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Conclusion

No. It is not deductible. The owner and the sole establishment are one and the same taxable person, so the “salary” is a withdrawal of profit, not a business expense. It is added back in full.

What the law says

Article 33(5) of the Corporate Tax Law disallows any amount withdrawn from the business by a natural person who is a taxable person. The FTA’s guide on natural persons confirms the sole proprietorship and its owner are one and the same taxable person, and its Example 21 is exactly this case: Mr T withdrew AED 200,000 and recorded it as annual salary. No deduction was allowed, even though the amount was at arm’s length.

What it means in practice

1. Add the owner’s salary back in the corporate tax computation.
2. Report it in the return under “Amounts withdrawn from the Business by a natural person”.
3. An arm’s-length or market-value argument does not rescue it. Article 36 does not apply here.
4. Salaries of genuine employees of the establishment remain deductible as normal.

Where it flips

This answer is for a sole establishment with no separate legal personality. In an LLC, including a one-person LLC, the owner’s salary is deductible, but only up to market value, under Article 36 of the Corporate Tax Law.

Law reference

Federal Decree-Law No. 47 of 2022, Article 33, Non-deductible Expenditure, Clause 5:

“No deduction is allowed for: … Amounts withdrawn from the Business by a natural person who is a Taxable Person under paragraph (c) of Clause 3 of Article 11 of this Decree-Law or a partner in an Unincorporated Partnership.”

FTA Corporate Tax Guide CTGTNP1, Example 21, page 30:

“Since Mr. T is running a sole proprietorship Business, no deduction is allowed for the AED 200,000, as Mr. T and the Business are one and the same Taxable Person even if the salary would have been an arm’s length salary.”

Taxation of Natural Persons under the Corporate Tax Law (CTGTNP1) · Federal Tax Authority · 26 Nov 2023 · tax.gov.ae
Federal Decree-Law No. 47 of 2022 · issued 9 Dec 2022 · tax.gov.ae legislation