Salary Benchmarking for Transfer Pricing: Why It Matters in the UAE Corporate Tax Era

As the UAE aligns with global tax standards, Transfer Pricing (TP) has become a key focus under the Corporate Tax regime — especially in the context of compensating Key Management Personnel (KMP). When these individuals are also shareholders, directors, or Connected Persons, their remuneration comes under sharper scrutiny.

With the Federal Tax Authority (FTA) and regulators closely assessing these payments, it’s vital for businesses to ensure compensation is justifiable, well-documented, and aligns with the Arm’s Length Principle (ALP).

What Is Transfer Pricing?

Transfer Pricing governs transactions between Related Parties — including those involving KMP remuneration. Under Article 34 of the UAE’s Corporate Tax Law, these transactions must be priced as if between independent parties, ensuring no manipulation of taxable income.

Why Focus on KMP Remuneration?

KMPs such as CEOs, CFOs, and board members significantly influence both strategy and execution. When they are also shareholders or directors, their pay could be seen as profit distribution rather than genuine salary. This is where salary benchmarking becomes crucial.

Authorities may question if the remuneration truly reflects market norms or if it’s inflated to reduce taxable income. A salary guide UAE or benchmarking analysis helps establish that the compensation is market-aligned.

What Makes Benchmarking Complex?

KMP compensation often includes:

  • Fixed pay
  • Performance bonuses
  • Director fees
  • Stock options
  • Allowances
  • End-of-service benefits

These mixed structures make it challenging to draw a clear line between investment returns and operational pay — especially in closely-held companies.

Moreover, salary benchmarking in UAE is complicated by limited local data, subjective job roles, and evolving compliance rules.

How to Stay Compliant

To meet TP requirements and withstand potential audits:

  1. Conduct a Functional Analysis (FAR): Define the roles, responsibilities, and risk levels of each KMP.
  2. Use Third-Party Data: Rely on UAE-specific compensation reports or salary guide UAE resources.
  3. Maintain Clear Documentation: Contracts, board minutes, and bonus criteria should support the rationale.
  4. Break Down Roles: Distinguish between strategic (owner-level) and operational (employee-level) duties.
  5. Create a TP Policy: A documented TP approach builds internal discipline and external confidence.
  6. Get Expert Help: Professional advisory support ensures technical accuracy and reduces compliance risk.

Why It Pays to Benchmark

A robust salary benchmarking strategy helps you:

  • Avoid penalties
  • Maximize tax deductions
  • Enhance transparency
  • Meet global standards

Whether you’re a family business or multinational, now’s the time to align your KMP pay with UAE’s TP regulations.

How MS Can Support You

At MS, we provide end-to-end support on salary benchmarking in UAE, ensuring your compensation structures are compliant, competitive, and aligned with regulatory expectations. From TP salary guide UAE reviews to cross-border remuneration strategies, we help you turn executive pay into a compliance strength — not a risk.

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