Dubai salary - arm's length under corporate tax

[yoyodubai]

With the newly introduced corporate tax in the UAE, I would like to get some clarity on salary.

My FZCO will be doing less than AED 3 million so I will be claiming Small Business Relief and paying 0% tax.

In previous years, I have been paying myself a significant salary. Now with corporate tax and the arms length principle, I'm trying to figure out if I can continue doing so.

I work 70-100 hours each week, run the company myself, no contractors, and if I were to be replaced it would require a 2-4 person team (no exaggeration). There are no good comps or benchmarks on this unless you combine the salaries of a software developer, general manager and so on.

Am I asking for trouble if I continue to pay out a significant salary? As I will be claiming SMR, I'm not taking out a large salary to minimise my tax obligation as there won't be one. What could the possible implications be here? Penalties?

I'm also assuming if I were to fix my salary to let's say AED 20K per month and everything else as a bonus for hitting a sales target or whatever, it will have the same effect as if I were just taking out the same amount as a salary?

 

[CyprusLawyer101]

A local advisor would be your best bet here.
Generally arm's lenght corresponds to what would have been the case in a parallel non controlled commercial transaction. Therefore if you work for 2-4 persons capacity then such corresponding salary could be justified.
In essense don't try to be extreme in your planning and ensure some yeyo is paid to the Tax authorities too.

 

[yoyodubai]

A local advisor would be your best bet here.
Generally arm's lenght corresponds to what would have been the case in a parallel non controlled commercial transaction. Therefore if you work for 2-4 persons capacity then such corresponding salary could be justified.
In essense don't try to be extreme in your planning and ensure some yeyo is paid to the Tax authorities too.

Gotcha. Appreciate your input.

I've been seeking local advice, but this is Dubai. I guess that says it all

Just highlighting, there will be no tax regardless of salary taken due to the ability to claim small business relief since my revenue will be less than AED 3m.

 

[CyprusLawyer101]

Gotcha. Appreciate your input.

I've been seeking local advice, but this is Dubai. I guess that says it all

Just highlighting, there will be no tax regardless of salary taken due to the ability to claim small business relief since my revenue will be less than AED 3m.

Therefore, your concerns are obsolete.

 

[JackieTsan]

so have they clarified? Any company less than 3M AED can apply for the SBR and get tax to 0%?? Is sure? What about the RAK / SJARJAH / AJMAN and other offshores?
thanky

 

[Dandyline]

Not sure how they will resolve this, haven't heard of any country that regulates how much salary you can take as a company owner.

 

[yoyodubai]

so have they clarified? Any company less than 3M AED can apply for the SBR and get tax to 0%?? Is sure? What about the RAK / SJARJAH / AJMAN and other offshores?
thanky

From PwC:

"The UAE CT Law provides tax relief for small businesses. A tax resident person may elect to be treated as not having derived any taxable income where the revenue for the relevant and previous tax periods does not exceed AED 3 million during each relevant tax year. If such threshold is exceeded, then the taxable person will be subject to UAE CT at the relevant rates as provided under the CT Law. The abovementioned revenue threshold will be applicable starting on or after 1 June 2023. However, it will only apply to subsequent tax periods that end before or on 31 December 2026. If a tax resident person applies for ’small business relief‘, certain provisions of the CT Law will not apply, such as exempt income, reliefs, deductions, tax loss relief, and transfer pricing compliance requirements, as specified in the relevant chapters of the CT Law. The FTA may request any relevant records or supporting information to verify the compliance within a timeline (to be confirmed). If a taxable person intentionally separates its business solely to meet the threshold of AED 3 million and elects not to be subject to UAE CT, the FTA can make compensating adjustments to the UAE CT liability of the relevant taxable person."