Business

UAE employee must return 45 days’ pay for resigning from fixed contract

Keren Bobker explains the labour laws to a worker who wants to leave their job before the end of their two-year fixed contract.

Keren Bobker

June 02, 2014

  • English
  • Arabic

I recently joined a company in the UAE but I now want to resign. I am attaching a copy of my contract so that you can see what my employer is saying. I have several questions. Do I have to serve a notice period? Do I have to pay anything to the company if I serve the notice period? If I don’t serve this notice period then do I have to pay anything? If the answer is yes then what do I have to pay? How long can I stay in UAE after my resignation? Do I have to exit the UAE if I join new a company? SS, Dubai

The contract you sent to me shows a fixed-term contract for a period of two years. As you have committed to working for that company for this amount of time, you cannot just leave and must provide 45 days’ notice of resignation, as per the contract term. In addition, as you intended to break the contract, you are liable for a penalty of up to 45 days’ pay on leaving. Article 16 of UAE Labour Law states: “If the contract has been terminated on part of the employee ... the employee becomes liable for compensating the employer against losses incurred by him in consequence of contract termination, provided that the amount of compensation may not exceed half a month’s pay for a period of three months or for the remaining period of contract, whichever is shorter, unless the terms of the contract provide otherwise.” This equates to 45 days’ pay. The company is not permitted to reclaim any visa or related expenses. Generally a person should leave the UAE soon after their visa is cancelled, but should have a grace period of up to 30 days. It should not be essential to leave the UAE if a new residency visa is obtained, but there are many cases where this has been requested, as it seems to make the process simpler in some cases.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. Contact her at keren@holbornassets.com. Follow her on Twitter at @FinancialUAE

The advice provided in our columns does not constitute legal advice and is provided for information only. Readers are encouraged to seek appropriate independent legal advice.

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Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

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