Employer of Record in the United Arab Emirates

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​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 9 April 2024 | reading time approx. 3 minutes​


With a simultaneous increase in foreign investments, temporary projects and services provided by foreign companies in the UAE, there is growing demand for the employer of records due to the legal requirements for the secondment of foreign employees to the UAE. Likewise, this concept of the employer of record entails significant difficulties and risks in its legal implementation, precisely because of the underlying legal requirements in the UAE.​​




Is the concept of EoR known in your country? Is the concept of EoR regulated by law in your country?

When hiring foreign employees in the UAE, the basic principle to be observed is the so-called sponsorship system. This means that due to the close link between labour and immigration law, a residence permit can generally only be applied for through a local employment relationship. At the same time, the residence permit identifies the so-called sponsor, i.e. usually the employer, so that work can only be performed for this local employer and not for the actual foreign employer (Art. 16 Labour Act). This alone shows that the construct of the employer of record is unknown to the legal system of the UAE. 

Meanwhile, it should be noted that providing services by a company within the UAE is also only permitted on the basis of a trade licence, and therefore by an independent local company, so that the use of an employer of record by foreign companies also appears legally problematic for this reason.

Although the construct of an Employer of Records appears legally problematic due to the above-mentioned explanations, it is precisely these reasons that have lately led to increased demand from foreign companies for an Employer of Records in the UAE. In particular, the mandatory requirement of establishing a company in the UAE in order to provide services locally, as well as applying for and employing foreign employees through the established company, especially in the case of temporary projects, often proves to be (too) high a hurdle for foreign companies. For this reason, it has recently been observed that more and more companies in the UAE are unlawfully providing services as an employer of record, insofar as they employ foreign workers solely for the purpose of obtaining a residence permit, but without having the corresponding license or authorization to do so.

Special features of the activity within the framework of the EoR concept or temporary employment

In principle, such employment, even though it is entered into solely for the purpose of obtaining a residence permit, creates an effective employment relationship that gives rise to rights and obligations for both parties. The resulting problem is also reflected in the fact that the employment contract is a so-called standard employment contract, i.e. an employment contract pre-formulated by the authority, which is mandatory and cannot be amended within the wording, so that, for example, a waiver of any salary or end of service benefits claims against the employer of record is excluded from the outset. Supplementary agreements, that complement the generally superficial and imprecise provisions of the standard employment contract in a legally secure and comprehensive manner, are common in the UAE and are also recognized by the courts. However, these are generally ineffective as soon as they waive mandatory law and the associated claims, such as the end of service benefit claims, even though the arise of such claims within the framework of the employer of record concept is probably not intended by the parties per se.

The employer of record concept differs from purely domestic employee leasing. In contrast to the employer of record, which involves the “cross-border employment” of a foreign employee, the purely domestic employee leasing is only permitted under strict conditions. The hiring company must have obtained a so-called manpower license, which entitles companies in the UAE to lease employees to other companies. However, such a license is reserved exclusively for UAE citizens, meaning that a company with manpower license, and therefore employee leasing, cannot be established and carried out by foreign individuals or companies. In case of a lack of the respective license, i.e. if an employee leasing or services are provided as an Employer of Record, the competent authority can impose financial penalties or directly withdraw the licence, which is equivalent to dissolving the company.​

What are the special tax features of the EoR concept in your country?

Regardless of whether this is done on the basis of a legally obtained trade license or residence permit, the provision of services by foreign employees within the UAE – even in the case of an unlawful employer of record – generally entails the risk of establishing a permanent establishment for tax purposes. Under the UAE's territorial tax system, income is only taxed if it is generated by the company within the UAE. If a permanent establishment is established for tax purposes, this may result in the company being obliged to register for tax purposes as well as the mandatory collection and payment. However, whether providing services through employees within the UAE establishes a permanent establishment for tax purposes in terms must be examined on the basis of the underlying facts in each case.

How do you anticipate the concept of EoR evolving in your country from your perspective?​

It remains to be seen to what extent the concept of the Employer of Records will develop in the UAE in the future and, if necessary, be implemented in the legal system. On the one hand, the legal implementation appears to be quite realistic, as the high hurdle of establishing a company in the UAE, even in the case of a temporary project and therefore a short-term secondment, could be circumvented. On the other hand, this would contradict the fundamental intention of the legislator to bind foreign investors and companies permanently and thus encourage them to establish a local company, which is why it is difficult to make a reliable forecast in this regard.​
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