Manager’s salary in a Dubai company. Will the FTA treat it as a deductible expense?

Do you pay the manager of your Dubai company more than 500,000 dirhams a year? Accounting firms have told us that in such a case the Federal Tax Authority (FTA) may challenge this payment as a deductible expense. To reduce that risk, an external audit is needed, and it requires the manager’s diplomas and certificates bearing an apostille and certified by the embassy. We illustrate this with the example of our client’s company.

In this article you will learn

• what income tax applies to companies in the United Arab Emirates and who can benefit from the small business relief,
• why the introduction of the tax created a problem with deductible expenses,
• when the FTA may challenge a manager’s remuneration,
• what documents the manager should provide and what the whole procedure looks like,
• how much the audit cost in our client’s case and when we expect the first inspections.

What income tax applies to companies in the United Arab Emirates?

The United Arab Emirates has introduced a corporate income tax, generally at 9%. Companies whose annual revenue in a financial year does not exceed AED 3 million may apply for the small business relief. We wrote about the new rules in more detail in our article on the new corporate income tax.

Why did a problem with expenses arise after the tax was introduced?

Previously, good practice in companies registered in the Emirates was to prepare financial statements and audits, and many companies did so. After the introduction of the income tax, a problem arose that we know very well from Poland: whether a given expense incurred in the course of business can be classified as a deductible expense.

When may the FTA challenge a manager’s remuneration?

In the case of one of our clients’ companies, we spoke with accounting firms about treating the remuneration of the manager, that is the equivalent of a president of the management board, as a deductible expense. We were told that remuneration for a member of the management board is, as such, acceptable to the FTA. However, if the amount of remuneration in a year exceeds AED 500,000, the expense may be challenged.

To minimise the risk of the remuneration being excluded from deductible expenses, an audit is generally needed. Its purpose is to assess whether the company should in fact employ a manager at such a level of remuneration and to justify that amount by reference to general industry standards.

What documents should the manager provide?

Where the manager’s remuneration exceeds AED 500,000, the manager should provide certificates, diplomas and qualifications confirming that such remuneration is justified. These may be a diploma confirming higher education or courses and certificates confirming knowledge in a particular sector.

These documents should then bear an apostille and subsequently be certified by the embassy of the United Arab Emirates. On this basis, an independent accounting firm in the United Arab Emirates prepares an external audit assessing whether the remuneration is justified.

How much does an audit of a manager’s remuneration cost?

In our client’s case, the remuneration paid to individual managers exceeded AED 100,000 per month, that is more than AED 1,200,000 a year. The cost of the audit prepared by an external accounting firm was AED 12,000 plus 5% VAT.

Will the FTA challenge such an expense, and when will inspections take place?

Whether the FTA ultimately challenges such an expense remains to be seen. We do not yet have practical experience, nor does any other firm providing such services in the legal, tax or accounting field. The first inspections and proceedings will probably begin only after the end of the financial year.

At the time of recording, on 16 October, companies were filing returns for their first financial year, where that year was the whole of calendar year 2024, by the end of September. We expect inspections to take place. As Polish lawyers, we are used to the tax authorities very often challenging expenses incurred in the course of business by Polish companies, so we take such a scenario seriously.

FAQ

1. What is the income tax rate for companies in the United Arab Emirates? Generally 9%.
2. Who can benefit from the small business relief? Companies whose annual revenue in a financial year does not exceed AED 3 million.
3. When may the FTA challenge a manager’s remuneration as an expense? According to information from accounting firms, where the amount of remuneration in a year exceeds AED 500,000.
4. What can be done to minimise the risk of such an expense being challenged? Commission an audit that assesses whether the company should employ a manager at such a level of remuneration and justifies the amount by reference to industry standards.
5. What documents should the manager provide? Certificates, diplomas and qualifications, for example a higher education diploma or course certificates. The documents should bear an apostille and be certified by the embassy of the United Arab Emirates.
6. How much does such an audit cost? In our client’s case, the cost was AED 12,000 plus 5% VAT.
7. When should the first FTA inspections be expected? Probably after the end of the financial year.

See also

• Service: Tax and accounting services
• New corporate income tax in the United Arab Emirates
• Changes to income tax in the United Arab Emirates