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June 2025

Termination of Employment in UAE

Termination of Employment in UAE: What the Law Really Says in 2025
Termination of Employment in UAE: What the Law Really Says in 2025 800 500 HRSG

The UAE government works tirelessly to ensure fair working conditions for everyone. They regularly revise policies and frameworks and keep employers and employees under strict scrutiny for their conduct. 

The government lays down that either party can terminate an employment contract given that they serve notice and comply with other legal consequences that arise from termination. Today, we will be shedding light on the following:

  • When can termination happen
  • What happens if the contract is terminated without notice 
  • What is arbitrary dismissal
  • Opportunities for changing jobs after termination

Straight to the point now. 

When Can Termination Happen

The first question to arise is under which circumstances can the employer or the employee terminate the employment contract. 

Article 42 of the UAE Labor Law, otherwise titled the ‘Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations in the Private Sector,’ allows for termination on the following nine grounds:

  • The employment contract has expired and has not been renewed or extended. 
  • On mutual account 
  • If either party wishes to terminate it, the terminating party follows the provisions for termination mentioned in the contract and the notice period mentioned in it.
  • If the employer is dead (on the account that the contract’s subject is related to the entity)
  • On account of an employee’s death or permanent inability to work, proven by a medical certificate issued by a medical entity 
  • If the worker is facing a freedom-restricting penalty resulting from the court’s final judgments for three months or more. 
  • The establishment closed permanently in accordance with the UAE legislation.
  • The project cannot be continued in the event of the employer’s bankruptcy, insolvency, or economic or exceptional reasons.
  • The worker is unable to fulfill the requirements for renewing the work permit for reasons beyond the employer’s control.

Employment Termination

What the Law Has to Say About Notice Period 

Article 43 also provides information on the notice period and process of termination. According to the article, either party can terminate the employment contract for a legitimate reason. In order to terminate, they:

  • Must give a written notice to the other party 
  • Serve a notice period of 1 month to 3 months, as mentioned in the employment contract.

Some of the other aspects that need to be followed are:

  • Both parties should perform the work as outlined in the employment contract during the notice period. 
  • The worker will receive full pay during the period.
  • In case a party fails to serve the notice period, they will have to pay a ‘notice period allowance’ to the other party. This allowance is equal to the worker’s wage for the notice period or in proportion to the remaining period. It is calculated based on the last drawn wage. 
  • If the employer terminates the contract, the worker is allowed one day of unpaid leave per week to search for another job. 

What Happens If The Contract Is Terminated Without Notice 

In some instances, you may want to terminate the contract without notice. The UAE government recognizes it and allows it to. However, for either party to terminate the contract without notice, there are some grounds to be met. Take a look below.

For Employers

Article 44 allows employers to terminate the employee’s contract without notice in case of:

  • False identity 
  • Submission of forged documents and certificates 
  • Causing an error leading to substantial loss
  • Deliberate attempt to damage the employer’s property and acknowledge it. In this case, the employer has to report the incident to MOHRE within seven working days from the date of knowing about it.
  • Violation of safety instructions (provided that these instructions were made clear to the employee either via writing or verbally informed to an illiterate employee)
  • Failure to perform basic duties as per contract and violation of duties after two warnings of dismissal
  • Divulging secrets which led to losses, missed opportunities, or personal benefit.
  • Found drunk or under the influence of a prohibited substance
  • Engaged in an act that breaches public morals
  • Assaults anyone at the workplace 
  • Absenteeism without lawful excuse for 20+ intermittent days or 7+ successive days in a year 
  • Exploits their position for personal gains
  • Joins another organization without following the regulations laid down in this regard 

The employer has to conduct a written investigation of the worker. Only after completing this process can the employer lawfully terminate the contract without notice. Additionally, the dismissal notice has to be written, justified, and duly handed to the employee. 

For Employees

Similarly, Article 45 allows employees to terminate without notice on predetermined grounds. There are:

  • Employers fail to meet contractual or legal obligations. In this case, the employee has to notify the MOHRE 14 days in advance from the date of quitting. If the employer fails to rectify the breach despite MOHRE’s notice, the employee can be terminated. 
  • Employees experience assault or harassment. Again, the employee has to inform a competent authority and MOHRE within 5 days of the date of the report. 
  • Instructed the worker to perform tasks not specific in the contract without the worker’s written consent. This ground does not apply to situations where the task is fundamentally required. 
  • The employer has failed to remove factors that threaten the employee’s safety and health despite being aware of them. 

Employee Terminated

What Is Arbitrary Dismissal

In some cases, the employers may also terminate employees for filing a complaint to the MOHRE or a lawsuit against them. In such cases, if the validity of the complaint is established, the termination is illegal as per Article 47 of the labor law.

Moreover, if the employees feel that they have been dismissed illegally, they can file a complaint to the MOHRE. The MOHRE will then try to solve the matter amicably. If there is no conclusion, they will refer it to a competent court. In such cases, if the arbitrary dismissal, meaning termination without a valid reason, is established, the court orders the employer to compensate the employee.

The compensation is determined after factoring in multiple elements like:

  • Type of work
  • Extent of damage
  • Employment duration

Regardless of this, the compensation cannot exceed the employee’s total wage for 3 months. Additionally, the employee can claim gratuity benefits, notice period dues, or any other unpaid dues for which they are eligible. 

Opportunities For Changing Jobs After Termination

The contract was terminated. The pending process was completed. Dues were paid off. What’s next? Another role, maybe. Here’s what the law has to say. 

Article 27 states that you are free to work for another employer or get a new work permit after the termination of the contract or expiry and non-extension of the employer contract if:

  • Your contract has expired and is not renewed
  • The termination has taken place as per Articles 42 and 45 of the UAE Labor Law

If the contract gets terminated or expires, you get a grace period after cancellation, during which you can either:

  • Obtain a new work permit and residency
  • Leave the country 

The UAE is very strict with its laws for illegal residents. 

However, you may not be eligible for a new work permit for one year from your departure date under Article 8 of Ministerial Resolution No. 47 of 2022 Regarding the Settlement of Labour Disputes and Complaints Procedures. There are two conditions for this:

  • Employee terminated the contract during the probation period, and the employer has not breached their contractual obligation. 

OR

  • The ‘work abandonment’ report against the employee was found true. 

Conclusion

There’s all you need to know about termination of employment in the UAE. The laws are clear, straightforward, and easy to understand. As long as you are operating within them, there should be no consequences. 

HRSG supports organizations with workforce administration, payroll & compliance services, attendance & leave management, benefits administration, travel & expense management, and other tasks. We ensure complete alignment between employers and employees to avoid any miscommunication and misunderstanding, which may lead to penalties or legal consequences. 

Connect with us today and transform your organization to a new, more connected model.

Resolving Labor Disputes in the UAE

Resolving Labor Disputes in the UAE: Key to a Healthier, Stronger Workplace Culture
Resolving Labor Disputes in the UAE: Key to a Healthier, Stronger Workplace Culture 800 500 HRSG

UAE is touted for its highly skilled labor. According to the Global Labour Resilience Index (GLRI) 2024, the UAE has the highest labor resilience of all Arab countries. Not only that, it is one of the top choices for working professionals.

When you are attracting immense global talent, you are also responsible for the quality of the work environment. The UAE recognizes it and takes it very seriously. The Federal Decree-Law No. 33 of 2021 (Regarding the Regulation of Employment Relationship and its amendments), also known as the UAE Labor Law, governs the rights of employees in the private sector. It applies to all the employees working in the UAE, regardless of whether they are UAE nationals or expatriates. 

These laws also help the company, employees, and officials resolve labor disputes. How? We will tell you all about it in this blog. 

UAE Labor Law

The UAE Labor Law came into effect on 2nd February 2022, repealing the previous Federal Law No. 8 of 1980. It governs the employer-employee relationship in the private sector, protecting both the parties. The law covers matters relating to the following:

  • Working hours
  • Overtime
  • Leaves
  • Vacation and public holidays
  • Employing juveniles
  • Employee records
  • Safety standards
  • Minimum wage
  • Termination of employment
  • End-of-service gratuity payments
  • Work injuries and more

Significant Changes to the Labor Law You Need to Know

The new labor laws have brought about significant changes. Below is a brief overview of the same:

  • Employers may continue to give the employee up to 2 months’ salary during employment disputes. 
  • If the dispute is not resolved within 14 days, the Ministry of Human Resources and Emiratisation (MOHRE) can refer the matter to a competent court.
  • Employers can now hire employees for remote work with a mandatory written agreement.
  • If the claim value is under Dh 50,000, MOHRE has the power to make binding decisions. If it exceeds, the body will act as a mediator or refer the case to a competent court.
  • Employees have a 2-year period post their termination to file labor claims. 
  • The penalty for violations by employers has increased.
  • Female employees now have 60 days of maternity leave.
  • Emiratization has increased for companies.
  • Employee non-compete clauses now must be necessary and limited in scope as well as duration. 

There are some more changes to the labor law. For more detailed insight, read our blog UAE Labor Laws 2025: All the Key Details You Need to Know. 

Resolving Disputes

Despite the best efforts from the government, it is quite natural for disputes to occur between both employers and employees. The question we should be asking is: How do you resolve labor disputes in the UAE?

There are three laws governing labor disputes in the UAE. They are:

  • Federal Decree-Law No. 33 of 2021 — Regulation of Labour Relations in the Private Sector
  • Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021 — Regulation of Labour Relations
  • Ministerial Resolution No. 47 of 2022 — Settlement of Labor Disputes and Complaints Procedures.

Let’s take a closer look at what the process looks like. 

To begin with, both parties have an equal chance to file a labor complaint with the Ministry of Human Resources and Emiratisation (MOHRE). These complaints are then settled amicably or referred to a competent court by the MOHRE.

Federal Decree-Law No. 33 of 2021

According to Article 54 of this decree-law, the following guidelines are set:

  • During a dispute, if any of the parties is entitled to the resulting result, they must submit a request to the Ministry. 
  • If an amicable (friendly) settlement is not achieved within 14 days, the Ministry will refer it to a competent court. Along with it, the Ministry will provide a memorandum that will state the following things — [a] a dispute summary, [b] arguments of both parties, and [c] the Ministry’s recommendation. 
  • The court is required to fix a hearing and notify the parties within 3 days from the date of receiving the complaint.
  • Penalties or any relevant action against the employer will only be taken after the dispute is settled or resolved by law. 
  • If the dispute leads to the suspension of the employee’s wages as per the regulations, the Ministry may not use its power to direct the employer to pay the wage for a maximum of 2 months.
  • The Ministry has the power to implement other administrative measures on the establishment to avoid the individual dispute turning into a collective labor dispute.

Additionally, Article 55 exempts the workers or their heirs from paying a judiciary fee for litigation and execution at all levels if the dispute claim is under AED 100,000.

labor dispute Resolved in UAE

Ministerial Resolution No. 47 of 2022

Ministerial Resolution No. 47 of 2022 guides workers who have submitted a labor complaint to the labor court. Here’s what it states:

  • Once the MOHRE approves the referral to the judiciary, the worker must register the labor complaint with the court within 14 days. 
  • Workers need to refrain from working for another employer unless they have a temporary work permit from the Ministry
  • If the labor lawsuit results in the termination of the working relationship, the worker needs to submit a request to cancel the original work permit within 14 days from the date the final judgment is passed.
  • If the final judgment results in cessation of work, the worker’s work permit will be canceled after 6 months from the date of complaint referral to the court.

Filing Labor Complaints  

There are three ways the employee or the employer can file a complaint and track it. 

Via Website

  • Visit the official MOHRE website. 
  • On the menu tab, find ‘Services.’ 
  • From the dropdown menu, click on ‘Add Complaint.’
  • The Add Complaint screen will open. 
  • Fill in the relevant details. Choose wisely from the dropdown list that appears for ‘Complaint type.’
  • Submit the form

If you wish to use the mobile app, you can do that as well by following the same process. When you submit the complaint, a Twa-fouq Centre legal advisor will contact you within 72 hours. 

You will receive the transaction number as well. Use it to track the status of your complaint in the MOHRE Inquiry Services section. 

Call Centre

Alternatively, you can get assistance from the MOHRE call center. Dial 600-5900-00 to file a complaint. Here, a customer care representative will guide you and help resolve your complaint. They may forward it to the Department of Complaints and Advice if they are unable to resolve it. You will be assisted in filing an official complaint for legal action. 

Twa-fouq Service Centres

As we said, the UAE government takes great care of its employers and employees. The Twa-fouq Service Centres are evidence. These centers are licensed by the MOHRE and function under its direct supervision. Their primary role is to help the parties reach an amicable solution, investigate the complaint, and make suggestions to the Ministry for approval. Additionally, they offer legal advice if you’re unaware of your rights. The good part is that they deliver these services in Arabic, Urdu, and English. 

Conclusion 

UAE has established a very strategic and convenient system for employers and employees to register complaints and resolve labor disputes. They have also provided additional support in the form of Twa-fouq Service Centres to make the entire process easier. 

Furthermore, the deadlines for resolving disputes for all parties involved and MOHRE’s powers in case of dispute settlements are aimed at finding a solution as soon as possible.

That being said, there’s a chance to avoid disputes by following all the protocols laid down by the government, designing fair policies, and having strong HR operations in place. 

We at HRSG support companies with powerful HR processes. These include support for tasks such as workforce administration, payroll & compliance services, attendance & leave management, benefits administration, travel & expense management, HR helpdesk, talent management services, recruitment, performance, onboarding, compensation, and more.

We help you rewire your organization with a new, more connected model that leaves no space for miscommunication or misalignment. Connect with us today for actionable results.

Compliance Checklist for Companies in UAE

Compliance Checklist for Companies in UAE: VAT, ESR, and UBO Requirements Explained
Compliance Checklist for Companies in UAE: VAT, ESR, and UBO Requirements Explained 800 500 HRSG

Businesses in the UAE undergo strict compliance checks on a regular basis. In fact, the high benchmarks for compliance are one of the many reasons why the UAE has managed to experience the growth it has. While the government here is all for supporting businesses and helping them grow, they are equally focused on maintaining international standards. Anything that does not meet the benchmarks is off the table.

That’s why it is best to have a compliance checklist for companies​ by your side while you are establishing a company here in the UAE and running it. The compliance checklist for companies​ is an easy way to ensure that you are operating well within the guidelines and, thus safe from fines and penalties. 

Today, we will be explaining the requirements for three important compliance areas: VAT, ESR, and UBO. Let’s take a look at each of them in detail. 

Value Added Tax (VAT)

The UAE introduced Value Added Tax to its system in January 2018 at a standard rate of 5%. It was introduced as a way to provide the country with a new source of income and reduce its dependence on incomes from oils and other hydrocarbons. The Federal Tax Authority (FTA) is the one responsible for looking after the VAT. 

Here’s what you need to know about VAT compliance in the UAE:

The mandatory registration threshold for VAT is AED 375,000, meaning if your company’s taxable supplies and imports exceed AED 375,000, you have to register for VAT. 

There’s also a voluntary registration threshold of AED 187,500. So, if your company’s taxable supplies and imports exceed AED 187,500 but are under the mandatory registration threshold, you may choose to register for VAT. 

Additionally, if your expenses as a company exceed the voluntary registration threshold, you are still eligible to apply for VAT. This initiative is particularly designed for startups with no turnover.

Your Responsibilities As a Company

Registering for VAT is just one of the checkboxes in the compliance checklist for companies. Once you tick that off, there’s more to tick to make sure you are well within the regulations. Take a look below:

  • Companies registered for VAT must charge VAT on taxable goods and services they supply
  • Reclaim any VAT they have paid on business-related taxable goods or services 
  • Keep their financial records and transactions up to date for scrutiny
  • Report the total amount of VAT you have charged and VAT you have paid regularly to the government. 

If you have charged more than you have paid, you need to pay the difference to the government. However, if it’s the other way around, that is, you have paid more than you have charged, and you can reclaim the difference. 

Companies in the Real Estate Sector

VAT in real estate depends on whether it’s a commercial or a residential property. Supplies for commercial properties, including sales and leases, are subjected to the standard 5%. Residential properties are exempted from VAT. 

Furthermore, to make sure that developers recover the VAT they pay on construction materials for residential properties, there is a zero rate VAT on the first sale of residential property within 3 years of completion. Similarly, bare land, without any permanent structure, is exempted from VAT. 

Some of the eligible expenses for VAT recovery in the real estate are:

  • Construction costs (commercial properties)
  • Maintenance and repair service
  • Fees for property management 
  • Expenses for marketing and advertising 

It is important to note that free zones may have specific VAT treatments. Thus, it is best to check with the FTA for rates. 

Zero-Rated Sectors

Some sectors are rated at 0% for VAT. This means that businesses can reclaim VAT paid on purchases related to these zero-rated VAT sectors. These include:

  • Goods and services exported outside of the Gulf Cooperation Council
  • International transport and related supplies
  • Certain means of transportation, like aircraft and ships 
  • Investment-grade precious metals like gold 
  • Specific education services and goods
  • Specific healthcare services and goods 

VAT-Exempted

In VAT-exempted sectors, no VAT is charged or reclaimed. It includes the following:

  • Financial services clarified in VAT legislation
  • Residential properties
  • Bare land 
  • Local passenger transport 

Summary

VAT Rate  Standard 5% 
Mandatory threshold  AED 375,000
Voluntary threshold  AED 187,500 – AED 375,000
Categories   Standard VAT

Zero-Rated VAT

VAT-exempt 
VAT Filing  eservices.tax.gov.ae 
Monthly Filing  Companies with an annual turnover exceeding AED 150 million
Quarterly Filing  Companies with an annual turnover of less than AED 150 million
VAT Filing period  Within 28 days from the end of the tax period 

Compliance Regulation UAE

Economic Substance Regulations (ESR)

Economic Substance Regulations (ESR) require all companies who carry out ‘relevant activities’ to maintain an adequate economic presence in the UAE. 

The government issued Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019) in April 2019, following their commitment to the OECD Inclusive Framework and an assessment of UAE’s tax system by the European Union Code of Conduct Group on Business Taxation. Furthermore, following Cabinet Resolution No. 57 of 2020, the Federal Tax Authority is now the national assessing authority for ESR. 

Let’s break it down. 

What’s Included in Relevant Activities

Entities that conduct one or more activities mentioned below are subjected to ESR:

  • Banking
  • Insurance
  • Investment fund management
  • Lease-finance
  • Headquarters
  • Shipping
  • Holding company
  • Intellectual property
  • Distribution and service center

To identify if a company is carrying out our relevant activities, the officials will take a ‘substance over form’ approach. It needs to be carried out for individual entities, and there is no minimum income threshold. 

What Does Adequate ‘Economic Presence’ Mean

The compliance checklist for companies that are involved in ESR includes maintaining an adequate economic presence. This entails:

  • Having a physical office or workspace 
  • A sufficient number of full-time employees residing in the UAE
  • Operating expenses which show actual local business activity 

Having a business address without actual operations is no longer considered sufficient.

Compliance with Tests 

Besides meeting the requirements for economic presence, companies need to satisfy three Economic Substance Tests. These are:

  • Core Income Generating Activity (CIGA) test
  • Directed and Managed test
  • Adequacy’ test

While businesses operating in high-risk intellectual property undergo enhanced ES tests, holding companies face reduced ES tests. Furthermore, if you fail to satisfy the ES tests, the UAE government may share this information with relevant foreign authorities. 

Risks of Non-Compliance

Non-compliance with ESR invites hefty penalties. Take a look at the table below:

Failure to file a notification AED 20,000 
Failure to file the report AED 50,000 fine + deemed a failure to meet ES Tests
Failure to offer accurate or incomplete information AED 50,000 + deemed a failure to meet ED Tests
Failure to meet the ES tests in the 1st year AED 50,000 + information exchange with foreign competent authorities
Failure to meet the test in the 2nd year AED 40,000 fine + information exchange + suspension, cancellation, or non-renewal of the trade license

Ultimate Beneficial Ownership (UBO)

An Ultimate Beneficial Owner is an individual who owns or controls 25% of the company’s shares or voting rights. These individuals benefit from the business even if their ownership is not direct. 

In order to align with international anti-money laundering (AML) and counter-terrorism financing (CFT) standards, the UAE decided to introduce UBO regulations. It helps to ensure transparency and combat financial crimes. Moreover, it makes financial transactions traceable and identifies real company owners. 

Different Types of UBOs

UBOs include a wide variety of individuals and entities. These are:

  • Direct owners
  • Indirect owners
  • Controllers
  • Economic beneficiaries
  • Trustees and nominees
  • Senior management

Who Needs to Comply?

UBO applies to all businesses in the UAE. This means that all companies on the mainland and free zones need to maintain a register of their UBOs. Additionally, they need to submit this data to relevant authorities. And if there’s any change, it should be immediately reported. 

Who’s Exempted?

Yes, certain companies are exempted. They include:

  • UAE government-owned entities 
  • Companies listed on recognized stock exchange
  • Financial authority-regulated entities 

Penalties for Non-Compliance

If you don’t comply with these regulations, your company may be subjected to:

  • Fines (AED 50,000 to AED 1,000,000)
  • Suspension of company license 
  • Legal action and financial penalties (repeat violations)

For a full breakdown of UBO violations and penalties, refer to the official UBO guidance by UAE authorities.

Conclusion

This compliance checklist for companies is just what you require to understand what VAT, ESR, and UBO entail, who needs to register for it, when, what they need to do, and how grave the penalties are. 

It is important to remember at all times that the UAE government makes no compromises regarding laws and regulations. It deals with non-compliance strictly and may cancel your license for repeated offenses. If you wish to build your company and grow here in the UAE, start by ensuring that all your activities are compliant. 

HRSG is a global, world-class business solution provider offering services in three broad categories: people solutions, business solutions, and finance and accounting solutions. With more than 30 years of experience backing us and an ISO 27001-compliant certificate, we are here to support your business growth. 

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