Salary Withdrawal by Business Owners Under UAE Corporate Tax Law
UAE Corporate Tax (CT) has brought many questions for business owners, and one of the most common is: Can owners treat their salary withdrawals as deductible expenses? The answer depends on whether the business is registered as a company or as an individual license holder. Understanding this distinction is essential to avoid mistakes and remain compliant under UAE Corporate Tax law.
Salary Withdrawal in Companies
For companies such as LLCs, Free Zone entities, or PJSCs, the UAE Corporate Tax regime makes a clear distinction between owner salaries and profit withdrawals.
- Dividends, profit distributions, and withdrawals by owners are not deductible. Under Article 33 of the law, these are treated as profit allocations, not business expenses.
- Genuine salaries paid to owners can be deductible if the owner is actively employed in the business. This requires a proper employment contract, clearly defined responsibilities, payroll records, and a salary that is reasonable and comparable to market standards.
- Inflated or artificial salaries given mainly to reduce taxable income may be disallowed by the Federal Tax Authority under the General Anti-Abuse Rule (GAAR).
In summary, owner salaries in UAE companies are deductible only if linked to real employment, while withdrawals or dividends are never tax-deductible.
Salary Withdrawal for Individual License Holders
For individual license holders—such as freelancers, sole proprietors, and professional license holders—the treatment is different.
- Once annual turnover exceeds AED 1 million, the individual is considered the taxable person under UAE CT law.
- There is no separate concept of a salary withdrawal for individual license holders. The business and the individual are legally the same entity.
- Any money withdrawn is simply treated as personal drawings, not as a deductible salary.
- What matters for Corporate Tax is the net business income (revenues minus genuine business expenses). Withdrawals do not reduce taxable income.
This means individual license holders in the UAE cannot claim their own withdrawals as expenses under Corporate Tax.
Why It Matters for UAE Corporate Tax Compliance
Mixing up salaries and withdrawals is one of the most common compliance errors.
- For companies, misclassifying dividends as deductible salaries can lead to tax adjustments and penalties.
- For individuals, attempting to deduct personal withdrawals as a salary expense is not allowed under the UAE Corporate Tax law.
By understanding the difference, business owners can avoid compliance risks and make better tax planning decisions.
Best Practices for Business Owners
- Companies: If owners are also managers, formalize their role with a contract, defined duties, and payroll. Keep dividends and salaries clearly separate.
- Individual License Holders: Focus on recording legitimate business expenses only, and treat withdrawals as non-deductible drawings.
- All Businesses: Maintain strong documentation, avoid artificial structures, and consult a qualified advisor for Corporate Tax compliance.
Final Thoughts
Salary withdrawals by owners under UAE Corporate Tax law are a sensitive area. Owner salaries may be deductible if genuine and well-documented, but withdrawals and dividends are never deductible. For individual license holders, all withdrawals are simply drawings, and the tax is based on business profits, not personal withdrawals.
At Accruon Auditing LLC, we specialize in guiding UAE businesses, free zone companies, and individual license holders on Corporate Tax compliance, owner salary deduction rules, and tax-efficient structures. Our team ensures your tax filings are accurate, risks minimized, and compliance always up to date.