(MENAFN - MENAFN.COM)
The economies of the Gulf Cooperation Council (GCC) offer some of the best opportunities for companies and expatriates to further their careers and businesses. The combination of tax-friendly regimes, world-class infrastructure, and easy access to the economies of South Asia and Africa mean that these countries act as great regional hubs for international organizations.
While the ease of doing business in these economies is high, there are a few regulations you need to be aware of. In this article, we'll contrast the most important regulations currently present in the Kingdom of Saudi Arabia (KSA), the United Arab Emirates (UAE), the Kingdom of Qatar, and Kuwait as they relate to ease of doing business.
While the GCC has historically positioned itself as a tax-free zone, conditions are changing quickly. For a long time now, KSA has imposed employer payroll taxes of 12%. From this figure, employers pay 9% towards social security, 1% towards unemployment insurance, and 2% as occupational hazard taxes.
In contrast, Kuwait requires employers to pay 11% as pension contributions and 0.5% as unemployment coverage. Qatar requires just an unemployment contribution of 10% of payroll. The UAE makes a distinction between citizen and expat employees. Employers are required to pay 12.5% towards citizens' social security.
Employees are also on the hook for payroll taxes. Emirati employees in the UAE are taxed 5% of their payroll for social security contributions. Qatar requires a 5% contribution from employees, while Kuwait requires a 10% pension contribution, along with 0.5% unemployment taxes.
KSA labels its employee payroll taxes as social insurance and unemployment insurance and requires 9% towards the former and 1% towards the latter. All 4 countries have zero personal income tax for now.
Overall, the UAE places the highest burden on employers, with payroll taxes totaling 12.5%, with KSA second with 12%, Kuwait at 11.5%, and Qatar with 10%. Employees in Qatar and the UAE bear the lowest costs at 5% while those in KSA and Kuwait bear 10% and 10.5% respectively.
While personal income tax is zero, all 4 countries impose VAT or plan to impose VAT shortly at a rate of 5%. KSA is an exception with a rate of 15%, having increased it from 5%.
Salary and Payroll Cycles
Generally speaking, monthly payroll cycles are followed in all 4 countries. In the UAE, payments are expected no later than the 10th of every month. If the pay date isn't explicitly mentioned on the employment contract, a 14-day payroll cycle applies.
KSA doesn't specify exact payment dates and leaves it up to the employer and employee to determine payroll cycles and payment dates. At the very least, payment is expected once every term. Within KSA, cultural norms dictate the payment of a 13th salary before Eid al-Fitr. This practice isn't expected in the other 3 countries and is entirely at the employer's discretion.
As native populations in these countries grow, governments have begun enacting measures to ensure the prosperity of their citizens. KSA mandates a monthly minimum wage of 3,000 Saudi Riyals (SAR) while Kuwait stipulates 75 Kuwaiti Dinars (KWD) per month. Qatar's minimum wage is 750 Qatari Riyals (QAR) every month, and the UAE stipulates wages based on the person's education.
Citizens with no high school diploma must be paid 3,000 AED per month. Those who have graduated high school and don't have a college degree should be paid 4,000 AED, while those with a college degree or higher are paid 5,000 AED.
To summarize, all 4 countries have similar payroll cycles, with employers having to bear the 13th salary every year. Minimum wages are stipulated and are at comparable levels to one another.
As with all countries in the GCC, the workweek runs from Sunday to Thursday, with the average workday lasting 8 hours in length. Hotels, restaurants, and cafes in the UAE have extended workdays of 9 hours. Qatar mandates a compulsory 1-hour break after an employee has worked for 5 straight hours.
Companies in the GCC must contend with working hours changing during the holy month of Ramadan. During these times, the workday is reduced to 6 hours per day and 36 hours per week.
The 4 countries handle overtime pay differently. The UAE stipulates that all overtime should be paid at 125% of the regular salary, with overtime occurring between 9 PM and 4 AM paid at 150%. Employees working on Friday should be paid at the rate of 150% of their regular salary.
In Qatar, the first 48 hours of overtime aren't compensated, with every hour after that paid at 125% of the employee's salary, with night work paid at 150%. Kuwait stipulates the same rules but limits the amount of time an employee can work overtime. Employees cannot work more than 2 hours per day, 3 days per week, or 90 days per year overtime.
Work conducted on national holidays is compensated at 200% of the regular salary. In KSA, overtime cannot extend beyond 11 hours per day and is compensated at a flat rate of 150%.
Paid Time off and Holidays
KSA has the lowest number of public holidays, with 3. Kuwait has 8 holidays for a total of 13 days off. Qatar has 11 public holidays, and the UAE has 7 holidays for a total of 14 days off. All countries offer paid time off benefits after a certain number of workdays are completed as per the employment contract.
In KSA and Qatar, after a year's employment, employees are entitled to 15 days of paid leave every year. In the UAE, employees are entitled to 30 days of paid leave after this period. After 10 years of service, employees are eligible for 21 days of paid leave in KSA. Qatar mandates 20 days of paid leave after 5 years of service.
Kuwait's laws are a bit different. After 9 months of service, employees are entitled to 30 days of paid leave. Any employee that works for two consecutive weeks is entitled to 21 days of paid leave to perform the Hajj as long as they have never performed it previously.
Employees in Kuwait are also subject to a tiered system of sick day compensation. They can claim 15 days per year at full pay, 10 days at 3/4 pay, 10 days at half or quarter pay, and 30 days without pay. Female employees are entitled to 70 days of paid maternity leave with an additional 4 unpaid months.
KSA stipulates that employees receive 90 days of sick leave every year with 30 days paid in full and 60 days compensated at 3/4 salary. However, these laws apply only to employers who have more than 20 employees.
Qatar has the simplest laws with 2 weeks of sick leave after 3 months of service while the UAE has a slightly more complex system. After 3 months of employment, post probation, employees are entitled to 90 days of sick leave.
The first 15 days are paid at full salary while the next 15 are paid at half-salary. After this point, there is no compensation. Women are entitled to 45 days of maternity leave after 1 year of employment. Under the laws of the Dubai International Financial Centre (DIFC) freezone though, they're entitled to 65 days after one year of service. The first 33 days are paid in full, while the remaining 32 days are paid at half-salary.
In Qatar, women are entitled to 50 days of paid maternity leave. KSA stipulates maternity leave to be 10 weeks long that cannot begin earlier than 4 weeks before the delivery date. If the woman has been employed for at least a year, she's entitled to 50% of regular pay. 100% salary is paid to women who have been employed for at least 3 years.
Interestingly, KSA grants fathers 2 days of paid paternity leave while the other countries don't grant any. The UAE grants paternity leave under its parental leave umbrella for 5 days at full compensation until the child reaches the age of 6 months. In the DIFC, pregnant employees are entitled to paid leave for prenatal care.
Lastly, KSA offers employees 3 days of unpaid leave for marriage and 2 days of unpaid leave in case of bereavement. Kuwait offers 3 days of paid leave in the event of the death of first or second-degree relatives. A special case is when a Muslim woman suffers the death of her husband.
In this situation, she's entitled to 4 months and 10 days of fully paid leave. Non-Muslim women are entitled to 21 days of paid leave in the same circumstances.
In all 4 countries, a valid reason must be provided upon termination. In the absence of this, employees can force reinstatement. Notice periods vary between the 4 countries. In KSA, the period is 30 days for monthly contracts and 15 days for other types. Kuwait mandates a 3-month notice period irrespective of who initiates termination.
Qatar requires a notice period of 1 month for employees who have been employed for 1-5 years and 2 months for those employed longer than 5 years. The UAE mandates a minimum notice period of 30 days. In the DIFC though, those employed for less than 5 months can be given 1 weeks’ notice, those employed up to 5 years, 30 days’ notice, and those more than 5 years, 90 days’ notice. Employers can also pay instead of notice.
Severance pay is due upon termination. In the UAE employees who have worked up to 5 years are entitled to 21 days' wages for each year employed. After 5 years of service, this rises to 30 days' wages for every year employed. The total amount of severance is capped at 2 years' worth of salary. Note that if the reason for termination isn't recognized by UAE law, the employee is entitled to 3 additional months' pay.
Qatar has a more lax approach, with employers and employees negotiating benefit terms. The law mandates that this payment be equal to at least 3 weeks' pay. Kuwait has a similar system to the UAE where employees receive 15 days' wages for every year up to 5 years of employment.
Those employed for longer receive a month's wages per year employed capped to a maximum of 1.5 years' salary. Hourly wage employees receive 10 days' salary for every year of employment up to 5 years. This limit increases to 15 days for every year after that, up to a limit of 1 year of salary.
KSA explicitly lays out conditions when severance pay is not due. If the employee indulges in physically abusive behavior, doesn't fulfill the terms of their employment contract, or divulges trade secrets, they're not entitled to any severance pay. Furthermore, severance pay depends on whether the employer initiated termination or the employee does.
If an employer initiated termination, the employee must be paid half a month's salary for each year of service up to 5 years. Those employed for longer receive 1 year's salary for every year after 5 years. If an employee resigns due to marriage, childbirth, force majeure, or military service, they're entitled to these benefits.
For every other case, the employee receives a third of these benefits for up to 5 years of employment, two-thirds up to 10 years of employment, and full benefits for more than 10 years of employment.
Ease of Business
As you can see, there are many permutations to the ease of doing business in these countries. KSA generally offers employees the most benefits due to that country having the largest local population. The other countries offer more business-friendly benefits regulation, with Qatar having the most flexible framework.
The UAE and Kuwait balance their laws out with excellent infrastructure, especially in the former's case with its history of being an excellent business hub. In short, there are many ways of doing business in these countries, and thanks to clear payroll laws, employers can rest assured that transparent frameworks exist.