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. 

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. 

As the UAE continues its journey towards aligning with global tax standards, Transfer Pricing (TP) has become a key regulatory focus under the country’s Corporate Tax regime. Among the areas drawing the most attention from tax authorities is the remuneration of Key Management Personnel (KMP), especially when these individuals also happen to be shareholders, directors, or otherwise Connected Persons. 

With the Federal Tax Authority (FTA) and financial regulatory authorities actively assessing the fairness of such payments, it’s crucial for UAE businesses to ensure that any remuneration to these individuals is defensible, well-documented, and consistent with the Arm’s Length Principle (ALP). 

Let’s unpack what this means for your business, explore salary benchmarking for transfer pricing, and highlight common pitfalls to avoid. 

What Is Transfer Pricing (TP)? 

Transfer Pricing is a tax concept that governs the pricing of transactions between Related Parties or Connected Persons, that is, people or entities with a relationship that could influence the terms of the transaction. These transactions must be priced as if they were carried out by independent parties under comparable conditions known as the Arm’s Length Principle. 

Why It Matters: 

The goal is to prevent companies from manipulating prices to shift profits to jurisdictions with lower or zero tax and ensure fair taxation in each country where they operate. 

In the UAE, TP is governed by Article 34 of the Corporate Tax Law and is further supplemented by OECD-aligned guidelines. 

To know more on transfer pricing, click here. 

Controlled Transactions: The Trigger Point 

TP rules apply to any controlled transaction between a taxable entity and its related or connected parties. These can include: 

• Sale or purchase of goods or services 

• Provision of loans, guarantees, or financial support 

• Use of intellectual property, trademarks, or managerial expertise 

• Director or partner remuneration and benefits 

Even domestic transactions between UAE entities (or individuals and entities) must comply if they involve connected persons. 

Who Are Connected Persons? 

The term “Connected Persons” under UAE law includes: 

A Connected Person includes: 

1. Owners – Anyone who holds ownership in the business, such as shareholders or partners. 

2. Directors or Officers – Individuals involved in managing the company or making executive decisions. 

3. Related parties of the persons above  

Salary Benchmarking for Transfer Pricing: Why the Emphasis? 

Connected persons can influence how much they are paid or how profits are allocated. Without oversight, this opens doors for non-arm’s-length arrangements that reduce a business’s taxable income. 

KMP Remuneration: Why It Falls Under TP Scrutiny 

Key Management Personnel (KMP) are individuals who play a significant role in managing a company’s strategy and operations such as CEOs, CFOs, General Managers, and board members. 

The authorities may question whether the KMP remuneration is genuinely commercial or influenced by their ability to control the business. In such cases, salary benchmarking for transfer pricing becomes critical to demonstrate that the compensation aligns with the Arm’s Length Principle and reflects market-based rates. 

Key Requirements: 

• Payment must be at arm’s length: Comparable to what a similar company would pay to a third party for similar services. 

• Documented rationale is essential: Especially for mixed roles (e.g., a shareholder also acting as the managing director). 

• Disclosure is mandatory: Relevant transactions must be reported in the TP Disclosure Form (wherever aggregate value exceeding AED 500,000) and backed by evidence. 

Why Benchmarking KMP Compensation Is Challenging? 

Compensating KMP is rarely straightforward. Their remuneration is often made up of: 

• Fixed salary 

• Performance-based bonuses 

• Director fees 

• Stock options 

• Housing or travel allowances 

• End-of-service benefits or incentives 

Each of these components may require salary benchmarking for transfer pricing. Further complexity arises when the individual wears multiple hats as both strategic decision-maker and operational manager. 

Salary Benchmarking for Transfer Pricing: Common Challenges Businesses Face 

• Lack of UAE-Specific Data: Market salary surveys for senior roles in UAE-specific sectors may be hard to come by. 

• Subjectivity in Role Assessment: Each KMP role is unique. Job titles don’t always reflect responsibilities. 

• Closely-Held Companies: Director-shareholders often perform multiple roles, blurring the line between investment returns and executive compensation. 

• FTA Review Sensitivity: Payments to connected persons may trigger audit reviews if not well-documented or appear excessive. 

• Changing Regulations: As UAE TP guidance evolves, businesses must stay agile and update their compliance frameworks accordingly. 

Practical Steps to Stay Compliant 

Here’s how you can prepare and defend your KMP remuneration under the UAE transfer pricing regime: 

 1. Conduct a Functional Analysis (FAR) 

Map out the functions performed, assets used, and risks assumed by KMPs. This analysis forms the basis for justifying their remuneration. 

2. Use Third-Party Salary Benchmarks 

Compile data from reliable UAE or GCC-specific sources. Keep screenshots, citations, or research logs for documentation. 

3. Document Board Decisions and Contracts 

Maintain board meeting minutes, employment contracts, and bonus criteria to evidence the commercial basis of pay. 

4. Segregate Roles and Compensation 

If a shareholder is also a manager, break down their compensation into strategic vs. operational roles and only claim a deduction for whatever is warranted by the TP analysis. 

 5. Maintain a Transfer Pricing Policy 

Even if not legally required, a formal TP policy provides clarity and protects against scrutiny. 

6. Seek Professional Advice 

Engage TP specialists or advisors to guide complex benchmarking and handle documentation requirements like the TP Disclosure Form, Local File, and Master File (if applicable). 

Why It Pays to Get It Right 

By ensuring your KMP remuneration is well-structured and defensible, your business can: 

• Avoid FTA penalties and disputes 

• Ensure full tax deductibility of management expenses 

• Build a stronger governance framework 

• Boost investor confidence through transparency 

• Align with global best practices 

Looking Ahead: The Strategic Takeaway for Salary Benchmarking for Transfer Pricing 

With increasing regulatory oversight, businesses must treat payments to directors and KMP with the same rigor as any third-party transaction. The cost of non-compliance is far greater than the effort required to put proper salary benchmarking for transfer pricing and documentation in place. 

Whether you’re a small family-run business or a multinational operating in the UAE, now is the time to reassess your KMP arrangements and bring them in line with Transfer Pricing expectations. 

How Can MS Help? 

At MS, we help UAE businesses tackle the complexities of employee and executive compensation with precision, compliance, and clarity. Whether you’re looking to benchmark salaries in line with UAE transfer pricing requirements, assess existing pay structures, or align your compensation strategy with both local regulations and global standards, our experts deliver data-driven, tailored solutions. 

From detailed salary benchmarking for transfer pricing reports to equity reviews and cross-border remuneration strategies, we ensure your approach to compensation is not only compliant and defensible—but also a powerful tool for performance, transparency, and long-term talent retention. 

It’s a wild time in the world of talent acquisition. The script has flipped, and employees are no longer just applying for jobs; they’re evaluating you as much as you’re evaluating them. And when compensation becomes the deciding factor, being off the mark is expensive. 

Why Compensation Is No Longer a Backend Issue? 

Once considered a backend HR function, compensation has moved front and center in the talent conversation. Today, the question isn’t just “Are we paying enough?” but also: 

• Are we paying competitively in this city? 

• Are we offering enough to retain someone who just got three offers abroad? 

• Can we explain how we landed on this number if challenged? 

These are no longer luxury questions. They’re essential. Because the war for talent isn’t cooling down any time soon, especially not in a evolving market like the UAE. 

The UAE Labor Market in 2025: Fast, Fierce, and Fluid 

If you’re hiring in the UAE, you already know: that the market has changed. 

With new entrants, global talent mobility, and region-specific policy shifts, employee expectations have grown. So have salaries. Strategic roles across tech, healthcare, finance, and logistics have seen compensation packages climb—sometimes quietly, sometimes dramatically. 

But if you’re not benchmarking salaries, you’re playing catch-up. 

What Exactly Is Salary Benchmarking in the UAE? 

At its core, salary benchmarking in the UAE means understanding what others are paying for similar roles in your market and using that information to shape your own compensation decisions. It goes beyond simple averages, but it digs into: 

• Industry trends 

• Job level and responsibilities 

• Geographic location 

• Company size 

• Skill demand and scarcity 

Why Smart Companies Follow Salary Benchmarking in the UAE and Others Bleed Talent? 

Salary benchmarking isn’t just for big enterprises. Every company, be it startups, SMEs, multinationals, stands to gain. Here’s how: 

1. You Keep Top Talent from Jumping Ship 

In today’s competitive market, employees don’t need to “look” for better pay, it finds them. Salary benchmarking in the UAE helps you proactively spot and close pay gaps before someone else does. 

2. You Stay on the Right Side of the Law 

UAE labor regulations around fair compensation are evolving. Salary benchmarking in the UAE ensures compliance and protects you from costly penalties. 

3. You Build a Reputation as a Fair Employer 

In a transparent world, reputation matters. Pay fairly, and word gets around. Benchmarking supports employer branding by showing you take compensation seriously. 

4. You Budget Smarter 

Knowing the true cost of talent helps you plan headcount, avoid overpayment, and still remain competitive where it matters. 

What’s Driving Salary Differences in the UAE? 

The salary isn’t static. It’s shaped by a mix of economic, social, and structural factors. Here’s what’s influencing salary ranges in 2025: 

• Supply and demand: Niche skills (think cybersecurity or AI) command premium pay. Basic roles with an abundant talent pool? Not so much. 

• Economic strength: The UAE’s robust economy allows many sectors to stretch compensation. But not all industries grow equally. 

• Company profile: Large firms and MNCs tend to offer higher pay due to deeper pockets. Smaller firms? They may compete with flexibility or benefits instead. 

• Regulations: From minimum wage mandates to sector-specific rules, government policies continue to shape pay bands. 

So… When Should You Benchmark? 

Honestly? Yesterday. 

But if you’re seeing any of the below, it’s time to act now: 

• High employee turnover in key roles 

• Offers rejected due to “low pay” 

• Industry chatter about salary shifts 

• Mergers, restructuring, or entering new markets 

• Year-end compensation planning 

Where HR Meets Tax: The Overlap Between Salary Benchmarking in the UAE and Transfer Pricing 

Salary benchmarking and transfer pricing intersect when multinational companies allocate employee costs across jurisdictions or engage in intercompany secondments. In such cases, salaries must align with arm’s-length standards to meet transfer pricing compliance. Salary benchmarking in the UAE ensures that compensation reflects fair market value, helping justify intercompany charges and avoid regulatory scrutiny especially crucial in the nation, where OECD-aligned rules are tightening. 

How Can MS Help? 

At MS, we support UAE businesses in tackling the complexities of employee compensation with precision and insight. Whether you’re looking to salary benchmarking in the UAE, review pay structures or align your compensation strategy with local and international standards, our experts deliver tailored, data-driven solutions. From comprehensive benchmarking reports to equity audits and cross-border strategy development, we ensure your compensation approach is fully compliant, future-ready, and a true lever for talent retention.