Other BriefingsSeverance Pay and Taxation for Expats Leaving the UAE
We present a guide to UAE severance pay, final settlement, tax residency, and cross-border tax issues for expatriates leaving the country.
For many expatriates, leaving the UAE involves more than handing in a resignation letter or completing a visa cancellation process. The end of employment can trigger a series of financial, tax, immigration, and administrative questions, particularly where the employee is relocating to another country, receiving a large final settlement, or seeking to preserve UAE tax residency status.
In the UAE, what many employees refer to as “severance pay” is generally understood as end-of-service gratuity and final employment entitlements. These payments are governed by the UAE Labor Law, employment contracts, and, in some cases, free zone-specific rules. While the UAE does not impose personal income tax on employment income, expats leaving the country should consider whether their final settlement could have tax implications in another jurisdiction.
This is especially relevant in a more mobile regional environment. Recent discussions around UAE tax residency have highlighted the importance of physical presence, documentation, and continuity of ties for expats who may leave the country temporarily or permanently. For both employers and employees, the exit process should therefore be handled with planning, documentation, and a clear understanding of local and cross-border obligations.
What counts as severance pay in the UAE?
The UAE does not generally use “severance pay” in the same way as some other jurisdictions, where employees may receive statutory redundancy payments or dismissal compensation based on the reason for termination. In the UAE private sector, the core statutory payment due at the end of employment is typically end-of-service gratuity.
An employee’s final settlement may include several components, depending on the contract, employment history, and reason for departure. These commonly include:
- Unpaid salary up to the final working day;
- End-of-service gratuity;
- Payment in lieu of unused annual leave;
- Notice pay, where applicable;
- Pending commissions, bonuses, or incentives, where contractually due;
- Reimbursable business expenses;
- Deductions for approved loans, salary advances, or company property not returned; and
- Any additional contractual or discretionary payments agreed by the employer.
Employers should distinguish between statutory entitlements, contractual benefits, discretionary benefits, and exceptional payments. This distinction is important because not every amount paid at exit is calculated in the same way or treated the same way for payroll, accounting, or tax planning purposes.
How end-of-service gratuity is calculated
For foreign employees covered by the UAE Labour Law, end-of-service gratuity is generally available after completing at least one year of continuous service. The calculation is based on the employee’s basic wage, rather than total remuneration. Allowances such as housing, transport, education, or other benefits are generally excluded unless a specific arrangement provides otherwise.
The standard gratuity calculation is:
| Length of service | Gratuity calculation |
| Less than one year | No statutory gratuity |
| One to five years | 21 days of basic wage for each year of service |
| More than five years | 21 days of basic wage for each of the first five years, plus 30 days of basic wage for each additional year |
Partial years are generally calculated on a pro-rata basis after the employee has completed at least one year of continuous service. The total end-of-service gratuity is also subject to a statutory cap.
Employers should calculate gratuity carefully, using the employee’s final basic salary and confirmed service dates. Errors often arise where payroll teams use gross salary rather than basic salary, fail to account for unpaid leave, or do not correctly prorate partial years of service.
Timing of final settlement
Under UAE Labor Law, employers must pay the worker’s wages and other entitlements within the legally prescribed period after the end of the contract. In practice, this makes timely final settlement a key compliance obligation.
For employers, delays in final settlement can create employee disputes, administrative complications, and reputational risk. For employees, delayed payments can affect relocation planning, loan settlement, housing handover, school fee clearance, and bank account closure.
A well-managed exit process should begin before the final working day. HR and payroll teams should confirm the resignation or termination date, notice period, leave balance, gratuity estimate, pending expenses, company asset return, and any authorized deductions. Employees should request a written breakdown of the final settlement so that any issues can be identified before visa cancellation or departure.
Is severance or gratuity taxable in the UAE?
The UAE does not impose personal income tax on individuals’ employment income. As a result, employers are generally not required to withhold UAE personal income tax from salaries, wages, bonuses, or end-of-service gratuity paid to employees.
This does not mean that an expat’s final settlement is necessarily tax-neutral in all cases. The UAE position is only one part of the analysis. An expat leaving the UAE may become tax resident in another country, remain tax resident in their home country, or be treated as resident in more than one jurisdiction for part of the year. In those cases, the tax treatment of severance, gratuity, bonuses, deferred compensation, stock awards, or pension-style payments will depend on the rules of the other jurisdiction and any applicable double taxation agreement.
Employees should be particularly careful where they receive a large end-of-service payment shortly before or after relocating. Some jurisdictions may tax worldwide income based on residence status, remittance rules, source rules, or timing of receipt. Others may apply specific rules for employment termination payments.
Tax residency: Why timing and documentation matter
Tax residency is one of the most important issues for foreign exmployees leaving the UAE. The UAE has domestic tax residency rules for individuals, including physical presence-based tests and a broader test based on the individual’s primary place of residence and centre of financial and personal interests.
In general terms, an individual may be treated as a UAE tax resident where they meet one of the relevant conditions, such as being physically present in the UAE for 183 days or more in a consecutive 12-month period, or being present for 90 to 182 days while also meeting additional conditions linked to residence, employment, business, or a permanent place of residence in the UAE.
Expats leaving the UAE should retain documents that may support their tax position, including:
- UAE entry and exit records;
- Emirates ID and residence visa documents;
- Employment contracts and salary certificates;
- Tenancy contracts or title deeds;
- Utility bills;
- UAE bank statements;
- Evidence of family residence or schooling, where relevant;
- Proof of business or professional activity in the UAE; or
- Any correspondence related to relocation or temporary absence.
Where required, individuals may apply for a UAE Tax Residency Certificate through the Federal Tax Authority. This can be relevant where the individual seeks to rely on a double taxation agreement or demonstrate tax residence for another country’s tax authority. The certificate is not a substitute for proper tax planning, but it can be an important supporting document.
Cross-border tax risks for departing expats
The highest-risk cases are usually those involving large payments, multiple countries, or unclear residency dates. Examples include senior employees receiving significant gratuity and bonuses, employees relocating to high-tax jurisdictions, executives with equity compensation, and individuals splitting their time between the UAE and another country.
| Risk area | Key issue for departing expats |
| Final settlement taxation | Gratuity, bonuses, commissions, or exit payments received in the UAE may still be taxable in the destination country, depending on local rules. |
| Payment classification and timing | Tax treatment may vary depending on whether the payment is treated as employment income, termination compensation, or deferred remuneration, and when it is received. |
| Tax residency exposure | Employees may remain tax resident in another country while living in or leaving the UAE, especially if they split time across jurisdictions. |
| Double taxation and relief | A double taxation agreement, foreign tax credit, exemption, or other relief may apply, but this usually requires proper documentation. |
| Reporting obligations | Employees may need to report foreign income or assets abroad even where no additional tax is due. |
| Employer documentation | Employers should provide payroll records, salary certificates, final settlement statements, and employment documentation to support employee tax filings. |
Employers are not usually responsible for advising employees on their personal foreign tax position. However, companies should provide accurate payroll records, salary certificates, final settlement statements, and employment documentation to support the employee’s own tax filings.
Practical checklist for employees leaving the UAE
Employees planning to leave the UAE should review both employment and tax matters before departure. A practical checklist includes:
- Confirm the final working day and notice period;
- Request an estimated final settlement from HR;
- Check the basic salary used for gratuity calculation;
- Review unused annual leave and pending expenses;
- Clarify bonus, commission, or incentive payments;
- Settle bank loans, credit cards, and housing obligations;
- retain salary certificates and payroll records;
- Download entry and exit records where needed;
- Assess tax residency in the UAE and destination country;
- Consider whether a UAE Tax Residency Certificate is required; and
- Seek tax advice before receiving large exit payments.
The timing of departure can be important. In some cases, leaving too early in the year, closing a lease, or terminating employment before meeting a residency threshold may affect the individual’s ability to demonstrate UAE tax residence.
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