How to hire and pay independent contractors in the UAE

If you are a business looking to tap into the global talent pool, you might be considering hiring remote contractors abroad. 

With its modern infrastructure and favorable tax incentives, the Middle Eastern nation — particularly Dubai — houses some of the world's most skilled individuals. 

However, there are certain challenges to hiring independent contractors in the UAE. Employers must ensure they comply with the UAE's complex employment laws. The UAE has many unique legal elements to consider, such as differing regulations in 'free zones' and requirements for contractors to hold permits and visas. Failing to comply with local labor laws can lead to hefty fines and serious legal consequences. 

But you don’t have to stress. This article will give you an overview of what you need to know before you hire and pay contractors in the UAE and how you can mitigate any compliance risks.

Unique considerations of managing contractors in the United Arab Emirates

Some key considerations for hiring managers and founders who want ‌to tap into top talent in the UAE include: 

• Unique legal requirements and risks of misclassification

• Relevant registrations, licenses, and/or visas for independent contractors

• Cultural considerations like Sharia law and population 

Before hiring a contractor in the UAE, it is important to be aware that the country's labor laws require companies to provide benefits such as paid leave and overtime pay, for all employees. While contractors typically don't receive benefits, employers must be careful not to misclassify employees as contractors and risk disastrous consequences. 

Legislation also differs between the country's public and private sectors, the seven emirates, and free zones — like the Dubai International Financial Centre (DIFC). 

As an employer, you should ensure that workers carry the necessary documentation. It is also common practice for employers to provide contractors with an agreement outlining the key details of the collaboration.

Finally, it is helpful to understand cultural considerations in order to hire respectfully and compliantly in the UAE. Islamic Sharia law plays an important role in governing the country's legislation. With a population where expatriates outnumber locals 10 to one, it is important to be aware ‌that cultural expectations may be different with every hire.

Statutory benefits in the UAE 

UAE-mandated employee benefits include the following:

• Employer contributions. Employers in the UAE must make social security contributions for workers.

• Leave entitlements. Employees are entitled to 30 days of paid vacation annually and 14 public holidays.

• Sick leave. After three months of continuous service, employees can receive up to 90 days of sick leave per year.

• Maternity and paternity leave. Maternity leave is up to 45 days with 50% to full pay, depending on length of service. There is no paternity leave, but there is a 5-day parental leave.

• Pension plans and retirement contributions. Emirati employees receive federal employment scheme benefits, while expatriate workers receive a gratuity instead of monthly pension payments.

• Minimum wage. While there is no mandatory minimum wage for expatriates, UAE nationals have a three-tiered minimum wage structure based on education levels.

• Overtime. Overtime rates vary based on timing and day worked, with higher rates for night shifts and Fridays.

• Health insurance. While not mandatory in most of the UAE, employers in certain cities like Abu Dhabi and Dubai must provide compliant health insurance plans.

• Probation period. Typical probation periods last three to six months.

• Notice period. Employers must give at least 30 days' notice, with variations in the DIFC based on length of employment.

• Severance pay. Severance pay is mandatory, calculated based on length of service with a maximum of two years' salary.

Visas and Work Permits —

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Work permits and visas in the United Arab Emirates: an employer’s guide

Find out everything you need to know about work permits and visas in the United Arab Emirates, including the types, requirements, and documents needed.

How do I pay an independent contractor in the United Arab Emirates?

Employers have several options for paying UAE workers, although they should consider factors like currency exchange and international fees. The currency in the United Arab Emirates is the Emirati Dirham (AED). You can make payments in local currency or any currency agreed on in the employment contract once you have received an invoice from your contractors.

You can pay international contractors via:

• Bank transfer. You can make a direct bank transfer to your contractor's account. Just be aware of inflated transfer fees, exchange rates, and delays.

• Online payment platforms. For instant transfers, payment platforms like PayPal, Stripe, and Wise do the job. However, these often charge high fees and set their own exchange rates.

• Money transfer services. An alternative method is to use a money transfer service like Western Union, where you can send a payment online for a contractor to collect physically in a local location.

Managing payments manually can get complicated fast, especially if you’re managing several contractors in the UAE or across the world. Without the right system, you may make processing errors, get behind with payments, and compromise worker trust. 

A simple and cost-effective way to manage contractor payments is to use a tool like Remote's contractor management software. Remote's Fair Price Guarantee ensures transparency in pricing and billing, helping you avoid hefty exchange rates and surprise fees. Not only can you easily pay in multiple currencies, but you can also save time and stress by automating payments and other processes.

What are the risks of misclassifying the United Arab Emirates independent contractors as employees? 

Like many countries, the United Arab Emirates makes clear legal distinctions between independent contractors and employees.

Independent contractors typically perform one-off tasks or short-term projects and have autonomy about where, when, and how they work. Employees usually have ongoing responsibilities and must work according to employer instructions. Independent contractors are not entitled to worker benefits, unlike employees who can legally receive statutory benefits.

UAE contractors must have the correct work permit and abide by certain parameters to legally perform work.

Misclassifying an employee as a contractor — even by accident — can lead to serious consequences such as retroactively paying back missed benefits, receiving fines, or even facing legal action. If a contractor challenges IP ownership, it could end in damaging and expensive proceedings.

As the nature of working relationships is nuanced and can change over time, it can be easy to misclassify workers unintentionally. This gets even more complicated in fast-growing teams of global workers. 

Remote's global contractor management software helps you minimize the risks of misclassification in a scalable and secure way. Our team of employment experts can help you define working relationships, monitor contracts, and ensure that you’re accurately classifying your workers.

Tax and compliance practices for hiring independent contractors from the United Arab Emirates

Until recently, individuals in the UAE were not required to pay tax on their earnings. However, a corporate tax law introduced in 2023 means contractors must now pay a 9% tax on any income over 375,000 AED. There is 0% tax on income under this amount. 

Businesses that earn above 375,000 AED are obliged to register for VAT with the Federal Tax Authority and keep relevant business records. Freelancers who earn above 187,500 AED may also choose to register to gain credibility and work with larger clients. 

Contractors handle their own tax obligations, meaning employers do not need to withhold taxes on their behalf. However, businesses should understand taxation in the UAE and check if they have to submit any paperwork in their home country.

The US typically taxes foreign contractors up to 30% on income earned from US employers. US-based companies hiring in the UAE should collect relevant tax information from UAE contractors using the W-8 BEN Form. As there is no tax treaty between the US and UAE, contractors may be subject to double taxation. Employers may also need to declare any tax paid to the IRS using the 1096 form.

Remote can help US-based companies reduce the stress of contractor tax compliance. Our tax compliance feature within the Remote platform will generate the relevant tax forms for your contractors to submit on time.

How do I convert an independent contractor in the United Arab Emirates to an employee?

While a worker may begin working for you as an independent contractor, the relationship could evolve and they may begin taking on regular duties over time. If this is the case, you may think about converting your contractor to an employee. 

 Ask yourself the following questions to decide whether you should convert your worker’s status:

• Have the responsibilities of your contractor notably expanded over time?

• Does the worker shoulder financial risk? 

• Are they paid based on time or deliverables?

• Do they provide their own equipment?

• Would you like to provide benefits to your contractor?

• Do you seek to protect your company's intellectual property?

• Are you uncertain about labor laws and concerned about maintaining compliance?

Converting a contractor involves serious consideration as it triggers new employer responsibilities, like needing a business entity in the UAE and providing employee benefits. This can be hugely costly and time-consuming for employers.

If you do need to hire an employee remotely, Remote's employer of record (EOR) solution can be a simple, affordable solution to hire employees compliantly. You can bypass opening an entity in the UAE and manage employees and payroll through a streamlined platform.

Should you offer contractor benefits in the UAE?

Although employers in the UAE are not obligated to provide benefits for contractors, offering additional incentives can be crucial in attracting top talent. To distinguish yourself from other employers, you may consider offering: 

• A competitive salary. Tailor salaries to the industry and the high cost of living in the UAE.

• Health insurance. Though not always legally required, health perks are highly desirable, particularly for expatriates covering work permits and visas. 

• Bonuses. These are common in the UAE and can be a significant draw for top candidates.

• Soft benefits. Flexible working hours, freedom of movement, and diverse teams are particularly attractive in today's working climate.

United Arab Emirates —

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Employee benefits in the UAE: all you need to know

Use this guide to employee benefits in the UAE to help your team understand how to set up and manage a compliant benefits program for new starters.

The fastest, easiest, safest way to hire international contractors 

Hiring international contractors in the UAE can give you access to amazing talent and keep you ahead of the competition. It can seem overwhelming for founders and HR managers to understand local legislation, UAE tax obligations, and misclassification risks and stay compliant along the way.

This is where Remote can make your life a lot easier! Our global contractor management service simplifies the whole process and helps you save time, money, and the hassle of hiring international contractors. Here are some features that can help you easily manage your team of international contractors: 

• Self-service onboarding. Onboard new contractors in minutes with an automated in-platform process to collect relevant details and documents.

• Easy payments. Save hours with automated invoice approvals and payments and easily make payments in local currency.

• One platform. Say goodbye to multiple different tools and streamline contracts, time off, billing and payments, tax forms, etc., all in one place.

• Discounted contractor benefits. Offer your contractors access to health benefits and perks at great rates. 

• Tax filing and reporting. Help with accounting, invoice payment reports, and filling out tax forms. 

Ready to start onboarding contractors in the UAE? Sign up for Remote and get started today!