Director Remuneration in the UAE
Are you certain that your director remuneration complies with UAE’s corporate tax framework? With the implementation of new corporate tax laws, businesses must carefully structure payments to directors to ensure they remain both compliant and competitive. This guide explains the rules, strategies, and best practices for handling directors’ remuneration in the UAE
What is Directors’ Remuneration in the UAE
Directors’ remuneration refers to the compensation paid to company directors for their professional services. This may include salaries, allowances, bonuses, and other benefits linked to their responsibilities in guiding the company’s strategy and management.
Such payments not only help attract and retain top talent but also demonstrate alignment with corporate governance standards and compliance with UAE tax regulations.
How Director Remuneration is Determined in the UAE
Directors’ remuneration refers to the compensation paid to company directors for their professional services. This may include salaries, allowances, bonuses, and other benefits linked to their responsibilities in guiding the company’s strategy and management.
Such payments not only help attract and retain top talent but also demonstrate alignment with corporate governance standards and compliance with UAE tax regulations.
How Director Remuneration is Determined in the UAE
In the UAE, director remuneration is governed by the company’s policies and, in many cases, requires shareholder approval at the annual general meeting.
Factors that influence remuneration include:
- Market benchmarks for similar roles within the UAE.
- The company’s financial performance.
- The director’s scope of duties and level of contribution.
- UAE laws and corporate governance frameworks.
Companies must also ensure that these payments meet the Federal Tax Authority’s (FTA) requirements, so they are not reclassified in ways that could affect deductibility.
Components of Director Remuneration Package
A director’s compensation plan in the UAE may be structured with several elements, such as:
- Base Salary: A fixed income reflecting expertise and responsibility.
- Annual Bonus: A performance-based incentive tied to specific targets or overall results.
- Pension Contributions: Applicable in some cases, varying for UAE nationals and expatriates.
- Additional Benefits: Common perks like health insurance, travel allowances, housing, or company vehicles.
- Equity Incentives: Stock options or similar benefits that link compensation to long-term business success.
Each component should be documented and benchmarked to UAE market standards to demonstrate compliance.
Role of the Remuneration Committee
A remuneration committee is central to ensuring fair, transparent, and compliant director compensation. Its responsibilities include:
- Designing remuneration policies aligned with company goals and UAE regulations.
- Maintaining clarity and accountability in decisions.
- Reviewing and approving salaries, benefits, and incentives.
- Ensuring compliance with corporate governance and tax obligations.
For companies operating in the UAE, a strong committee framework helps reduce risks and ensures adherence to both governance codes and the new Corporate Tax Law.
Income Tax Impact on Directors’ Remuneration
Corporate tax rules in the UAE directly affect how directors’ remuneration is treated:
- Deductibility: Payments are deductible only when they reflect market value and are strictly business-related.
- Non-Deductible Items: Profit distributions, dividends, and similar payments cannot be claimed as expenses.
- Documentation: Clear records, including contracts and meeting minutes, must be maintained for at least seven years.
Proper structuring ensures that directors’ compensation is not mistakenly categorized as non-deductible profit sharing.
Current Trends in Directors’ Remuneration in the UAE
Businesses in the UAE are evolving their remuneration practices with these emerging trends:
- Stronger emphasis on regulatory compliance under new corporate tax rules.
- Growing use of performance-linked pay such as bonuses and stock-based incentives.
- Benchmarking compensation against UAE-specific market data for competitiveness and compliance.
Staying in line with these trends helps businesses balance compliance with attracting high-caliber directors.
Legal Framework for Directors’ Remuneration in the UAE
The UAE has set out a structured legal and regulatory framework that governs director remuneration:
- Corporate Tax Law: Payments must be reasonable, business-related, and market-aligned to qualify as deductible.
- Transfer Pricing Regulations: Transactions, including director payments, must follow arm’s-length principles.
- Record-Keeping Requirements: Contracts, minutes, and supporting documents must be preserved for a minimum of seven years as per FTA rules.
By following these laws, businesses can protect themselves from disputes and avoid costly penalties.
Conclusion
Directors’ remuneration in the UAE requires careful planning and a strong compliance approach. By benchmarking against industry standards, creating clear policies, and maintaining detailed documentation, businesses can ensure director payments remain compliant and transparent.
Well-structured remuneration policies not only help companies meet regulatory standards but also support effective governance and long-term growth.
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Frequently Asked Questions (FAQs)
Frequent errors include missing contracts or board approvals, misclassifying payments as profit distributions, and failing to align packages with market standards. These can lead to disputes and non-deductible expenses.
Non-monetary perks such as housing allowances, flight tickets, or medical insurance are deductible if they are part of an employment package and meet market standards. Detailed records are essential
The corporate tax law applies to both; however, some free zones offer specific exemptions or incentives. Businesses must review their respective free zone regulations to ensure compliance.
Benchmarking ensures that payments reflect market value and comply with transfer pricing principles, preventing the FTA from challenging deductions.
Maintaining robust records such as contracts, benchmarking studies, and meeting minutes is critical. In case of disputes, businesses can seek professional representation or submit a reconsideration request to the FTA.
NOTE:
The above note is subject to further study and clarification. It does not constitute a formal opinion from our end. Before making any decisions based on the above, we recommend consulting our experts on the subject.
