Salary benchmarking in the UAE — evidence that your own pay is at Market Value.

Salary benchmarking establishes what a given role commands in the market. A recruiter benchmarks to help you set a competitive offer; we benchmark to evidence a tax position. Under Article 36(1) of Federal Decree-Law No. 47 of 2022, a payment to a Connected Person — which includes an owner, director or officer of the business — is deductible only to the extent it corresponds with the Market Value of what that person provides. That makes the benchmark part of your corporate tax file, and it has to be documented the way a tax position is documented: matched roles, sourced comparables, a stated range and a written conclusion. The two exercises use similar data and answer completely different questions.

It is deductible to the extent it corresponds with Market Value and is incurred wholly and exclusively for the purposes of the business — that is the test in Article 36(1). Article 36(2) treats an owner of the Taxable Person, and a director or officer, as Connected Persons, so your own pay falls squarely inside it. The practical consequence is that the deduction is not simply whatever you chose to pay yourself: it is the part of that figure that a comparable role would command at arm's length. Anything above the market range is exposed to disallowance. Benchmarking is how the defensible part is identified and evidenced.

Article 36(2) of Federal Decree-Law No. 47 of 2022 defines a Connected Person of a Taxable Person to include an owner of the Taxable Person, a director or officer of it, and parties related to either. Article 35 separately sets out the Related Parties and Control tests. In an owner-managed UAE company this usually captures the shareholder or shareholders, anyone serving as a director, and family members employed by the business. Identifying that population correctly is the first step of the work, because a payment to someone outside the definition does not need this treatment, and a payment to someone inside it does.

The Decree-Law defines Market Value as the price which could be agreed in an arm's-length free market transaction between persons who are not Related Parties, in comparable circumstances. Two things follow from that. First, it is a market concept rather than an internal one — what the business could afford, or what was agreed between people who both control the company, is not the measure. Second, it produces a range rather than a single correct figure, because comparable arm's-length transactions vary. Well-built benchmarking documents the range and shows where the actual payment sits within it.

A benchmarking file. It contains the connected-person analysis showing who was in scope and why, the documented role scope for each person, the comparable data set with the source and date of every data point, the resulting range, and a written conclusion on the position taken. It is built so a reviewer, auditor or the FTA can follow the reasoning without asking you to explain it. The point of preparing it contemporaneously is that it reads as support prepared at the time, rather than a justification assembled after a query has already been raised.

From published UAE salary surveys and market sources for the same role, sector, company size and emirate, with the source and date recorded against each data point so the file can be audited. We do not maintain a proprietary salary database and we do not present a single 'average UAE salary' figure as though it settled the question — published market averages are compiled on differing methodologies and are not a substitute for a matched comparable set. Where the market data for a specific role is genuinely thin, the file states that and explains how the range was constructed instead of implying a precision that is not there.

Directly. Article 34 sets the arm's length standard for transactions and arrangements between Related Parties, and Article 55 covers transfer pricing documentation. Connected-person remuneration is one of the arrangements that analysis has to cover, so the benchmarking file does double duty: it supports the deduction under Article 36 and feeds the connected-person element of your transfer pricing documentation where you have that obligation. Running the two separately duplicates the work and risks the two files saying different things about the same payment.

The Article 36 market-value test applies to payments to Connected Persons regardless of company size — there is no small-company carve-out from it. What changes with size is the depth of documentation that is proportionate. A company with one shareholder-director on payroll needs a defensible file for one role, not a transfer pricing study. Where a business has elected Small Business Relief its taxable income position differs for that period, but the underlying discipline of paying and evidencing a market-rate salary still matters, not least because the relief is an election that can lapse.

Then the excess is exposed to disallowance as a deduction, because Article 36(1) allows it only to the extent it corresponds with Market Value. We would rather find that before the return is filed than after. Where a payment sits above the range, we set out what the file shows, whether there are duties or circumstances that justify the upper end, and the options available — which may include adjusting the remuneration going forward, restructuring how value is taken out of the business, or accepting and disclosing the position. That is a decision for you; our role is to make sure it is an informed one.

No, and that boundary is deliberate. Velmont Crest is a UAE accounting practice. We prepare the benchmarking analysis, document the position and build the supporting file, and that file is designed to be used in a query or a review. What we do not do is act as your registered FTA tax agent or provide formal representation before the authority. Where representation is needed, we coordinate with a registered FTA tax agent and hand over documentation that is ready to work from rather than a position that has to be reconstructed first.

Before the payments are set for the year, ideally, and in any case before the corporate tax return is filed. Benchmarking done in advance lets you set remuneration inside a defensible range from the start, which is a far better position than discovering after year-end that part of a deduction is exposed. Where a business is already several periods in without documentation, the work can still be done for prior periods — the comparables are dated to the relevant year — but it is a reconstruction, and a reconstruction always reads as weaker support than a file prepared at the time.

Because two packages costing the business exactly the same can carry very different basic salaries, and in the UAE that difference has consequences. End-of-service gratuity accrues on basic pay under Article 51 of the Employment Law, so an allowance-heavy package carries a materially smaller gratuity liability than a basic-heavy one of the same total cost. That means a benchmark comparing headline totals, or comparing basic against basic without checking what sits around it, is comparing two different things. We normalise every comparable to the same footing — basic, allowances such as housing, transport, education and airfare, variable pay, and benefits in kind — before any range is set. For tax the same point cuts deeper still: Article 36(1) speaks of a payment or benefit, so it is the whole package that has to correspond with Market Value, not the payslip line alone.

The peer group differs, so yes in practice. Pay levels, package structure and the mix of nationalities vary between free zone and mainland employers, and between emirates — Abu Dhabi and Dubai are not interchangeable comparators. Building a benchmark without stating which pool it drew from is one of the more common failures, because the resulting range cannot be checked by anyone reading it. We define the peer group explicitly — sector, size band, mainland or free zone, emirate — and record why those boundaries were drawn, so the file shows its own workings rather than asking to be trusted.

They are the 25th, 50th and 75th percentiles of the peer group — the standard way professional compensation work reports market data, rather than a single average. The 50th is the median: half the comparable market pays more, half less. Reporting the distribution matters here for a specific legal reason. The Decree-Law defines Market Value as the price which could be agreed in an arm's-length free market transaction between persons who are not Related Parties, and comparable arm's-length transactions vary — so Market Value is genuinely a range, not one correct figure. A file that shows where pay sits across that distribution is answering the statutory question. A file asserting one number is not.

Annually is the sensible default, and sooner if something material changes — the person's duties shift significantly, the company grows into a different size band, or you move into a new sector or emirate. Market rates move, and a benchmark carrying comparables from three years ago is thin support for a current-year deduction. The refresh is a lighter exercise than the first build, because the connected-person mapping and role scoping are already documented and usually only need confirming rather than reconstructing.

They are separate definitions doing separate jobs. Article 35 sets out Related Parties and Control — broadly, persons connected by ownership, control or kinship, which governs the arm's length requirement in Article 34. Article 36 defines a Connected Person of a Taxable Person to include an owner of it, a director or officer of it, and parties related to them, and governs the deductibility of payments made to those people. In an owner-managed company the same individual is often both, but the tests are applied separately and a payment can be caught by one and not the other.

No, and any firm telling you otherwise is overselling. What a properly built file does is put you in the position of having a documented, sourced, contemporaneous basis for the figure claimed — matched roles, comparables with provenance, a stated range and a written conclusion. That is what the market-value test in Article 36(1) is asking you to be able to show. Whether a particular position is accepted turns on the facts of your case, and we are not a registered FTA tax agent and cannot represent you if it is contested.

Article 36 restricts deductions for amounts above Market Value; it does not impose a minimum salary, so paying nothing does not create an Article 36 problem in itself. What it can create is a different issue — a business claiming no remuneration expense for the people actually running it presents an unusual profile, and how you extract value instead may carry its own consequences depending on your structure. Benchmarking tells you what the role is worth, which is the input that decision needs before it is made rather than after.

It can be done for prior periods, and comparables are dated to the relevant year rather than to today, so the range reflects the market as it was. The honest caveat is that a file built for a period that has already closed is a reconstruction, and a reconstruction is weaker support than documentation prepared at the time — a reviewer can see when the analysis was done. Where several periods are open we usually build the current year properly first and then work backwards, so the strongest file covers the position most likely to be examined.

Yes, and arguably with more at stake. The Article 36 market-value test applies regardless of where the entity is licensed. For a Qualifying Free Zone Person the wider question of maintaining a defensible position matters more, not less, because the benefit at risk is a 0% rate rather than a single deduction. Connected-person remuneration is one of the arrangements that a free zone entity's file should be able to stand behind.

The election changes how your taxable income is treated for that period; it does not repeal the Article 36 market-value test on payments to Connected Persons. Two practical reasons to benchmark anyway: Small Business Relief is an election that can lapse — turnover grows, or the relief is not available in a later period — and the year it lapses you are back inside the ordinary rules with no documented history of what your own remuneration was based on. Building the file while the position is simple is considerably easier than reconstructing several years of it later.

That is a structuring question rather than a benchmarking one, and the answer depends on your entity, your shareholding and your wider position — including how profits are taxed in the company and any obligations in your home jurisdiction. What benchmarking tells you is what the role itself is worth at arm's length, which is the input that decision needs. Deliberately under-paying a genuine role does not automatically create a problem under Article 36, because the article restricts deductions above Market Value rather than requiring a minimum, but it can raise questions elsewhere. We set out the position and coordinate a registered FTA tax agent where a formal opinion is needed.