Governments in the UAE and other GCC countries provide pension schemes for working citizens. In the UAE, the Pensions and Social Security Authority (GPSSA) manages pensions and social security for eligible employees.
Every month, a small part of the employee’s salary and a contribution from the employer go into a pension fund managed by the tax authority. When the employee retires, the tax authority gives them regular payments from this saved money to support them.
UAE Nationals (holding a family book).
GCC Nationals (from Saudi Arabia, Kuwait, Bahrain, Qatar, and Oman) working in the UAE.
Go to Administration > Tax Settings > Enable "Payroll Taxes and Contributions Accounting" to account for taxes and contributions based on employee earnings.
New GL accounts are available in the chart of accounts and it is categorized under the Tax Payables and Tax Receivables sections by default.
Go to HR and Payroll → Create a new Accrual and Deduction Type.
Select a predefined tax type (e.g., Personal Income Tax) from the available options.
Taxes may be paid by either the employer or the employee. The employer is responsible for directly remitting the tax to the tax authority. If the employee is responsible, the tax amount is deducted from their salary.
For instance, if the contract salary is 10,000, the income tax is deducted, and the employee receives the net salary after tax.
Taxes and contributions can be calculated using various methods:
Percentage of Planned Earnings – Applied to the salary amount specified in the contract.
Percentage of Actual Earnings – Based on the actual income earned.
Fixed Amount – A predetermined tax amount specified in the contract. This value is transmitted to the portal and remains unchanged throughout the year, carrying over annually. If there are contract modifications, an authorized person must manually update the amount in the portal and further use it in the calculations in the software.
This option is available when the selected calculation method is Percentage of Planned Earnings or Fixed Amount.
Do Not Calculate – No tax calculation will be applied in the first month.
Calculate – The tax will be calculated for the full month.
Calculate Proportionally to Worked Time – If the employee joins mid-month, the system will calculate tax based on the remaining working days.
Do Not Calculate – No tax calculation will be applied for the termination month.
Calculate – The tax will be calculated for the full month.
Calculate Proportionally to Worked Time – If the employee leaves mid-month, the system will calculate tax based on the number of days worked.
Tick the option to enable the tax calculation, then add the accrual on which the personal income tax should be applied. Finally, set the rate of calculation for the tax. This will ensure the tax is calculated based on the selected accrual and the defined rate.
The tax rate is defined at the entity rather than the contract level, making it easier to implement updates when tax authorities introduce changes. Since the rate is managed centrally, any modifications can be applied directly without requiring adjustments to individual contracts.
To configure this:
Open the relevant Entity.
Navigate to Tax Accounting and enable Payroll Taxes and Contribution Payer.
Set the effective month and year for the tax rate application.
These settings will be applied periodically, starting in March 2025, and any updates will be logged in the History of Changes for reference.
In the tax configuration, it is necessary to specify the type of tax or contribution being applied. The tax or contribution type should be selected from those created earlier, and an applicable rate must be assigned. Additionally, there are settings for defining lower income limits and upper income limits, which are among the requirements for entities in Saudi Arabia.
Tax calculations must follow these predefined limits. If an employee’s basic accrual is 500, the tax will still be computed based on the minimum threshold of 1,000, ensuring a taxable base regardless of actual earnings. Similarly, for higher incomes, if an employee earns 100,000, the tax will only be applied up to the upper limit of 50,000. These regulations are enforced in Saudi Arabia and other GCC countries but are not yet implemented in the UAE.
When creating an employment contract, the necessary salary details must be entered. An additional tab, Taxes and Contributions, allows for specifying which taxes should be applied.
In Saudi Arabia, local employees are subject to one set of taxes and contributions, while expatriates have different requirements. By default, the tax settings will be pre-filled based on the contract, specifying the applicable tax type. Since the entity is responsible for paying the tax, it will be added on top of the salary and allocated as a company expense.
Any changes related to taxes and contributions will also reflect in the employee contract. It is possible to modify GL accounts, add new taxes and contributions, or make necessary adjustments.
To process payroll, a payroll calculation must be created with all required details. Under the Taxes tab, clicking the Fill option will automatically calculate and display tax data based on the contract and previously configured settings.
The tax calculation will consider the upper and lower limits set at the entity level. The rate is derived from the entity settings, and the total tax amount can be recalculated within the system.
When tax is calculated based on the actual salary (The example is with tax calculation method, percentage of planned earningS) adjustments can be applied after the calculation and adjustment is to the final tax amount if necessary.
It will create the entry of Employee benefit expense and cr current personal income tax, it is the obligation towards the tax authority.
The report detailing the calculations mentioned above can be found under Taxes > Reports, specifically in the Analysis of Accrued Payroll Taxes and Contributions section.
It presents a breakdown organized by month and department, showing data on taxes and contributions payable by the entity and other types will be shown in separate tables.
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