Partner-director pay: how to document it correctly under Articles 28 and 36 of the Corporate Tax Law

Short answer: yes, you can — because the company and the partner are two separate legal persons (unlike a sole establishment, where the owner and the business are one taxable entity). But whether that pay is actually deductible for Corporate Tax depends on two provisions of Law 47 working together: Article 28 (the general conditions for deducting an expense) and Article 36 (the "Connected Persons" rule, which a partner automatically falls under).

Article 28 requires that an expense be "incurred wholly and exclusively for the purposes of the Business" and not capital in nature. Article 36 adds a further condition specific to connected persons: the deduction is limited to whatever corresponds with the "Market Value" of the service actually rendered — not whatever figure the partner sets for themselves. In practice, the authority looks at three things together: (1) is there a genuine need for a real managerial role (not a title on paper), (2) is that service actually documented (an employment contract, a job description, real responsibilities), and (3) does the amount align with what a third party would be paid for the same role under similar circumstances (the arm's-length principle).

If any one of these three is missing, there is a real risk the authority reclassifies the salary (or the excess portion of it) as a "profit distribution" rather than an expense — and under Article 33(4), dividends and similar benefits paid to a company owner are non-deductible expenditure from the outset. The riskiest pattern is a bonus set only after the year's results are known, with no prior performance policy — that specifically draws more scrutiny than anything else, because it suggests the amount was set by available profit rather than the actual value of the work done.

That's why the file we recommend at RASEEKH includes: a signed employment contract, a clear job description of duties and authority, a market benchmarking comparison against similar roles in the same sector and company size, actual payroll records showing the pay was really disbursed, and documented partner or board approval made at the time the decision was taken — not rewritten afterward. A file like that turns a partner's salary from a potential point of dispute with the authority into an expense backed by clear documentation from day one.