The Corporate Tax Rule About Paying Yourself

Ask a UAE business owner about transfer pricing and you will usually get one of two answers. Either a blank look, or a confident reference to AED 40 million and the observation that the business is nowhere near it.

The second answer is correct and it is about the wrong threshold.

There are two sets of rules here, aimed at two different things, and the one that reaches most owner-run UAE companies has a threshold of AED 500,000. It concerns what the business pays the person who owns it.

The distinction is the whole article, so it is worth being exact.

Related party transactions are dealings between the business and companies or people it is connected to through ownership or control. These have to be disclosed when their aggregate value exceeds AED 40 million in a tax period, and then only the categories where the value exceeds AED 4 million are reported.

Connected person transactions are payments and benefits flowing to the people behind the business. These have to be disclosed where they exceed AED 500,000 in a tax period.

One threshold is eighty times the other. A business turning over a few million dirhams will never approach the first and may well cross the second in the first quarter.

Both are measured per tax period rather than cumulatively, so the count restarts each year. That is a small mercy and also a trap, because a business that stayed under AED 500,000 last year can cross it this year without anything feeling different.

Who counts as a connected person

The law defines it in three parts. A connected person is an owner of the business, a director or officer of it, or a related party of either of those.

An owner means any natural person who directly or indirectly holds an ownership interest in the business, or exercises control over it and its operations. In a company owned and run by one person, that person is a connected person of their own company. That is not an edge case in the UAE. It is the standard structure across the market.

Director or officer is where the FTA has added useful precision. The Authority has clarified that the test is not the job title. What matters is who actually holds authority to make decisions, direct the business or legally bind it. Someone whose card says director may not be one for this purpose, and someone whose card says nothing of the kind may be.

The third limb, a related party of an owner or a director, is the one that quietly widens the circle. A spouse’s company invoicing the business is inside it. So is a second company the owner controls.

What the rule actually requires

Article 36 sets the test in one line. A payment or benefit provided to a connected person is deductible only if and to the extent that it corresponds with the market value of the service or benefit that person actually provided.

Two words in that sentence do the work.

Market value. Not what the business can afford, not what is tax-efficient, not what was decided in a shareholder resolution. What the same service would cost from someone at arm’s length.

To the extent. The rule does not disallow the payment. It disallows the excess. Pay yourself AED 900,000 for work with a market value of AED 400,000 and the first AED 400,000 is deductible while the remainder is not. The money still left the company. It simply stopped reducing taxable profit on its way out.

This is a different mechanism from an expense being disallowed outright, and it is easy to miss when reviewing which expenses actually reduce your tax.

Why this catches owner-run businesses specifically

In a company with outside shareholders, owner pay is negotiated by people with opposing interests, which tends to produce something defensible on its own.

In an owner-run company nobody is on the other side of the table. Remuneration gets set by what the business can spare, what the owner needs, and what someone once suggested was sensible. None of those is a market value, and none of them leaves a record explaining the figure.

That is the practical gap. The number is usually not wrong. It is usually just unexplained, and an unexplained number is difficult to defend two years later when the person asking has more time and better tools than they used to.

The word the law uses is worth noticing too. It refers to a payment or benefit, not to salary. So the figure being tested is not only what appears on a payslip. A vehicle the company owns and the owner drives, accommodation the business pays for, insurance, school fees, a phone contract: these are benefits provided to a connected person, and they belong in the same total. Owners who calculate their exposure from remuneration alone frequently arrive at a number well below the real one, and the AED 500,000 disclosure trigger is measured against the real one.

The documentation thresholds, and what applies below them

Formal transfer pricing documentation, meaning a Local File and Master File, is required where the business has revenue of AED 200 million or more in the tax period, or is part of a multinational group with consolidated revenue of AED 3.15 billion or more.

Almost no owner-run UAE business meets either. That is where the reasoning usually stops, and where it should not.

The arm’s length principle applies regardless. The documentation obligation is about what you must prepare and keep in a prescribed form. The pricing obligation is about whether the amount was right in the first place, and it has no revenue floor.

So a business below the thresholds is not exempt from the rule. It is exempt from the filing cabinet. It still has to be able to explain the figure, which in practice means a note written when the decision was made rather than a reconstruction attempted afterwards.

What business owners should focus on

Add up what the business paid you and yours this year. Salary, benefits, anything paid to a company you control, anything paid to a family member’s company. If the total is over AED 500,000 it is disclosable, and that arithmetic is worth doing before the return is prepared rather than during it.

Be able to say why the figure is the figure. One paragraph. What the role involves, roughly what that costs in the market, why this number sits inside that range. It does not need to be elaborate. It needs to exist.

Look at the whole circle, not just your own payslip. Owners tend to think of connected persons as themselves. The definition reaches directors, officers and the related parties of both, which is a wider group than most people picture.

Do this alongside the entity picture, not separately. If you run more than one company these flows cross between them, and they are hard to see until the books sit in one view. The disclosure is due with the return, on the same deadline as everything else.

Frequently asked questions

Who is a connected person under UAE corporate tax? An owner of the business, a director or officer of it, or a related party of either. An owner means any natural person who directly or indirectly holds an ownership interest or exercises control, which for most owner-run UAE companies means the owner themselves.

Is my salary from my own company deductible? Only to the extent it corresponds with the market value of the service you actually provide. Article 36 makes a payment to a connected person deductible up to that market value, and the part above it is not.

What is the AED 500,000 connected person threshold? It is the disclosure trigger. Where payments or benefits to connected persons exceed AED 500,000 in a tax period, those transactions have to be disclosed with the return.

Does the AED 40 million transfer pricing threshold apply to me? Probably not. That threshold governs disclosure of related party transactions, with per-category reporting above AED 4 million. Most owner-run UAE businesses are far below it, which is exactly why it is the wrong number to be watching.

Do I need a transfer pricing Local File? Only if your revenue in the tax period is AED 200 million or more, or you are part of a multinational group with consolidated revenue of AED 3.15 billion or more. The arm’s length principle still applies below those levels even though the documentation obligation does not.

Does my job title decide whether I am a director? No. The FTA has clarified that what matters is who actually has authority to make decisions, direct the business or legally bind it. A title containing the word director does not settle it either way.

A number with a reason behind it

Nothing here says an owner should be paid less. It says the amount should have a reason, and that the reason should be written down somewhere other than in your head.

If you would like the connected person position reviewed before your return goes in, book a call here.