Are salaries paid to owners deductible?

Article 33 – Non-deductible Expenditure No deduction is allowed for: 1. Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity. 2. Fines and penalties, other than amounts awarded as compensation for damages or breach of contract. 3. Bribes or other illicit payments. 4. Dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person. 5. Amounts withdrawn from the Business by a natural person who is a Taxable Person under paragraph (c) of Clause 3 of Article 11 of this Decree-Law or a partner in an Unincorporated Partnership. 6. Corporate Tax imposed on a Taxable Person under this Decree-Law. 7. Input Value Added Tax incurred by a Taxable Person that is recoverable under Federal Decree-Law No. (8) of 2017 referred to in the preamble and what replaces it. 8. Tax on income imposed on the Taxable Person outside the State. 9. Such other expenditure as specified in a decision issued by the Cabinet at the suggestion of the Minister. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 39 Chapter Ten – Transactions with Related Parties and Connected Persons

Article 28 – Deductible Expenditure 1. Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature shall be deductible in the Tax Period in which it is incurred, subject to the provisions of this Decree-Law. 2. For the purposes of calculating the Taxable Income for a Tax Period, no deduction is allowed for the following: a. Expenditure not incurred for the purposes of the Taxable Person’s Business. b. Expenditure incurred in deriving Exempt Income. c. Losses not connected with or arising out of the Taxable Person’s Business. d. Such other expenditure as may be specified in a decision issued by the Cabinet at the suggestion of the Minister. 3. If expenditure is incurred for more than one purpose, a deduction shall be allowed for: a. Any identifiable part or proportion of the expenditure incurred wholly and exclusively for the purposes of deriving Taxable Income. b. An appropriate proportion of any unidentifiable part or proportion of the Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 36 expenditure incurred for the purposes of deriving Taxable Income that has been determined on a fair and reasonable basis, having regard to the relevant facts and circumstances of the Taxable Person’s Business.

Adjust Relevant adjustments Amount Note • Provision for fines and penalties (in relation to statutory body regulating healthcare industry) • Taxable Income 0% up to AED 375,000 9% above AED 375,000 Corporate Tax Payable 1,000,000 5.3.13 19,230,000 0 1,696,950 1,696,950 5.3 Explanatory notes 5.3.1 Expenditure incurred wholly and exclusively for the purpose of the Business As noted in Section 4.5.1, expenditure that is incurred wholly and exclusively for the purposes of the Taxable Person’s Business (which is not capital in nature) is deductible for Corporate Tax purposes.122 (A) Salary and bonus paid to directors who are shareholders: Shareholders Mr A and Mr B are executive directors of Company F, involved in the day-to-day operations of the company and have signed an employment contract with Company F. The salary and variable pay to such director-shareholders is as per prevailing industry standards. Amounts paid are for the services rendered by Mr A and Mr B to Company F in their capacity as executive directors and not as shareholders. Accordingly, the amounts paid to the executive directors as employees will be considered as incurred wholly and exclusively for the Business of Company F, and hence, deductible expenditure i.e. no adjustment is required to the Accounting Income while determining the Taxable Income in relation to the AED 5,000,000 paid to the directors. It is assumed for the purpose of the example that the payment to directorshareholders is at arm’s length. (B) Employee benefits (for home working): Company F employs certain professionals who are required to exclusively work from home. Company F agrees to reimburse the increased associated cost for such employees (such as home office set up, and part of the utility bills). 122 Article 28(1) of the Corporate Tax Law. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 54

and the specific situation of the partner (natural person or juridical person)(refer Section 5.5.2). 5.5.6. Salary paid to partners in an Unincorporated Partnership Partners normally receive a share of profit from the partnership. However, a partnership can also pay a salary to its partners if this is specifically provided for in the partnership deed or agreement. The Corporate Tax implications for the Unincorporated Partnership and the partners in cases where the partnership decides to pay a salary to its partners are discussed below. Note this Section is relevant only where the partners are natural persons as a salary cannot be paid to a partner that is a juridical person. Item Fiscally transparent Unincorporated Partnership Fiscally opaque Unincorporated Partnership Salary paid to Implications for the partners by the Unincorporated Partnership: Unincorporated Partnership Not applicable as the fiscally transparent Unincorporated Partnership is not treated as a Taxable Person. Implications for the Unincorporated Partnership: Any salary received by the partners (natural persons) will be treated as an amount withdrawn from the Business and hence the same will be nondeductible while determining A salary received by the relevant partner will be excluded from the Taxable Income of such partner on basis that such income has already Where in a fiscally opaque Unincorporated Partnership salary is paid to a partner, the same will be treated as profit distributions or benefits of a Implication for the partners that similar nature paid to the owner, are natural persons: i.e. the partner (natural person). Hence such salary will be nonThe partners of a fiscally deductible for Corporate Tax transparent Unincorporated purposes for the partnership.79 Partnership are treated as Taxable Persons and subject to Implications for the partner that Corporate Tax. is a natural person: 79 Article 33(4) of the Corporate Tax Law. Corporate Tax Guide | Taxation of Partnerships | CTGPTN1 39