How to Hire Remote Workers as Contractors in The UAE
The United Arab Emirates (UAE) has an experienced and educated workforce in many industries, including IT, engineering and manufacturing. If your company is recruiting remote workers, the UAE is a good place to look depending on the role.
Because there is no income tax, skilled foreigners are also drawn to live and work in the country. Adding to this is a new digital nomad visa for expats, that allows for a one-year stay when under contract with foreign companies.
Whether you recruited a local or expat, you will have to decide how to hire your new worker, either as an employee or independent contractor. Residents may lean towards full employment along with all the benefits and entitlements they are used to. But this can be a much more expensive and complex arrangement as you would need to set up a UAE payroll.
A better option at least initially is to hire them as contractors, with the option of employing them at a later date. Many UAE workers are used to temporary contracts as that is a common hiring method used.
Here are some of the benefits of hiring contractors:
- No long term financial/HR commitment by the company
- Cost-effective when compared to paying employee benefits and entitlements
- Contracting is a B2B relationship, outside of typical labour laws
- A good way to give a recruit a ‘probationary’ period prior to hiring
- Can hire for short projects or on a repeat basis
- More flexible to scale up or down, or if different skill sets are needed as the company grows
When you contrast this with the compliance and financial burden of hiring employees in a foreign country, contractors look like a reasonable choice.
How to hire and pay remote contractors in the UAE
Hiring a contractor is simpler for your company, but you do have to consider how to set up the contract and pay them. There are several choices that will depend on the contractor’s own business structure and experience.
Hire and pay them as a freelancer
Many contractors work as self-employed freelancers, often for more than one client. In that case, you would contract directly with the freelancer and set up payment milestones. It is best to confirm how much time they have available if they have multiple clients.
With a new freelancer, you will want to have clear contract terms for payment and performance to avoid misunderstandings across borders. If there is a dispute, you won’t have much recourse except to end the contract.
Pay them through their limited company
Experienced contractors may have their own limited company, which is duly registered in the UAE. Your company would contract with the limited company for the contractor’s services. The fact that the contractor has their own company does give more assurance of reliability and experience.
A UAE limited company would likely have references and a way to confirm their business viability. This does reduce some of the risks when hiring a new contractor in a foreign country.
Use an umbrella company in the UAE
An umbrella company offers advantages to both you and the contractor as an intermediary to the contract. They can facilitate payments, ensure performance and offer general support and mediation of disputes.
The umbrella company will receive your payments and after you confirm performance, issue a payslip to the contractor. This relationship allows peace of mind for both parties to a new international work arrangement.
Compliance risks when hiring remote workers in the UAE
As a foreign company, you don’t have any ties to the UAE and are generally not subject to their laws. However, once you hire a worker some labour and tax rules do come into play. There are two main compliance risks:
Misclassification risk: Employee vs contractor
Although you are hiring a contractor, the UAE labour laws will define whether your worker fits the criteria. The reason is that companies will often hire contractors to avoid employment costs, but then go ahead and control the worker like an employee.
If you treat your contractor as an employee, they could be re-classified if the worker brought a claim to receive entitlements. Avoid paying a regular fixed salary and benefits, and allow them to set their own schedule and workload. In case of misclassification, you would be subject to fines and back payment of social contributions if you wanted to keep the worker.
Using an umbrella company also reduces misclassification risk significantly due to the tri-part relationship between your company and the worker.
Permanent establishment risk in the UAE
Permanent establishment (PE) occurs when a foreign company has sufficient business activity in the UAE to generate local revenue. That revenue would then be subject to corporate taxation. The only remote work role that might trigger PE is salespeople who are concluding local contracts on your behalf.
Other remote roles such as IT support, marketing, and accounting would not result in taxable revenue from UAE customers, so no PE risk.
How Contractor Taxation helps you hire remote workers in the UAE
Contractor Taxation has a global network of umbrella companies, including in the UAE, who are ready to hire the contractor and administer all the tasks related to taxes, payments and contributions. As a company looking to hire local contractors, you can recommend to the new hire that an umbrella company be used to assist with the relationship. There is a fee, but it could be shared as there are benefits for you both.
Most contractors will be open to this, as it reduces the risk of non-payment with a new client, and relieves them of the administrative burden of self-employment. This gives the contractor an ally and advocate interface with the client, and ensure the contract proceeds smoothly.
Please contact us if you are interested in hiring a local or expat worker in the UAE for your company as a contractor.