The UAE has no personal income tax, so the Federal Tax Authority (FTA) cannot tax a salary in the employee’s hands. It can, however, refuse to let your company deduct it. Under the Corporate Tax regime, director compensation benchmarking in the UAE has become a core compliance task for owner-managed businesses and corporate groups alike.
This guide is for business owners, CFOs, finance managers, accountants and tax consultants. It explains how the FTA tests whether pay is “market rate”, who is caught by the rules, what evidence you need, and what happens if you cannot support your numbers.
Why the FTA Scrutinises Manager and Director Pay
Corporate Tax applies at 9% on taxable income above AED 375,000. Every dirham of remuneration that is disallowed increases taxable income. Because salary paid to an owner or director is a payment to someone with influence over the business, the law treats it with caution.
The legal framework sits in Federal Decree-Law No. 47 of 2022:
- Article 34 sets the arm’s length principle.
- Article 35 defines related parties and control.
- Article 36 governs payments and benefits to connected persons.
- Article 55 covers transfer pricing documentation and disclosure.
Who Is a “Connected Person” Under Article 36?
Connected persons include:
- An owner of the taxable person, whether holding directly or indirectly
- A director or officer of the taxable person
- Related parties of those individuals, including relatives within the kinship thresholds in Article 35
FTA Clarification CTP010: Substance Over Title
In April 2026, the FTA issued Public Clarification CTP010 on the meaning of “director” and “officer”. Its practical effect is that a job title alone does not decide the question.
- A “Director of Sales” is not automatically a director for Article 36 purposes.
- An officer is identified by actual authority, such as final strategic decision-making or the power to bind the company.
- A person without a senior title may still be caught if they exercise that authority in practice.
Finance teams should therefore map who really runs the business, not who holds the grand title on the organisation chart.
What “Market Value” Means in Practice
There is no official FTA salary table. The test is whether an independent company would pay a comparable person the same amount for the same role, in similar circumstances. The FTA’s Transfer Pricing Guide (CTGTP1, October 2023) follows the OECD approach, which looks at:
- The actual functions performed, assets used and risks assumed by the individual
- The seniority, qualifications and experience required
- The size, sector and complexity of the business
- The full package, not just basic pay: bonuses, housing, education and vehicle allowances, pension or end-of-service contributions, and other benefits
- Comparable remuneration data for similar roles
How a Compensation Benchmarking Study Works
A defensible study usually follows these steps:
- Identify the connected persons and the payments and benefits they receive.
- Document each person’s role, reporting line, decision-making authority and time commitment.
- Define the benchmarking approach and search criteria, including sector, geography and company size.
- Gather independent market data from recognised remuneration surveys and databases.
- Build an arm’s length range, typically using a statistical range such as the interquartile range.
- Compare the actual package with the range and conclude whether an adjustment is needed.
- Record everything in a report that traces back to your accounting records.
If actual pay falls inside the range, it is generally supportable. If it sits above the range, the excess is at risk of disallowance.
Disclosure Thresholds and Documentation to Know
These requirements come from Ministerial Decision No. 97 of 2023, the FTA’s Transfer Pricing Guide and the Corporate Tax return guidance:
Connected persons: the transfer pricing disclosure schedule in the Corporate Tax return is triggered when aggregate payments or benefits to a connected person, together with their related parties, exceed AED 500,000.
Related parties: disclosure applies where related-party transactions exceed AED 40 million in aggregate and AED 4 million in a category.
Master File and Local File: required where revenue reaches AED 200 million, or where the group’s consolidated revenue reaches AED 3.15 billion. These must be provided within 30 days of an FTA request.
Filing timeline: the return and disclosure form are due within nine months of the end of the financial year.
The arm’s length requirement applies regardless of these thresholds. Falling below a disclosure limit does not remove your duty to price owner and director pay at market value, and the FTA can still ask you to evidence it.
Qualifying Free Zone Persons should take particular care. Transactions with connected persons must be at arm’s length, and weak documentation can put qualifying income treatment at risk.
Common Mistakes That Trigger Adjustments
- Treating a title as proof of role, or ignoring people who have real authority
- Paying owners a salary that is unsupported by any market data
- Leaving allowances, housing and bonuses out of the benchmarking analysis
- Paying relatives of owners for roles with no clear function
- Keeping no contemporaneous documentation, then trying to build it after an FTA query
- Assuming that being below AED 500,000 means no evidence is needed
Practical Checklist for CFOs and Finance Managers
- List every owner, director, officer and their relatives on the payroll or receiving benefits.
- Check each person against the CTP010 substance tests.
- Compile the full annual package for each connected person.
- Commission or refresh a benchmarking study whenever roles or pay change materially.
- Align employment contracts and board minutes with the documented role.
- Review Corporate Tax return disclosures before filing.
- Keep the evidence file ready to produce on request.
Frequently Asked Questions
Does Article 36 apply to a sole owner’s own salary?
Yes. An owner’s remuneration is a connected person payment. It is deductible only where it is wholly and exclusively for the business and does not exceed market value.
Can an employee with “Director” in their title be treated as a connected person?
Not automatically. Following CTP010, the FTA looks at actual authority and decision-making. A title alone neither creates nor removes connected person status.
Do I need a benchmarking study if payments are under AED 500,000?
The disclosure schedule is not triggered below that level, but the arm’s length rule still applies. A benchmarking study is the best evidence if the FTA queries the payment.
What happens if my pay is above market value?
The excess may be disallowed as a deduction, which increases your taxable income and Corporate Tax liability. Incorrect or missing disclosures can also lead to administrative penalties.
How often should compensation be benchmarked?
Review it each year as part of Corporate Tax return preparation, and refresh the study whenever roles, responsibilities or pay change significantly.
Protect Your Deductions with Expert Benchmarking
If you are unsure whether your owner, manager or director pay would survive an FTA review, act before the return is filed. Tax Gian’s transfer pricing specialists can identify your connected persons, prepare a benchmarking study, complete the transfer pricing disclosure form and build an audit-ready file.
Contact our Transfer Pricing Expert to request a compensation benchmarking review today.
