KSA And UAE Valuations

01. Informative PDF of KSA and UAE Valuations

Get all information regarding KSA and UAE valuations with the help of our well-curated PDF. In these Pdfs you will get information about how you can get UAE employee benefits easily and brief information about KSA Benefits.

KSA Benefit

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UAE Employee Benefits

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02. End of service benefit in UAE:

As per the labor law in UAE, End of service benefit is provided to expat employees working in UAE upon resignation, retirement and termination. It depends upon the completed years of services and basic salary at the time of exit.

There are two type of contract between employer and employee Limited and Unlimited.

  1. Unlimited contract is where duration of employment is not known in advance. They are fulltime employment contract.
  2. Limited contract is where duration of employment is known in advance. They are project specific contracts, once project completed, employment also terminated.

03. End of Service Benefit under Unlimited Contract:

Past Service: 1 to 5 years

21 days basic salary is provided for each completed year of service.

Example: An employee who have completed 4 years and his monthly salary is AED 1,000. He will be entitled to EOSB amount of AED 2,880 (21*1,000*4/30).

Past Service: More than 5 years

21 days basic salary is provided for each completed year of service for the first five years and 30 days basic salary for each completed year thereon.

Example: An employee who have completed 8 years and his monthly salary is AED 1,000. He will be entitled to EOSB amount of AED 6,500 {(21*1,000*5+30*3*1000)/30}.

04. End of Service Benefit under Limited Contract:

Past Service: 1 to 5 years

21 days basic salary is provided for each completed year of service. (Condition Apply)

Past Service: More than 5 years

21 days basic salary is provided for each completed year of service for the first five years and 30 days basic salary for each completed year thereon. (Similar to Unlimited contract)

Maximum EOSB limit:

EOSB amount cannot exceed 24 months’ basic salary.

05. Why EOSB valuation is required?

EOSB is a future liability that companies are obligated to pay employees upon their resignation, retirement, or termination. It can be substantial, especially for long-serving employees.

Companies in the UAE that follow IFRS (International Financial Reporting Standards) must account for EOSB under IAS 19 R accounting standard. This standard requires companies to recognize and measure their EOSB liabilities accurately in their financial statements.

Regularly provisioning for EOSB ensures that companies avoid cash flow issues when multiple employees leave at once, ensures financial stability of the company and demonstrates financial responsibility and commitment to its workforce which gives confidence to its employees, regulators and shareholders.

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    06. FAQs

    Our Company started operations two years back. Do we need to keep gratuity provision in our Financials?

    The Gratuity Act 1972, describes that the gratuity is payable to an employee after completing 5 years of vesting period in case of resignation, termination or retirement. However, the provision shall be done as per the accounting standard even if the Company has not completed 5 years of operations. As per Para 72 of Ind AS 19/ Para 70 of AS 15, Gratuity Provision shall be made even for service of less than 5 years.

    What are the criteria for actuarial valuation of gratuity?

    Payment of Gratuity Act applies to your company if you have more than 10 employees. All companies having 10+Employees need to make Provision for Gratuity as per Actuarial Valuation method Projected Unit credit method (PUCM) to comply with AS15/ Ind AS19.

    Is actuarial valuation required to value Short-term benefits?

    No, the actuarial valuation is not required for short-term benefits. In case, the benefit paid after 12 months, the actuarial valuation is needed as per AS 15 R / IND AS 19 accounting standard.

    Is actuarial valuation required for Small and medium sized Companies (SMC)?

    For SMC, the actuarial valuation is required but detailed disclosures are exempted.

    What is the method to choose discount rate for actuarial valuation?

    Para 78 of AS 15 states that the rate used to discount post-employment benefit obligations (both funded and unfunded) should be determined by reference to market yields at the balance sheet date on government bonds. Similarly, IND AS 19 also prescribe to refer government bond yield to set discount rate. In order to set the discount rate, its critical to keep currency and term of the bonds to be consistent with liability duration.

    Is it mandatory to keep fund against actuarial liability calculated for gratuity benefits?

    In India, currently there are no regulations to keep fund to back the gratuity provision calculated by an Actuary. However, it is always encouraged to keep fund in order to pay off liabilities on time and to avoid/reduce interest rate and reinvestment risk. Further, there are tax advantages for funding.

    How attrition rate assumption shall be set for the actuarial valuation of gratuity and leave encashment?

    There are three key factors which shall be considered to set attrition assumption: a) Company’s recent attrition experience in last 2-3 years b) Industry experience of employee attrition c) Management view on future attrition.

    Our Company has kept fund with an insurance Company and it provides an actuarial liability every year. Do we still require actuarial report from Certified Actuary?

    Even if the plan is funded and managed by an Insurance Company, still the Company need to get a separate actuarial valuation done. The reason being that an insurance company does not provide complete disclosures as required by accounting standard regulations and sometimes the assumptions are not fair and inconsistent with Company’s own experience.

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