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Blog entry by CA. Neetu Jose

Unpaid Bonuses or Incentives - A Hidden Risk for UAE Companies

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.

DisclaimerContent posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

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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. 

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