UAE Transfer Pricing Rules Bring Director Salaries Under New Scrutiny Says ADJC
As businesses across the UAE adjust to the Corporate Tax (CT) regime, ADJC is urging companies to revisit how they remunerate directors, particularly those who may be classified as related parties. Under the new rules, director salaries fall within the scope of Transfer Pricing (TP) scrutiny—an area many businesses are now navigating for the first time.
'The UAE's transfer pricing framework is fully aligned with OECD standards, and that means companies must apply the arm's length principle to all related-party transactions—including director compensation,' said Iftikhar Kazi, Business Manager at ADJC. 'If a director qualifies as a related party, then their salary, bonuses, and benefits must be benchmarked to reflect what an independent party would accept under similar market conditions.'
Under UAE CT Law (Federal Decree-Law No. 47 of 2022), related parties include individuals who own or control 50% or more of a business, directors with significant decision-making authority who are also shareholders, and in some cases, even family members. If a director falls into this category, then any payments made to them must meet arm's length criteria—typically substantiated through a benchmarking analysis or Local File documentation.
'Benchmarking director salaries is not just a compliance formality—it's a necessity,' Kazi added. 'Companies should rely on market data from sources such as Mercer, Willis Towers Watson, or regional salary surveys to ensure compensation falls within a defensible range. The Federal Tax Authority (FTA) may challenge excessive payments, especially if they fall outside the interquartile range commonly accepted in transfer pricing reports.'
According to Ministerial Decision No. 97 of 2023, companies with revenue above AED 50 million—or part of a multinational group with global turnover exceeding AED 3.15 billion—must maintain contemporaneous transfer pricing documentation, including any material director compensation paid to related parties. ADJC advises UAE businesses to proactively assess their internal remuneration policies, ensure benchmarking is up to date, and prepare robust documentation to withstand potential audits.
ADJC is a leading advisory firm in the UAE specializing in corporate tax, transfer pricing, and compliance advisory. With a dedicated team of experts and a deep understanding of regional regulations, ADJC supports businesses in achieving tax efficiency and regulatory
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