As transfer pricing enforcement matures in the UAE, tax authorities are sharpening their focus on the link between human capital and value creation. Compensation benchmarking in the UAE is now a defensive shield for finance and tax teams to understand the related-party transactions. 

Companies that proactively align their compensation structures with their transfer pricing models, using reliable UAE-specific data will not only enhance compliance but also minimize audit risk and penalties. 

Here are five red flags related to compensation benchmarking in the UAE that can raise questions and potentially trigger audits if left unaddressed: 

Compensation Benchmarking in the UAE: 5 Red Flags That Can Trigger Transfer Pricing Scrutiny 

1. Salary Below Identified Interquartile Range for Critical Functions 

If key management personnel or specialized is not within the identified interquartile range then it could undermine the FAR, this could undermine the credibility of your functional and risk analysis (FAR) in transfer pricing documentation. 

In TP reports, high-value functions (such as strategic management, intellectual property development, or treasury) must be properly remunerated to reflect their contribution. Undervaluing these roles could give tax authorities reason to question whether the UAE entity actually performs those functions or if profits are being shifted elsewhere. 

2. Inflated Job Titles, Misaligned Roles 

It’s not uncommon for internal structures to feature impressive-sounding titles. However, compensation benchmarking in the UAE and transfer pricing relies on substance, not semantics. 

For example, labeling a coordinator as a “Director” or a back-office accountant as a “Finance Controller” may not reflect the true nature of their responsibilities. During an audit, the FTA may request job descriptions, KPIs, and reporting lines to assess whether the compensation matches the functional profile. 

3. Use of Generic Benchmarks (Asia/EMEA Instead of UAE-Specific Data) 

Compensation benchmarking in the UAE using broad regional data such as “Asia-Pacific” or “EMEA” averages might seem cost-effective but it can be dangerously misleading. 

Compensation structures in the UAE are influenced by a unique combination of expat demographics, tax-free salaries, and high allowances. Using benchmarks that don’t reflect this reality can lead to inaccurate cost bases, flawed transfer pricing adjustments, and increased audit risk. 

4. Exclusion of Allowances and Perks from Total Compensation 

In the UAE, allowances such as housing, transportation, and education often make up a significant portion of an individual’s total compensation particularly in high-paying sectors like oil & gas, consulting, and financial services. Excluding housing, transport, schooling, and relocation allowances from your salary benchmarks results in underreporting compensation costs, thereby understating the economic value of services provided. 

5. Unexplained Uplifts in Intercompany Charges 

Transfer pricing adjustments, such as uplifts in management fees or shared service charges, are only justifiable if there’s clear supporting evidence like increased headcount, expanded functions, or higher compensation outflows. 

If intercompany charges spike by 20% year-on-year but your compensation benchmarking in the UAE or employee base hasn’t changed, it could raise serious red flags. 

What the FTA Expects from Compensation Benchmarking in the UAE? 

To stay audit-ready and compliant, multinationals must align compensation data with the broader transfer pricing narrative. Here’s what the FTA typically looks for: 

• UAE-specific or comparable compensation benchmarks 

• Alignment between roles, responsibilities, and pay 

• Inclusion of full compensation (salary + allowances + perks) 

• Clear rationale behind intercompany charge structures 

• Documented links between compensation, functions, and risk assumption 

How MS Can Help with Compensation Benchmarking in the UAE? 

 At MS, we help UAE businesses align compensation structures with transfer pricing requirements through tailored, data-driven compensation benchmarking in the UAE. From evaluating executive pay to mapping allowances and structuring cross-border remuneration, we ensure your compensation approach is compliant, defensible, and a driver of long-term performance and talent retention.