UAE End-of-Service Gratuity Explained (2026)

The UAE has no personal income tax, but private-sector employees are entitled to a mandatory end-of-service gratuity — here's exactly how it's calculated.

No Income Tax — But Gratuity Is Mandatory

The UAE has no personal income tax. Instead, private-sector employees are entitled to an end-of-service gratuity under Article 51 of Federal Decree-Law No. 33 of 2021 — a lump sum owed at the end of employment, functioning as a substitute for the retirement/severance systems income-tax-funded countries provide differently.

How Gratuity Accrues

Employees who complete at least one year of continuous service earn 21 days of basic salary for each of the first five years, then 30 days of basic salary for each year beyond five. Since the 2022 law reform, the calculation is identical whether you resign or are terminated, as long as you've completed one full year — a meaningful simplification compared to the old system's resignation penalties.

What's Excluded and Capped

Only basic salary counts — housing, transport, and other allowances, plus bonuses and commissions, are excluded from the calculation. Total gratuity is capped at two years' worth of basic salary, regardless of how many years were worked beyond that.

Worked Example

AED 10,000 basic monthly salary, 7 years of service: daily rate = AED 333.33. First 5 years at 21 days/year: AED 35,000. Remaining 2 years at 30 days/year: AED 20,000. Total gratuity = AED 55,000. The two-year cap only starts to bind at much longer tenure — at this same salary, 30 years of service would calculate to AED 285,000 by the formula, but the cap (24 × 10,000 = AED 240,000) limits the actual payout to AED 240,000.

DIFC and ADGM Use a Completely Different System

If you work inside the Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM), the standard federal gratuity formula above doesn't apply to you at all. Since February 2020, DIFC replaced traditional gratuity entirely with DEWS (DIFC Employee Workplace Savings) — a mandatory funded savings scheme. Instead of your employer holding an unfunded liability and paying a lump sum only when you leave, your employer makes monthly contributions (5.83% of basic salary for your first 5 years, 8.33% after) into a ring-fenced trust account that's invested and belongs to you even if your employer goes bankrupt. Those contribution percentages were designed to roughly match the traditional 21/30-day formula in value, but the underlying mechanism — growth potential, portability, funded status — is fundamentally different.

Common Mistakes

• Assuming resignation reduces gratuity. Since the 2022 reform, resignation and termination are calculated identically after one year of service — this was not always true under the older system.
• Including allowances in the basic salary figure. Only the basic salary component counts; housing and transport allowances are excluded even if they make up a large share of total compensation.
• Assuming DIFC or ADGM employees follow the same formula. DEWS is a monthly-funded investment scheme, not a lump-sum formula — its payout depends on contribution history and investment performance, not years of service alone.

Frequently Asked Questions