End of Service Benefits (EOSB) — variously called end-of-service gratuity, end-of-service indemnity, or simply gratuity — are statutory lump-sum payments due to employees across the Gulf Cooperation Council (GCC) upon termination of their employment. While the principle is common to all six GCC countries, the calculation rules, eligibility conditions, caps, and recent legislative reforms differ significantly between jurisdictions.
For CFOs and HR directors of companies operating across the GCC — or for Indian parent companies with GCC subsidiaries — understanding these differences is essential for accurate liability provisioning, IFRS financial reporting, and workforce cost management.
Why EOSB Is a Defined Benefit Obligation Under IAS 19
Before examining the country-by-country rules, it is important to establish the accounting framework. EOSB across the GCC is classified as a post-employment defined benefit plan under IAS 19 (Employee Benefits), because:
- The benefit amount is formulaically determined — typically a multiple of final salary and years of service
- The employer bears all actuarial risk — if salaries rise faster than assumed, the liability is larger
- The obligation accumulates progressively during employment — it is not a simple terminal payment
- The employee's entitlement is defined by law, not by employer contribution
This means any company preparing IFRS financial statements with GCC employees must obtain an independent actuarial valuation of its EOSB using the Projected Unit Credit (PUC) method. The IAS 19 liability will typically differ from the statutory entitlement because the actuarial valuation discounts the projected benefit (at projected final salary) to present value, whereas the statutory entitlement is simply the current entitlement at current salary.
Country-by-Country: The Rules in Detail
Formula: For the first 5 years of service: 21 days' basic salary per completed year. For each year beyond 5 years: 30 days' basic salary per completed year. Total EOSB cannot exceed the equivalent of 2 years' total salary.
Resignation vs. Termination: Since the introduction of Federal Decree-Law 33/2021, the distinction between limited and unlimited contracts has been simplified — all new contracts are limited (fixed-term) from February 2022. Employees are entitled to full EOSB on resignation from a fixed-term contract.
Who is covered: Expatriate employees in the private sector and certain free zones. UAE and GCC nationals are covered by pension schemes (GPSSA / ADPF) rather than EOSB. Domestic workers have separate provisions.
DIFC DEWS — Mandatory Alternative Since Feb 2020
Employees of Dubai International Financial Centre (DIFC)-based employers are covered by the DIFC Employee Workplace Savings (DEWS) scheme rather than the federal EOSB system. DEWS is a defined contribution scheme managed by Equiom (master trustee) with Zurich as administrator and Mercer as investment adviser.
- Contribution rate: 5.83% of monthly basic salary for employees with less than 5 years of service
- Contribution rate: 8.33% of monthly basic salary for employees with 5+ years of service
- Contributions must be transferred to the DEWS fund within 15 days of month-end
- Pre-DEWS accruals (before February 2020) remain as defined benefit obligations requiring actuarial valuation
IAS 19 treatment: Prospective DEWS contributions are defined contribution — no actuarial valuation required for new accruals. Pre-DEWS accruals are defined benefit — actuarial valuation required. Most DIFC companies will have both components to manage.
UAE Mainland Voluntary Savings Scheme Since Oct 2023
Cabinet Resolution No. 96 of 2023 introduced a voluntary alternative to the traditional EOSB for mainland UAE private sector employers. Employers who elect to participate contribute the same rates as DEWS (5.83% / 8.33%) to an approved investment fund. Adoption is voluntary — the traditional EOSB system remains in force for employers who do not elect to participate.
IAS 19 treatment: For employers that adopt the voluntary scheme, the prospective contributions are defined contribution. For non-adopters, the full liability remains defined benefit requiring annual actuarial valuation.
Formula (Labour Law, Article 84):
- First 5 years: ½ month's wage per year (i.e., 15 days per year)
- Year 6 onwards: 1 month's wage per year
- Partial years are pro-rated
- No maximum cap on total EOSB — unlike the UAE's 2-year cap, Saudi EOSB can accumulate without limit
Resignation entitlement tiers:
- Less than 2 years: No EOSB
- 2–5 years: One-third of computed EOSB
- 5–10 years: Two-thirds of computed EOSB
- More than 10 years: Full EOSB
- Termination by employer (not for disciplinary cause): Full EOSB regardless of service length
New GOSI Social Insurance Reform — July 2024 Major Reform
The General Organisation for Social Insurance (GOSI) enacted amendments to the Social Insurance Law that took effect on 3 July 2024 for new entrants and 3 July 2025 for existing contributors below 50 Hijri years (approximately 48.5 Gregorian) as of the effective date.
The reforms affect Saudi nationals' retirement benefits — not the EOSB system for expatriates, which remains governed by the Labour Law. Key changes for Saudi citizens:
- Retirement age — new entrants (post July 3, 2024): Fixed at 65 Gregorian years, up from the previous 60 Hijri years (approximately 58 Gregorian)
- Retirement age — existing contributors under 50 Hijri years on July 3, 2024: Being phased upward to 65 Gregorian years — the exact retirement age depends on the contributor's age and contribution history
- Pension formula: Revised from 2.5% to 2.25% of average contributory wage per year of contributions, calculated on the average of the highest 180 months of contribution
- Contribution rates: Increasing from 9% (employee) + 9% (employer) to 11% each, rising by 0.5% per year from 3 July 2025 to 2028
- Early retirement: Now requires 30 years of contributions (up from 25), with retirement age at 55 if 30 years are completed
IAS 19 valuation impact: For Saudi nationals, the increase in retirement age from approximately 58 to 65 Gregorian years extends the expected service period by 7 years. This increases both the projected benefit obligation (more years of EOSB accrual at retirement) and the current service cost (more future years of service remain). Companies with significant Saudi national workforces should update their IAS 19 assumptions immediately if they have not done so since July 2024.
Traditional System (still applies to Bahraini and GCC nationals)
For Bahraini citizens and GCC nationals, the traditional employer-paid lump sum EOSB continues:
- First 3 years: ½ month per year
- Year 4 onwards: 1 month per year
- Based on last basic salary
New SIO System for Non-Bahrainis From March 2024
From 1 March 2024, non-Bahraini and non-GCC employees are covered by a new monthly contribution system administered by the Social Insurance Organisation (SIO), introduced under Edict 109 of 2023 issued by Crown Prince and Prime Minister HRH Prince Salman bin Hamad Al Khalifa.
- Contribution rate: 4.2% of basic salary for the first 3 years of service
- Contribution rate: 8.4% of basic salary beyond 3 years of service
- Employers must register all eligible non-Bahraini employees on the SIO portal
- Contributions are paid electronically to the SIO; the SIO pays employees directly on termination
- Non-payment penalty: 20% of outstanding contribution amount
IAS 19 treatment: The new SIO contributions are defined contribution in nature for prospective accruals — employers have discharged their obligation upon paying the monthly contribution. However, any EOSB accrued under the old system prior to March 2024 remains a defined benefit obligation. Companies should segregate pre-reform and post-reform service and treat each appropriately.
Practical compliance: Employers must register all non-Bahraini employees on the SIO portal, submit salary details monthly, and make electronic payments on time. Failure to register or late payment triggers penalties. The ILO has praised this reform as significantly enhancing migrant workers' social protection rights in the GCC.
Formula: Minimum of 21 days' basic salary per year of service for all years. Employers may (and frequently do) grant higher benefits through company policy or employment contracts.
Key differentiator: Qatar makes no distinction between resignation and termination for EOSB purposes — employees are entitled to the same EOSB regardless of whether they resign or are terminated (other than for cause). This removes the actuarial complexity of the resignation tier model used in Saudi Arabia.
No cap: Unlike the UAE (2-year cap), Qatar has no statutory maximum on total EOSB. Long-serving employees accumulate unlimited entitlements.
IAS 19 implication: Qatar's simpler formula and no-cap structure make the actuarial model more straightforward than Saudi Arabia, but the unlimited accumulation means the long-tenure tail of the liability can be significant — particularly for companies with a stable Qatari workforce built up over many years.
Formula:
- First 5 years: 15 days' full salary per year
- Year 6 onwards: 1 month's full salary per year
- Total EOSB capped at 18 months' full salary
Critical difference — full salary basis: Kuwait is the only GCC country where EOSB is computed on full salary (including housing, transportation, and other regular allowances) rather than basic salary only. This materially increases the EOSB liability for employees with high allowance structures — common in Kuwait's oil and energy sector.
IAS 19 implication: The full salary basis means that the salary escalation assumption must reflect the growth in total compensation (including allowances), not just basic salary. The cap at 18 months also means the liability plateaus for long-serving employees — a ceiling that must be modelled in the actuarial projection.
The Dual System — Legacy and New Since July 2023
Oman's 2023 Labour Law reform created a dual EOSB system:
Legacy system (pre-July 2023 accruals):
- First 3 years: 15 days per year
- Year 4 onwards: 1 month per year
New system (post-July 2023 accruals):
- All years: 1 month's basic salary per year — a significant improvement over the legacy formula for early-service accruals
IAS 19 implication: Actuarial valuations for Oman must split service into pre-July 2023 and post-July 2023 portions and apply the respective formula to each. The transition itself may have created a past service cost for existing employees (whose future accruals are now more generous under the new formula) — this should have been recognised in financial statements for periods ending after July 2023 if not already done.
Side-by-Side Comparison — Key Parameters
| Parameter | 🇦🇪 UAE | 🇸🇦 Saudi | 🇧🇭 Bahrain | 🇶🇦 Qatar | 🇰🇼 Kuwait | 🇴🇲 Oman |
|---|---|---|---|---|---|---|
| Min. service | 1 year | 2 yrs (resign) | 1 year | 1 year | 1 year | 1 year |
| Salary basis | Basic only | Basic only | Basic only | Basic only | Full salary | Basic only |
| Yr 1-5 rate | 21 days/yr | 15 days/yr | SIO (4.2%) | 21 days/yr | 15 days/yr | 1 month/yr* |
| Yr 6+ rate | 30 days/yr | 30 days/yr | SIO (8.4%) | 21+ days/yr | 1 month/yr | 1 month/yr |
| Salary cap | 2 years | None | None | None | 18 months | None |
| Resignation penalty | None (FDL 33) | Yes — tiers | None (SIO) | None | Yes — partial | None |
| Major 2023-25 reform | Voluntary savings scheme | New retirement age 65 | SIO system | Ongoing review | No major change | New formula |
*Oman: 1 month/year for post-July 2023 accruals; legacy rates apply to pre-July 2023 service.
IAS 19 Actuarial Valuation — What Changes Across Countries
The PUC methodology is the same across all six jurisdictions, but several country-specific inputs change significantly:
Discount rate
IAS 19 requires the discount rate to reflect yields on high-quality corporate bonds of duration matching the obligation. In the GCC, most companies with USD functional currency use the US Treasury yield curve or USD AA-rated corporate bond yields. Companies with local currency functional currency use the relevant sovereign yield curve. The rate at 5–10 year tenor (typical for GCC EOSB) currently ranges from approximately 4.2% (USD, short tenure) to 5.0%+ (USD, longer tenure).
Salary escalation assumption
GCC salary escalation assumptions are typically lower than Indian assumptions (where 6–10% is common) — GCC private sector salary inflation has averaged 2–4% in recent years, though Saudi nationals in nationalisation (Saudisation) programmes may see higher increases. For Kuwait, the assumption must apply to full salary, not just basic.
Retirement age
This is now a critical variable, especially for Saudi nationals. For UAE, Qatar, and Kuwait, where most employees are expatriates, the typical assumption is contract non-renewal rather than formal retirement — the expected service assumption is based on the company's historical turnover data rather than a statutory retirement age. For Saudi nationals, the new retirement age of 65 (for new entrants post-July 2024) must be incorporated into valuations.
Attrition / turnover
GCC expatriate workforces typically have higher turnover than comparable Indian or UK populations — driven by fixed-term contract structures, family considerations, and career mobility. The attrition assumption should be based on the company's own termination history, differentiated by nationality, service band, and grade where data permits.
The Saudi resignation tier — a special modelling requirement
The Saudi EOSB formula creates a non-uniform accrual pattern that requires careful treatment under IAS 19. Because the benefit rate steps up from half a month per year for the first five years to one full month per year thereafter — and resignation entitlement further scales at one-third, two-thirds, and full across service bands — the unit credit attributable to each year of service is not constant. IAS 19 requires the Projected Unit Credit method to attribute benefit to periods of service in accordance with the plan's benefit formula. Where that formula produces a materially higher benefit in later years, IAS 19 Para 70 requires that later years carry a higher unit credit than earlier years. An actuary valuing Saudi EOSB must therefore model the stepped formula across the full projected service horizon — not simply apply the current-year accrual rate to the entire projected benefit — to correctly capture the back-loading of the obligation.
Key Takeaways
- EOSB is a defined benefit obligation under IAS 19 across all six GCC countries — annual actuarial valuation is required for IFRS reporting
- Saudi Arabia's new retirement age (65 for new entrants from July 2024) materially increases the IAS 19 DBO for Saudi national workforces — valuations not yet updated are stale
- Bahrain's SIO system (from March 2024) converts future EOSB for non-Bahrainis from defined benefit to defined contribution — pre-2024 accruals remain defined benefit
- Kuwait is unique in the GCC — EOSB is computed on full salary (including allowances), not just basic salary
- Qatar has no resignation penalty and no EOSB cap — the simplest formula, but unlimited accumulation creates significant tail liability for long-tenure workforces
- Oman's 2023 reform created a dual system — legacy formula for pre-July 2023 service, new (more generous) formula for subsequent service
- The UAE voluntary savings scheme (2023) and DIFC DEWS are defined contribution for prospective accruals — but pre-conversion accruals remain defined benefit and must be valued separately
Do you need a GCC EOSB actuarial valuation?
Kapadia & Kochrekar provides IAS 19 actuarial valuations of EOSB across all six GCC countries. Our qualified actuary ensures the valuation meets international standards. We cover both the IFRS liability and, where needed, the statutory entitlement under local labour law — in a single report. All work is delivered remotely, within our standard SLA.
Learn About Our EOSB Service arrow_forward