Listen This Article
Some UAE companies strategically manage their Corporate Income Tax (CIT) by categorizing employee costs as bonuses or incentives. While these expenses might offer tax deductions, the situation can quickly escalate if these amounts remain unpaid.
CIT Risk: If bonuses remain unpaid for more than 12 months or are redirected to partners/shareholders instead of employees, the FTA could disallow the tax deduction, impacting your CIT standing directly.
Legal Risk: When bonuses are contractual or customary, employees can claim them within a year of being due. Failure to fulfill these payments could lead to breach of contract claims, MOHRE grievances, and harm to the company's reputation.
Profit Distribution Trap: Redirecting bonuses to owners rather than employees might be viewed as a disguised dividend, triggering further compliance challenges.
To safeguard tax deductibility and ensure compliance with labor laws, UAE companies must not only account for bonuses and incentives as expenses but also disburse them promptly. Delayed payments could raise concerns with tax authorities and regulators, inviting legal conflicts and financial repercussions.
Contributor
Neetu Jose is a Partner at Stuart & Hamlyn Chartered Accountants and a Fellow member of the Institute of Chartered Accountants of India. With over 20 years of professional experience in both India and the UAE, she is a seasoned finance professional. Neetu has accumulated over a decade of industry experience in the UAE, demonstrating proficiency in accounting, auditing, financial advisory services, and UAE VAT. Her diverse background includes working in various sectors such as retail, manufacturing, health & hospitality, and shipping.
Related Posts
IntroductionFinance professionals in the UAE may encounter situations where a company earns inc...
Read More
On the surface, an unpaid dividend may appear to be a routine deferral. However, when examine...
Read More
