSSA as exempted from the Qualifying Scheme. Subsequently, DIFC Law No 1 of 2024 was issued to further provide amendments to the 2020 Law.

Highlights of the Amendment Law

Further, the Amendment Law provides that if an employee is a United Arab Emirates (UAE) national or a GCC national and his/her pension contribution to the GPSSA is less than the amount of core benefits due to him/her if they were not a UAE national or a GCC national, the employer would be required to calculate the difference and make top-up payments into a Qualifying Scheme. Note, however, that such monthly top-up contribution is only required if it is equal to or greater than AED1 1,000.

Under the Amendment Law, "top-up contribution" is defined as the positive difference between the core benefits that would have been payable to the employee according to DEWS Qualifying Scheme (i.e., 5.83% of the employees' monthly basic wage for the first five years, and 8.33% for each additional year of service) and the employee's GPSSA pension contribution for the month.

Moreover, a provision has been added prohibiting a Qualifying Scheme from accepting contributions from an employer or, in the case of an employee, as a result of sanctions prohibitions. If an employer or employee is subject to sanctions that prohibit a Qualifying Scheme or its service providers from receiving end-of-service contributions on behalf of an employee, the employer's obligation to make such a contribution monthly to a Qualifying Scheme is suspended. This obligation is replaced with a requirement that the employer accrue such benefits on behalf of the relevant employee until the sanctions-related prohibition falls away or the employment relationship is terminated, whichever is earlier.

Noncompliance with the Amendment Law could expose employers to penalties up to US$2,000 per employee, according to Schedule 2 — Contraventions and Fines of the Amendment Law.

Implications

Companies in the DIFC should review the eligibility of their GCC national employees and take necessary steps for compliance with the Amendment Law.

Contact Information

For additional information concerning this Alert, please contact:

EY Consulting LLC, Dubai

• Smruti Varma, Payroll Operate, UAE

• Smitha Rayirath, Payroll Operate, UAE

Ernst & Young LLP (United States), Middle East Tax Desk, New York

• Yuriy Melnyk

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.