Making Corporate Pensions Work for Your Business

When it comes to managing employee benefits, businesses in the UAE are facing new opportunities – and a few challenges – with the introduction of corporate tax. One area that’s getting a lot of attention is how corporate tax rules apply to private pension funds (PPFs).

If you're an employer thinking about how to handle your end-of-service obligations, or looking for smarter, more cost-effective ways to support your team’s financial future, private pension funds are worth a closer look. Not only can they be affordable to set up, but they can also reduce the administrative burden of traditional End of Service Benefits (EOSB) schemes.

In simple terms, a pension plan is a structured agreement designed to provide financial benefits to employees once they reach retirement age. According to the UAE’s tax law, it must meet some specific criteria:

The benefits kick in only at retirement age (or in some cases, due to disability or death).

If an employee tries to access the money early, there are significant penalties.

So, it’s not just a savings account. It’s a carefully structured financial safety net—for retirement, unexpected health issues, or even in the case of death.

Besides being a forward-thinking way to take care of your employees, PPFs come with a significant tax benefit. If set up properly, they can be exempt from corporate tax.

To qualify for that exemption, a pension fund needs to meet a few key conditions:

Assets must be designated for pension use only – either by law, contract, or funded directly by pension contributions.

Employees must have a clear right or claim to the assets or earnings of the fund.

Income must come from specific sources (we’ll get to those in a moment).

And here’s the good news: these conditions are very achievable with the right setup.

What Kind of Income Can a PPF Earn (and Still Be Tax-Free)?

To maintain its tax-exempt status, a private pension fund must earn income from certain approved sources, as outlined in Ministerial Decision No. 115 of 2023. These include:

• Investments and deposits held to fulfill pension obligations (as long as it’s not considered a business activity).
• Underwriting commissions related to the fund.
• Rebates of fees or charges from fund managers (not considered payment for services).
• Other income that aligns with a well-defined investment strategy aimed at supporting employees' retirement or end-of-service benefits.

From a company’s perspective, here’s where things get even more appealing:

Employer contributions to a private pension fund are tax-deductible.

You can deduct the full amount of the contribution during the tax period it’s paid.

There is a cap: the deduction for each employee is limited to 15% of their total remuneration for the year.

This means you’re not only investing in your team’s future, but you’re also reducing your corporate tax liability today.

Traditional EOSB schemes can be unpredictable, and administratively heavy—especially for growing businesses.

A private pension fund, on the other hand, can be streamlined, transparent, and financially efficient.

Setting up a PPF doesn’t have to be expensive, and it can offer long-term savings while giving your employees greater clarity and security. It's a win-win.

Navigating corporate tax and employee benefits in the UAE might seem complex, but it doesn’t have to be. A private pension fund is not just about ticking compliance boxes—it’s about building a more stable and cost-effective future for your business and your people.

When properly structured, PPFs offer significant tax benefits, simplify your financial planning, and give your employees peace of mind. With the right advice and setup, this can be one of the smartest moves your company makes.