The UAE has no personal income tax, so neither a salary nor a dividend is taxed in the owner's hands in the UAE. The difference lies elsewhere. A genuine, arm's length salary is generally a deductible expense for the company, while a dividend is a distribution of profit and is not. Salary also brings payroll, visa and end-of-service duties.
No personal income tax
The UAE does not tax salary, dividends or most investment income of individuals. Corporate tax applies to the company's profit, and a natural person is within corporate tax only for business activity above the turnover threshold. See is there income tax in the UAE and corporate tax for natural persons. Withholding tax on dividends and interest paid is 0%; see withholding tax in the UAE. The owner's home country may still tax what is received, so check your own residence position.
Salary against dividend
| Feature | Salary | Dividend |
|---|---|---|
| Company's corporate tax | Generally deductible if genuine and arm's length | Not deductible, paid from after-tax profit |
| Personal UAE tax | None | None |
| Needs profit in the company | No, a cost whether or not there is profit | Yes, distributable profit and legal conditions |
| Payroll duties | Employment contract, WPS, visa, gratuity | None, but company law rules apply |
| Source of income to the bank | Evidence of employment income | Evidence of investment income |
When a salary is deductible
Corporate tax allows a deduction for expenses incurred wholly and exclusively for business, and payments to connected persons, such as an owner, are examined to ensure they are at arm's length. A salary that matches the work done and the market rate for the role is likely to be accepted. An excessive salary, or payments labelled as salary that are in substance a distribution, may be adjusted. Keep a written role description, an employment contract and evidence of the work done. See deductible expenses and the arm's length principle.
Dividends
A dividend is a distribution of profit approved under company law and the memorandum, usually by shareholder resolution after the financial statements are approved. Do not pay a dividend when the company has no distributable profit, since that may breach company law and create a loan or other issue. Record each dividend in the minutes and the books. For a shareholder that is itself a company, dividends may qualify for the participation exemption; see participation exemption.
Payroll duties for a salary
- A mainland company needs a labour contract and visa for an owner who works as an employee.
- Payroll is processed through the Wage Protection System; see the WPS employer guide.
- End-of-service gratuity accrues; see end of service gratuity.
- Free zones have their own visa and payroll rules; check your zone.
Do not mix personal and company money
Withdrawals that are neither salary nor dividend are treated as shareholder loans or drawings. Record them in a shareholder account, repay or regularise them before year end and keep the evidence. Unexplained balances attract questions from auditors, banks and the FTA. See management vs statutory accounts.
How to decide
- Pay a market-rate salary for genuine work, with a contract.
- Distribute surplus profit by dividend, after accounts are approved.
- Keep minutes, payroll files and shareholder account records.
- Review the mix each year with your accountant, considering your home country's tax rules.
Worked examples
A consultant earns AED 600,000 in profit in a company. She takes an AED 240,000 salary under a contract and the company pays AED 360,000 less corporate tax after the salary is deducted. If instead she took no salary, the company's taxable profit would be higher by AED 240,000 and she would receive the full amount as dividends, which are not deductible. The after-tax cash difference depends on the corporate tax rate and the threshold, so work it out with your accountant. The simple point is that salary can reduce corporate tax while dividends cannot.
The AED 375,000 band
Corporate tax applies at 0% on taxable income up to AED 375,000 and 9% above it, subject to the conditions. For a small company with modest profit, the salary and dividend choice may matter less than the compliance burden. Check the current rates on the FTA site, and see what is UAE corporate tax.
Your home country
If you are tax resident elsewhere, the home country may tax the salary or dividend on receipt, and may treat a foreign company as controlled. The best choice in the UAE may not be the best overall. Take advice in both countries.
Visa and banking
An employee visa through a company supports your residence, while a pure dividend arrangement does not. Banks also like to see a clear income source. See golden visa through a company and corporate bank account approval.
Frequently asked questions
Neither is taxed in the UAE for the owner. A genuine salary is generally deductible for the company, while a dividend is not. The right mix depends on profit, work done and your home country rules.
Not for an individual shareholder. Withholding tax on dividends is 0%, and the owner's home country may tax them.
The company can pay what it wishes, but corporate tax may adjust payments to connected persons that are not at arm's length.
Generally not. Dividends need distributable profit. Check company law and your articles.
An owner working as an employee on the mainland needs the contract and visa. Free zones have their own rules.
It is treated as a shareholder loan or drawing and should be recorded and regularised.