With the UAE introducing Corporate Tax (CT) from June 1, 2023, companies need to carefully manage shareholder remuneration to stay compliant and optimize their tax position. Understanding how salaries, dividends, and management fees are treated under the new tax regime is crucial for business owners.
What is Shareholder Remuneration?
Shareholder remuneration refers to any payment made to shareholders for their involvement in the company. Common forms include:
Salaries or management fees for operational or executive roles
Dividends from profits
Bonuses or profit-sharing arrangements
Allowances or benefits-in-kind
Proper structuring ensures tax efficiency while remaining compliant with UAE Corporate Tax law.
How Corporate Tax Impacts Shareholder Remuneration
1. Salaries and Management Fees
Payments to shareholder-directors for their services are generally deductible from taxable profits, provided they are reasonable and wholly for business purposes.
This reduces the company’s taxable base, lowering the 9% CT liability for profits above AED 375,000.
2. Dividends and Profit Distribution
Dividends are not deductible from the company’s taxable profits.
However, dividends received by shareholders are tax-free, making them an attractive way to distribute profits.
3. Reasonable vs. Excessive Payments
Excessive salaries or benefits may be disallowed as tax deductions.
Maintain proper documentation, including board resolutions and service agreements, to support the payments.
4. Related-Party Transactions
Shareholder remuneration is considered a related-party transaction.
Companies must ensure transparency and compliance with the Federal Tax Authority (FTA) rules.
Best Practices for UAE Companies
Separate Salaries from Dividends: Clearly distinguish payments for services from profit distribution.
Document Everything: Maintain agreements, payment records, and board approvals.
Benchmark Compensation: Align shareholder salaries and management fees with market standards.
Plan Remuneration Strategically: A combination of reasonable salaries and dividends can optimize Corporate Tax and maximize shareholder value.
Consult Tax Advisors: Expert guidance ensures compliance with UAE CT regulations and avoids costly mistakes.
Why Proper Shareholder Remuneration Planning Matters
Effective planning of shareholder remuneration ensures:
Compliance with UAE Corporate Tax law
Optimized taxable profits and CT liability
Fair compensation for shareholder-directors
Clear documentation for audits and FTA reviews
Key Takeaways
Salaries and management fees to shareholders can reduce taxable profits if reasonable and documented.
Dividends are tax-free for shareholders, but non-deductible for the company.
Proper structuring and documentation are essential for tax efficiency and compliance.