Salary Benchmarking for Connected Person Remuneration in the UAE

Salary benchmarking helps UAE taxable businesses support remuneration paid to directors, owners, officers and other Connected Persons. For UAE Corporate Tax, remuneration is not automatically deductible because it is processed through payroll or approved internally. The amount should reflect market value and be incurred wholly and exclusively for the purposes of the business. The company should be able to show that an independent business would have paid a comparable amount for comparable work and responsibilities.

What is a Connected Person?

A Connected Person is broadly someone with a close relationship to the taxable business, its ownership, control or management. This can include a shareholder, director, officer, owner, partner, trustee, or related individual, depending on the facts. For a more detailed explanation of the definition and its application, see WellTax’s article on what is a Connected Person under the UAE Corporate Tax Law. The position should be checked against UAE Corporate Tax law and Federal Tax Authority guidance.

The risk usually arises because the person receiving remuneration may also influence the decision to pay it. A shareholder-director may approve their own salary, a founder may receive a year-end bonus, or a relative may be added to payroll. These arrangements can be commercially valid, but the business should retain evidence of the role performed, time spent and reason for the amount paid.

At the identification stage, WellTax can help businesses map directors, owners, officers and relevant related persons, then compare that list with payroll, board minutes and accounting records. This helps identify Connected Person payments early, before the Corporate Tax return or disclosure form is prepared.

Why salary benchmarking matters for UAE Corporate Tax

Salary benchmarking matters because Connected Person remuneration can directly affect taxable profit. A business may pay salary, bonuses, allowances, benefits, directors’ fees or other rewards. For the deduction to be supportable, the amount should be at market value and the cost should be wholly and exclusively incurred for business purposes.

Both tests should be considered together. The business should confirm that the person genuinely performs services for the company, and that the amount paid is consistent with what an independent employer might pay for those services. If the role is unclear, or the amount is materially above market evidence, the deduction may be harder to support.

For example, a full-time founder managing director may have a strong commercial basis for a senior executive package. A family member receiving a high salary without a written role, deliverables or decision-making responsibilities creates a weaker file. The relationship does not prevent a deduction, but it increases the need for clear evidence.

Salary benchmarking and market value in practice

Salary benchmarking should compare the Connected Person’s total reward with market evidence for comparable roles. The review should include base salary, bonuses, directors’ fees, allowances and benefits where relevant. Focusing only on monthly salary may understate the real value of the package.

A credible benchmark considers the role performed, seniority, skills, experience, time commitment, business size, sector, location and performance conditions. The market rate for a full-time chief financial officer may differ from the rate for a part-time finance director in a small trading company. The FTA’s Transfer Pricing Guide provides further guidance on applying the arm’s length principle to transactions and arrangements involving Related Parties and Connected Persons.

WellTax can support the benchmarking stage by helping select appropriate comparables, reviewing internal pay data and assessing whether external market data is suitable. Where exact comparables are not available, the assumptions should be recorded clearly so the conclusion can be explained if supporting information is requested.

The objective is a reasonable commercial range. The business should show that remuneration is consistent with the role, available evidence and value delivered.

A practical salary benchmarking methodology

A structured process makes salary benchmarking easier to defend and repeat each year. The detail should be proportionate to the business size, amount paid and tax risk.

Step	Practical action	Evidence to keep
1. Identify the person	Confirm whether the recipient is a Connected Person	Ownership chart, director register, employment records
2. Define the role	Record duties, authority, seniority and time commitment	Job description, service agreement, board minutes
3. Capture total reward	Include salary, bonus, fees, allowances and benefits	Payroll reports, contracts, benefit schedules
4. Select comparables	Compare with similar UAE or sector roles	Salary surveys, recruiter data, internal third-party pay data
5. Adjust for facts	Consider company size, profitability, experience and responsibilities	Management notes, assumptions and calculations
6. Reach a conclusion	Decide whether pay is within a supportable range	Benchmarking memo and approval record
7. Link to tax reporting	Reflect the position in the Corporate Tax return and disclosure review	Tax computation, disclosure analysis, supporting schedules

For example, if a shareholder-director is paid AED 900,000 per year, the business should document duties, authority, time commitment, comparable senior roles and the approval basis.

At the documentation stage, WellTax can convert the analysis into a clear working paper or remuneration benchmarking memo. This salary benchmarking evidence can be kept with the tax file and updated when roles, profits or remuneration packages change.

Documentation, transfer pricing benchmarking and disclosure

Salary benchmarking should form part of the wider transfer pricing review. Payments to Connected Persons may need to be considered alongside related party transactions UAE businesses already review, such as management fees, shareholder loans, service charges, royalties or intra-group recharges.

Where transfer pricing benchmarking is prepared for the business, Connected Person remuneration should be cross-checked against the same records. This reduces the risk of mismatches between payroll, accounts, board approvals, transfer pricing files and the Corporate Tax return.

The UAE Corporate Tax return and transfer pricing disclosure form may require information about transactions with Related Parties and Connected Persons, depending on the facts and thresholds. Businesses should review remuneration before filing, because disclosure decisions are more reliable when payroll, accounting and tax schedules have already been reconciled.

WellTax can assist at the disclosure stage by reviewing whether Connected Person payments have been identified, whether the accounting treatment aligns with the tax analysis and whether supporting schedules are ready. For practical filing points, see WellTax’s article on 7 practical tips for filing the transfer pricing disclosure form UAE.

Risks of excessive Connected Person remuneration

Excessive remuneration can create several risks. A deduction may be challenged if the payment does not reflect market value or is not incurred wholly and exclusively for the business. There may also be questions about whether the payment is profit extraction rather than genuine remuneration.

Common risk indicators include:

• A large bonus approved close to year end without documented performance criteria.
• A salary that is far above market data without clear commercial reasons.
• Payments to a relative with limited evidence of work performed.
• Directors’ fees or allowances that are not supported by agreements or approvals.
• Inconsistent treatment between accounts, payroll and tax filings.

Salary benchmarking reduces these risks by creating a contemporaneous record. That record does not guarantee acceptance, but it gives the business a stronger basis for explaining its treatment.

A useful review file should allow an independent reviewer to connect the payment to contracts, market data, board approvals, payroll records and actual business activity. If those links are missing, the file should be strengthened before filing.

Practical salary benchmarking checklist

Before the Corporate Tax return is finalised, businesses should consider the following checklist:

• Identify all directors, owners, officers and relevant related persons.
• Confirm who is a Connected Person under the UAE Corporate Tax rules.
• List all salary, bonuses, directors’ fees, allowances and benefits paid or accrued.
• Confirm what each person did for the business during the tax period.
• Check whether each payment has a wholly-and-exclusively business purpose.
• Compare remuneration with internal or external market data.
• Record any assumptions, limitations and adjustments in the benchmarking work.
• Check board approvals, contracts, payroll records and accounting entries.
• Review transfer pricing disclosure and Corporate Tax return implications.
• Keep the final evidence file with the year-end tax working papers.

WellTax can support the year-end salary benchmarking review by checking the checklist against the accounts, payroll records and draft Corporate Tax return. This is particularly useful for owner-managed businesses, where the same individual may be shareholder, director and employee.

Key takeaways

Connected Person remuneration should be reviewed before the UAE Corporate Tax return is finalised, particularly where directors, owners, officers or related individuals influence both the work performed and the amount paid. To support deductibility, remuneration should reflect market value and be incurred wholly and exclusively for the purposes of the business.

Salary benchmarking can provide an evidence base for that position. Businesses should document the actual duties performed, total remuneration paid or accrued, reliable comparables, any adjustments made and the commercial reasons for the final amount. Records should be prepared when decisions are made, rather than only after a query arises, and should be consistent with payroll, accounts, board approvals, Corporate Tax calculations and disclosure forms.

Completing this review before filing gives businesses greater confidence that their remuneration position is commercially supportable, consistently reported and backed by appropriate evidence.

Written by Keziah Nicole Dela Cruz, CPA, Senior Accountant & FTA Tax Agent, WellTax.