Business owners with operations in the UAE often consider the possibility of expanding international employee incentive schemes (Incentive Schemes) to its UAE resident employees. Typically the biggest concern the employer has is whether local legislation and regulations will permit the offering and ultimate participation in an Incentive Scheme (regardless of how it is structured).
An employer should consider UAE labour law requirements, changes which may need to be made to the Incentive Scheme vis-à-vis local employees, tax and social security implications and securities law issues in relation to the offering of stocks and securities (which are beyond the scope of this particular blog but which should be considered in conjunction with the UAE labour law requirements).
The local labour law requirements
In summary, there are no provisions of the UAE Federal Labour Law (No. 8 of 1980) (the Labour Law) or other UAE legislation that would lead to the benefit of an Incentive Scheme being treated any differently from other types of ancillary compensatory benefit.
There is no legal obligation to permit any particular group of employees to participate and schemes can be operated as the company in question desires and offered to employees, whether full-time, part-time or temporary. Employer’s should be aware though that there is an obligation under the Labour Law for employers in the UAE not to discriminate on the grounds of gender and care should be taken to ensure that this obligation is not perceived to be breached by restricting access.
Changes which could be made to the local Incentive Scheme to benefit from local legislation
If the entitlement to participate in the Incentive Scheme is expressly stated in an employee’s employment contract then naturally it would not be possible to unilaterally deny such rights (unless the specific ability to deny is included in the contract). If it is clear in the employment contract (or separately in the Incentive Scheme documentation) that benefits under the Incentive Scheme can be varied or discontinued at the absolute discretion of the employer, then the employee would be unable to claim to have entrenched rights to benefit from the Incentive Scheme. Accordingly, if the intention is that the Incentive Scheme can be varied or discontinued at the employer’s option then a practical step would be to ensure that appropriate wording is included in either the employment contract or in the Incentive Scheme document itself.
Employee tax and social security implications
In the UAE, there are currently no personal taxes (including on income or capital gains) of general application. In respect of social security, a contribution of 5% of salary is payable by UAE national employees, however, non UAE nationals are not required to make any social security contributions and – assuming that the employee is an expatriate – there would be no social security implications which arise as a result of participation in an Incentive Scheme.
Despite the lack of general tax implications in the UAE, it would be best practice as an employer to recommend to the employee (particularly if the employee is an expatriate, who may have exposure to tax outside of the UAE) to seek their own tax advice regarding any personal tax payable in their home jurisdiction as a result of participation in the Incentive Scheme.