UAE Bonus and Incentives Guide: Types, Taxation and Best Practices
Complete guide to bonuses in UAE including annual bonus, performance bonus, Eid bonus, signing bonus, and retention bonus. No tax on bonuses in UAE.
Quick Summary: Complete guide to bonuses in UAE including annual bonus, performance bonus, Eid bonus, signing bonus, and retention bonus. No tax on bonuses in UAE.
Bonuses in the UAE are generally discretionary unless specified in contract. The major advantage is that there is no tax on bonuses in the UAE. This guide covers common bonus types, structures, and administration practices.
All bonuses must be paid through the Wage Protection System (WPS) and are not typically included in gratuity calculations.
| Aspect | Details |
|---|---|
| Tax on Bonus | None (0% income tax in UAE) |
| 13th Month Salary | Not mandatory |
| Eid Bonus | Common but discretionary |
| Gratuity Impact | Generally not included |
| WPS | Must be paid through WPS |
Types of Bonuses in UAE
Overview
| Bonus Type | Frequency | Common? |
|---|---|---|
| Annual/Year-end | Yearly | Very common |
| Performance | Annual/Quarterly | Common |
| Eid/Festival | 1-2 times/year | Common |
| Signing | One-time | Senior roles |
| Retention | Per agreement | Senior roles |
| Spot/Recognition | As needed | Growing trend |
| Project completion | Per project | Project-based |
| 13th month | Annual | Some companies |
Annual/Year-End Bonus
What It Is
| Aspect | Details |
|---|---|
| Timing | Usually December/January |
| Basis | Company performance + individual |
| Amount | 0.5-3 months salary typically |
| Discretionary | Unless contractual |
Typical Structures
| Structure | Description |
|---|---|
| Fixed | Set percentage of salary |
| Variable | Based on performance |
| Hybrid | Fixed base + variable component |
| Profit sharing | % of company profits |
Calculation Methods
Fixed Percentage:Bonus = Basic Salary × Percentage
Example: AED 10,000 × 100% = AED 10,000
Performance-Based:Bonus = Target Bonus × Performance Multiplier
Example: AED 15,000 × 1.2 (120% achievement) = AED 18,000
Performance Bonus
Performance Rating Multipliers
| Rating | Multiplier | Example Bonus* |
|---|---|---|
| Exceptional (5) | 150-200% | AED 22,500-30,000 |
| Exceeds (4) | 120-150% | AED 18,000-22,500 |
| Meets (3) | 100% | AED 15,000 |
| Below (2) | 50-80% | AED 7,500-12,000 |
| Poor (1) | 0% | AED 0 |
*Based on AED 15,000 target bonus
Performance Criteria Weights
| Criteria | Weight |
|---|---|
| Individual KPIs | 40-60% |
| Team performance | 20-30% |
| Company results | 20-30% |
| Values/behaviors | 10-20% |
Eid/Festival Bonus
Common Practice
| Aspect | Details |
|---|---|
| Mandatory? | No - discretionary benefit |
| Timing | Before Eid al-Fitr and/or Eid al-Adha |
| Common amount | Half to one month salary |
| Who gets it | Often all employees |
Types
| Type | Amount |
|---|---|
| Full Eid bonus | 1 month salary |
| Half Eid bonus | 0.5 month salary |
| Fixed amount | AED 1,000-5,000 |
| Vouchers/gifts | Variable |
Note: Eid bonus is entirely discretionary and does not constitute a contractual entitlement unless specified in the employment contract.
Signing Bonus
Purpose
| Reason | Details |
|---|---|
| Attract talent | Compete for candidates |
| Offset lost bonus | Candidate leaving bonus elsewhere |
| Relocation support | Additional to relocation package |
| Gap compensation | For salary constraints |
Typical Amounts
| Level | Range (AED) |
|---|---|
| Mid-level | 10,000-30,000 |
| Senior | 30,000-75,000 |
| Executive | 75,000-250,000+ |
Clawback Terms
Typical clawback if employee resigns:
- Within 6 months: 100% repayable
- 6-12 months: 50% repayable
- 12-24 months: 25% repayable (if applicable)
Retention Bonus
Purpose
| Situation | Use Case |
|---|---|
| Critical project | Key person retention |
| M&A/restructuring | Stability during change |
| High performer | Prevent poaching |
| Succession | Until replacement ready |
Structure Options
| Structure | Description |
|---|---|
| Cliff | Full amount after period |
| Staggered | Multiple payments over time |
| Milestone | Tied to specific events |
Typical Schedule:
- 25% on 6 months
- 25% on 12 months
- 50% on 24 months
If employee resigns before payment date, unpaid amounts are forfeited.
Bonus Administration
Payment Timing
| Bonus Type | Typical Timing |
|---|---|
| Annual | Q1 of following year |
| Performance | After review cycle |
| Eid | Before Eid holidays |
| Signing | On joining or after probation |
| Project | On milestone/completion |
| Spot | Within 1-2 pay cycles |
Tax Implications
| Location | Tax on Bonus |
|---|---|
| UAE | 0% (no income tax) |
| Home country | May apply (seek advice) |
WPS Compliance
| Requirement | Details |
|---|---|
| Payment method | Must be through WPS |
| SIF coding | Code as variable pay |
| Documentation | Keep records |
Gratuity Impact
Generally NOT Included
| Component | In Gratuity? |
|---|---|
| Basic salary | Yes |
| Bonuses | Usually No |
| Commission | Usually No |
| Allowances | No |
Exception
Bonus may be included in gratuity if:
- Fixed and guaranteed
- Paid regularly (e.g., monthly)
- Could be argued as regular component
Consult legal advice for specific cases
Pro-Rata Calculations
For partial year employment:
Pro-Rata Bonus = Full Bonus × (Months Worked ÷ 12)
Example:
- Full annual bonus: AED 24,000
- Started July 1 (6 months)
- Pro-rata: AED 24,000 × (6 ÷ 12) = AED 12,000
Frequently Asked Questions
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NeuralHR Team
VerifiedUAE HR Compliance Experts
Our team of HR professionals and legal experts specializes in UAE labor law compliance, with extensive experience helping businesses navigate MOHRE regulations, Emiratisation requirements, and workforce management in the UAE and GCC region.
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