Understanding End of Service Gratuity in the UAE:

Key Insights for Expatriates Repatriating

In the United Arab Emirates (UAE), retirement schemes are different to the mandatory superannuation system in Australia. For expatriates in the UAE, there is no such mandatory pension schemes. However, you are often entitled to an End of Service Gratuity / Benefit.

What is an End of Service Gratuity?

This is a statutory benefit for employees upon the termination of their employment, provided certain conditions are met. It is a form of financial security for expatriate employees and recognises their contributions to their employer over their service period.

UAE employers provide the End of Service Gratuity as a lump-sum payment when employees leave a job. The country’s labour laws, specifically the UAE Labour Law (Federal Law No. 8 of 1980), mandate this benefit and govern employment in the private sector. The gratuity acts as a reward for employees’ service and is based on the duration of employment and final salary.

Conditions for the Gratuity

• Minimum Service Period: Employees must complete at least one year of continuous service with their employer to qualify for end-of-service gratuity. Excluded from this calculation are periods of unpaid leave.
• Contract Type: The type of employment contract—limited or unlimited—affects the calculation of gratuity, but not the eligibility. Employers must provide gratuity to all employees who meet the minimum service requirement, regardless of contract type.
• Termination Circumstances: Gratuity entitlement is influenced by how the employment ends:
  • • • Resignation: Employees who resign after completing the required service period are eligible for gratuity.
      • Termination by Employer: Employers must provide gratuity to employees they terminate, as long as the termination isn’t due to gross misconduct as defined by Article 120 of the UAE Labour Law.

Calculation of the Gratuity

Employers calculate the gratuity based on the employee’s last drawn basic salary and length of service.

• For service between 1 to 5 years: 21 days’ basic salary for each year of service.
• For service of over 5 years: 30 days’ basic salary for each year beyond the 5-year mark.

Taxation upon Repatriation

You can cash out these schemes as an accrual of the benefit of a non-resident. You can take it back to Australia tax-free, depending on the timing of the withdrawal and when you become an Australian tax resident. These two dates are crucial because foreign pensions are not typically taxable in Australia, as they are classified under Australian tax law as foreign superannuation funds. According to the SIS Act, a superannuation fund is defined as “…an indefinitely continuing fund; and is a provident, benefit, superannuation or retirement fund or a public sector superannuation scheme” (Austlii, 2024). As a gratuity is not an indefinitely continuing fund and is paid out upon resignation or termination, the tax consequences can be severe.

Conclusion: Understanding Repatriation with an End of Service Gratuity

In conclusion, understanding the End of Service Gratuity in the UAE is essential for expatriates, as it provides significant financial security when leaving a job. Employees can ensure they receive the benefit by meeting the eligibility requirements and understanding the calculation method. However, it’s important to be aware of the tax implications when repatriating the gratuity to Australia. With proper planning and knowledge of both UAE and Australian tax laws, expatriates can navigate this process efficiently and avoid any unexpected tax consequences.

For further advice on managing your finances as an expatriate or questions about repatriating your gratuity, contact us today.

To learn more, check out Atlas Wealth Groups’ podcast: Expat Chat