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KCM Consultants LLC
Corporate Tax

KMP Remuneration Benchmarking Under UAE Transfer Pricing

Status: DRAFT - awaiting reviewer read. Last checked: 6 November 2026.

By Stuti Trivedi, Partner, Transfer Pricing

Published 11 November 202611 min

Pay to owner-managers and senior executives is deductible in the UAE only to the extent it matches market value, so the benchmarking file decides the deduction.

Key Takeaways

  • Under Article 36 of the UAE Corporate Tax Law, a payment to a Connected Person (an owner, a director or officer, or their Related Parties) is deductible only to the extent it equals Market Value and is incurred wholly and exclusively for the business.
  • FTA Public Clarification CTP010 (29 April 2026) says a “director” is someone formally on the board or equivalent body, and an “officer” is decided by actual authority, not job title.
  • Where aggregate payments or benefits to a Connected Person, together with that person’s Related Parties, exceed AED 500,000, the Connected Persons Schedule in the Corporate Tax return must be completed.
  • A KMP payment must clear four gates in order: service, benefit, business purpose, market value. Benchmarking only addresses the fourth.
  • The evidence that the service was rendered, in board minutes, approvals and correspondence, matters more than the economic study.

Why executive pay is now a tax question

Payment to key management personnel (KMP) is deductible in the UAE, and the salary received by the individual is not taxed in the UAE as employment income. That creates an arbitrage every owner-manager notices: a higher salary turns a taxable profit into a tax-free personal receipt. Article 36 exists to police that conversion, and transfer pricing discipline applies to it. The difficulty is that the question is subjective. No one can say with certainty what a CEO should be paid.

Two points are often missed. Before corporate tax, one KMP figure usually covered several roles at once: owner, brand builder, technology lead and day-to-day manager. A blended number cannot be benchmarked against anything, so each role has to be identified and priced on its own terms. And the benchmarking study, or Local File, is only the concluding part. What matters more is whether you can show the service was actually rendered and the company benefited. That evidence lives outside the Local File.

This guide follows KCM’s Price & Prejudice publication on the subject (Issue 01, August 2026).

Who is caught: Article 36 and CTP010

Article 36(2) treats as a Connected Person: an owner of the taxpayer (any natural person with a direct or indirect ownership interest or control), a director or officer, and any Related Party of those persons. Partners in an unincorporated partnership are also covered (Article 36(4)).

CTP010 settles the two terms that matter for KMP.

Term Test in CTP010 Consequence
Director Formal position on the board or an equivalent governing body under the entity’s law or constitutional documents. A “Director” job title alone does not qualify. A “Sales Director” who is not on the board is not a director.
Officer Authority and responsibility for planning, directing and controlling activities (IAS 24 framework), or authority to make strategic financial, operational or commercial decisions, or authority to bind the entity legally or contractually. A general manager, a head of division with final authority, or an interim CEO titled “consultant” can be an officer. A person without final strategic or binding authority is not.

The practical result is that every KMP population has to be re-tested against actual authority. A functionally powerful general manager treated as “just another employee” is now a specific audit flag.

Article 36(6) removes the market-value limit for taxpayers whose shares are traded on a recognised stock exchange and for taxpayers under the regulatory oversight of a competent UAE authority. Every other taxable person needs a supporting file.

The two regimes overlap, and the rules differ.

Connected Person payment (Article 36) Related Party transaction (Articles 34 and 35)
Who Owner, director or officer, and their Related Parties Entities and persons linked by 50% ownership, control, kinship to the fourth degree, PE, trust or partnership links
Standard Deductible only if and to the extent it equals Market Value and is wholly and exclusively for the business Arm’s length standard; any point in the arm’s length range is acceptable; adjustment and corresponding adjustment available
Method Article 34 applies “as the context requires” (Article 36(5)) Five listed methods, or another method if none can be reasonably applied (Article 34(3) and (4))
Disclosure Connected Persons Schedule if aggregate payments or benefits exceed AED 500,000 per Connected Person, with its Related Parties Related Party schedule if aggregate Related Party transactions exceed AED 40 million
Carve-out Listed and regulated entities (Article 36(6)) None of that kind

If a person is both a Related Party and a Connected Person, CTP010 says the person is treated only as a Related Party. An example is an owner-manager’s spouse on the payroll, or a group executive whose cost is recharged by a sister company. In those cases Article 34 governs and the arm’s length analysis follows the transaction.

No safe harbour or cap formula exists in the law. Deductibility turns on evidence.

Four gates before deductibility

Before any number is benchmarked, the payment has to clear four gates in this order. Market value is not reached until the other three are cleared.

Gate Question Evidence
1. Service Did this person perform identifiable work for the paying entity: decisions, deliverables, time? Minutes, approvals, sign-offs, client and banking relationships
2. Benefit Did the entity receive a commercial benefit from that work? Revenue, contracts won, risks managed
3. Business purpose Is the cost wholly and exclusively for the business, not a disguised distribution or personal expense? Employment contract, payroll, no personal items
4. Market value Would an independent entity in comparable circumstances pay this remuneration for this functional profile? Benchmarking study

Gates 1 and 2 are shown through a functions, assets and risks (FAR) analysis at individual level. The consequences differ by gate. A payment failing gates 1 to 3 is at risk in its entirety. A payment that clears them but fails gate 4 is exposed only to the extent of the excess. Where the benefit sits with the wider group, the cost belongs there, and a recharge among group entities is expected.

How to benchmark the number

The triangular approach. Test the package against three reference points at once: the individual (qualifications, experience, track record, prior pay), the role (the decisions actually taken, sign-offs, headcount, contract job description) and the company (size, sector, complexity and capacity to pay). A listed multinational’s CFO package is rarely a comparator for a mid-sized trading company.

Data sources. Article 34(4) allows another method where the five prescribed methods cannot reasonably apply, which is the position for remuneration. In practice KCM combines two or more of: UAE market salary guides and remuneration surveys; disclosed executive pay of comparable listed companies, adjusted for scale; internal comparables within the group; and a capacity-to-pay cross-check against profitability. The last is a cross-check, not a substitute.

Three disciplines. First, build a range, not a point: construct the interquartile range and be able to explain why the package sits where it does. The FTA Transfer Pricing Guide accepts the interquartile range. Second, compare like with like: total package to total package, including bonus, housing, schooling, end-of-service benefits and profit-linked pay. Third, refresh annually, with survey data matching the tax period.

Worked example (illustrative figures)

Mr A owns a mainland trading LLC (revenue AED 150 million) and acts as CEO and sole board director. The company pays him AED 3,600,000 for the year. It has no listing and no regulator, so Article 36(6) does not apply.

Component Paid (AED) Benchmark range, Q1 to Q3 (AED) Deductible (AED) Excess (AED)
Executive package (base 1,200,000 + allowances 300,000 + bonus 600,000) 2,100,000 1,500,000 to 2,600,000 2,100,000 0
Director’s fee (board role) 240,000 100,000 to 220,000 220,000 20,000
“Founder premium” paid as profit-linked pay 1,260,000 No market comparable; no attributable contribution evidenced 0 1,260,000
Total 3,600,000 2,320,000 1,280,000

Reconciliation: 2,100,000 + 240,000 + 1,260,000 = 3,600,000 paid. Deductible: 2,100,000 + 220,000 = 2,320,000. Excess: 20,000 + 1,260,000 = 1,280,000. And 2,320,000 + 1,280,000 = 3,600,000.

Tax effect, assuming taxable income already exceeds AED 375,000 so the excess falls wholly in the 9% band: 1,280,000 x 9% = AED 115,200 of additional corporate tax. The package exceeds AED 500,000, so the Connected Persons Schedule is completed. Revenue is below AED 200 million, so no Local File is mandatory, but supporting records must be produced within 30 days of an FTA request.

The founder premium is the point most often lost. The defensible route is to evidence specific, attributable contributions (contracts secured, facilities negotiated) rather than asserting a premium for ownership. Where the value is really a return on ownership, it belongs in the dividend component, not the salary. An excess recharacterised as a distribution can carry further consequences for the participation exemption and Qualifying Free Zone Person status (see UAE free zone 0% tax).

What to do: practical considerations

  • Blended roles. Split the total into its components (executive salary, director’s fee, ownership return) and test each by its own character.
  • One KMP, several entities. Apportion pay by time and function. The same full charge in every entity’s books is a red flag.
  • Legacy packages. Packages fixed before the Corporate Tax Law took effect should be re-set by board-ratified benchmarking and applied prospectively. Earlier periods are covered by the transitional rules (see Corporate Tax transitional rules).
  • Evidence file. Keep five categories: governance (board and shareholder resolutions, employment contract, delegated authority matrix); performance (minutes, KPI records, appraisals); market support (surveys, range, position taken, refresh); financial (payroll and WPS trail, KMP pay against revenue and profit); policy (a group remuneration policy applied consistently).
  • Watch the limit. The AED 500,000 line counts benefits as well as cash, per Connected Person and per tax period. Crossing it is not wrong; it makes the package visible and needs a contemporaneous benchmark.
  • Red flags. Pay jumps with no change in role; the same KMP charged in several entities; a general manager treated as outside Article 36; pay that tracks profit rather than performance; a benchmark not refreshed since the Corporate Tax Law took effect.
  • Group structures. Where KMP are paid through a UAE branch or a group entity, check residence and permanent establishment exposure first (see UAE company or branch and POEM).

FAQ

Is there a safe harbour or salary cap for KMP pay?
No. The law prescribes neither. Deductibility turns on whether the amount corresponds to Market Value and is wholly and exclusively for the business.

Does a “Director” job title make someone a Connected Person?
Not by itself. CTP010 says a person is a director only if they hold a position on the board or an equivalent body. The person can still be an officer through actual authority.

Does the AED 500,000 disclosure mean amounts above it are disallowed?
No. It is a reporting trigger. The deduction is decided by the market-value and business-purpose tests, not by the threshold.

Are listed companies and regulated entities covered?
No. Article 36(6) removes the Article 36(1) limit for taxpayers listed on a recognised stock exchange or regulated by a competent UAE authority.

Is a Local File always needed?
No. Master and Local Files are required where revenue is AED 200 million or more or the group’s consolidated revenue is AED 3.15 billion or more (Ministerial Decision No. 97 of 2023). Below that, you still need records to show the pay is at market value, and the FTA can request them within 30 days.

Talk to us

KCM’s transfer pricing team supports KMP remuneration from planning the package to defending it. Contact us through our contact page or see our transfer pricing service.

Sources and last checked: 6 November 2026

From KCM’s Price & Prejudice series, Issue 01, by Stuti Trivedi, CA Ruta Patel and Arya Shah.

This is not to be construed as legal advice. The actual advice will depend upon the facts and will have to take into consideration the case-specific facts and the anti-abuse regulations.

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