Numbers tell a story in the world of transfer pricing and when it comes to salaries, that story better be accurate. 

With the UAE’s corporate tax regime now in full effect and transfer pricing compliance firmly in the spotlight, businesses can no longer afford to overlook how they benchmark compensation for related-party transactions. 

But here’s the challenge: in a market like the UAE, where job titles rarely tell the full story and reliable salary data is often hard to come by, arriving at a truly “arm’s length” compensation figure is anything but straightforward. 

Let’s breakdown the real-world challenges in salary benchmarking for transfer pricing that businesses face and share practical, UAE-specific insights to help you get it right. 

What Are the Challenges in Salary Benchmarking in the UAE? 

1. Lack of UAE-Specific Data 

Market salary surveys especially for senior roles in specialized sectors such as financial services, tech, or family offices are limited in the UAE. Global databases often lack coverage or nuance when it comes to Free Zones like DIFC or ADGM, where compensation packages can differ significantly from the mainland. 

2. Subjectivity in Role Assessment 

Job titles alone are misleading. A “Chief Financial Officer” in one UAE entity may operate as a full-fledged decision-maker, while another with the same title might only oversee reporting. Accurately mapping functions to compensation, a core requirement in transfer pricing becomes difficult without clear internal role definitions. 

3. Closely-Held and Family-Owned Companies 

In many UAE businesses, especially closely-held entities or family groups, director-shareholders often wear multiple hats like owner, executive, and advisor. This blurs the line between returns on capital (dividends) and compensation for services rendered, creating significant challenges in salary benchmarking. The complexity of these roles makes it harder to establish clear compensation figures that align with the arm’s length principle, increasing transfer pricing risk and complicating compliance efforts for businesses in the UAE. 

4. FTA Review Sensitivity 

The Federal Tax Authority (FTA) and individual freezone authorities pay close attention to payments made to connected persons. Compensation that appears excessive, undocumented, or inconsistent with third-party benchmarks may trigger audit queries, adjustments, or even penalties especially when dealing with Key Management Personnel (KMP). 

5. Evolving Regulatory Expectations 

Transfer pricing is still maturing in the UAE. With guidance evolving, especially under Ministerial Decisions and clarifications, businesses face growing challenges in salary benchmarking. A static compliance model won’t suffice, in fact agility is key to staying aligned with current FTA expectations. 

Challenges in Salary Benchmarking: Practical Steps to Stay Compliant in the UAE 

To stay compliant with salary benchmarking in the UAE, businesses should begin by clearly defining and documenting roles, ensuring that job descriptions accurately reflect the full scope of responsibilities. This step is essential for applying the arm’s length principle, especially when dealing with related-party transactions. Since reliable UAE-specific salary data can be scarce and is one of the main challenges in salary benchmarking, it’s important to use local sources that reflect the market conditions in Free Zones and financial centers. As transfer pricing regulations continue to evolve, companies must stay agile by regularly reviewing their policies and keeping up with updates from the Federal Tax Authority (FTA). By maintaining detailed documentation and staying proactive in adjusting compensation structures, businesses can safeguard against FTA audits and ensure ongoing compliance with UAE tax laws. 

How MS Can Help to Tackle the Challenges in Salary Benchmarking? 

At MS, we specialize in helping businesses navigate the complexities of salary benchmarking for transfer pricing in the UAE. Our team ensures accurate role mapping and documentation, providing clear definitions of key management roles that align with regulatory requirements. We offer access to reliable, UAE-specific salary data and use advanced benchmarking methodologies to ensure your compensation packages comply with the arm’s length principle and get rid of challenges in salary benchmarking. With our up-to-date knowledge of evolving transfer pricing regulations, we help businesses stay ahead of the curve and maintain audit-ready documentation, minimizing risks and ensuring compliance with the Federal Tax Authority.