The UAE are taking a further step towards becoming a model for free trade, openness and attractiveness to foreign investments: in June 2018 the UAE Cabinet presented the launch of a new employment insurance scheme in the private sector.
The prior mandatory bank guarantee for labour recruitment will be abolished and replaced with a newly created affordable insurance system for employee guarantees costing only AED 60 annually per employee. This is forecast to solve one of the cash flow problems currently facing UAE businesses.
Whereas the previous deposit of AED 3,000 per employee is insufficient to cover end of service benefits and creates an impediment for businesses in case of sizeable visa transfers, the new scheme will safeguard employees’ rights in the private sector and reduce the burden on employers. It will also cover employees' entitlements in terms of overtime allowance, vacation allowance, employees' return ticket, unpaid wages and cases of work injuries, in which the insurance coverage will amount up to AED 20,000 per employee. It should be noted that no further details on the Labour Insurance Scheme, such as the range of employees covered, have been published.
The new scheme is expected to be officially implemented by the end of 2018 and to release AED 14 billion back to private sector companies, which is equivalent to the value of current guarantee deposits paid by employers. This will allow businesses to make further investments in the development of their UAE entities. However, the means of implementation of this process, particularly in Free Zones, is still unclear.
Labour Insurance Scheme can be surely considered a considerable step on the way to an even more flexible labour law system.
Markus Susilo
Partner – Tax advisory
[email protected]