Employee share option plans are now common in UAE startups. Under IFRS 2, the options create an expense in the accounts, often a large one. The natural question for the CFO is whether that expense reduces taxable profit.
What we know
- The general rule (Article 28 of the Corporate Tax Law) is that an expense is deductible if it is incurred wholly and exclusively for the business and is not capital in nature.
- Payments to directors, officers and owners are capped at market value (Article 36).
- As at November 2026 the FTA has not published specific guidance on share-based payments.
The open questions
- Is a non-cash, equity-settled charge an "expense incurred" for tax purposes?
- Does the answer change when a parent company grants the options and recharges the cost to the UAE subsidiary?
- How should a recharge be priced under transfer pricing rules?
What companies are doing in practice
Many groups put a documented recharge in place: the parent charges the UAE entity for options granted to its staff, priced on the fair value of the awards. That turns a non-cash accounting charge into a real cost that can be supported at arm's length. Others take a more cautious line and do not deduct the charge until the FTA's position is clearer.
Whichever route you take, it rests on a reliable fair value of the options. That usually means the same work as a 409A valuation or an IFRS 2 option valuation.
How iConsult can help
We value ESOP awards for IFRS 2, ASC 718 and 409A, and help structure recharges with your tax adviser. Read why a 409A matters under UAE corporate tax, see valuation services or book a free consultation.
This article is general information, not legal or tax advice. It reflects the rules as we understand them on the date shown; laws and guidance change, so check the current position or talk to us before you act.