The UAE Federal Tax Authority (FTA) has issued Public Clarification CTP010, providing guidance on the interpretation of the terms “director” and “officer” for purposes of the connected person provisions under Article 36 of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law).
The clarification seeks to ensure consistent application of the connected person rules, particularly with respect to the deductibility of payments made to such persons and the associated disclosure requirements (i.e., a taxable person is required to disclose payment made or benefits provided to connected persons if such payment and/or benefits exceed AED 500,000 per connected person during the relevant tax period). The guidance reinforces the FTA’s emphasis on substance over form and aligns with the broader objective of ensuring that transactions involving connected persons are conducted in accordance with the arm’s length principle.
Under the corporate tax regime, payments or benefits provided to connected persons are deductible only to the extent they reflect the market value of the services or benefits received. Consequently, determining whether an individual qualifies as a connected person is a critical aspect of corporate tax compliance. The clarification provides detailed guidance on who may be regarded as a director or officer, confirming that the assessment extends beyond formal titles and focuses on the actual authority and responsibilities exercised by an individual.
Definition of Director
A director refers to a person who holds a position on the board of directors or equivalent governing body of a taxable person, as determined by applicable laws or the entity’s constituting documents. This includes executive and non-executive directors, temporary or permanent directors, alternate directors and members serving on board committees.
Importantly, the FTA has confirmed that the use of the word director in a job title does not automatically result in an individual being treated as a director for connected person purposes. However, the concept is not limited to formally appointed board members and may extend to individuals who effectively perform director-like functions and exercise board-level authority, even where no formal board appointment exists.
Definition of Officer
An individual may be regarded as an officer where they possess authority and responsibility for planning, directing and controlling the activities of a taxable person, consistent with the principles outlined in IAS 24 - Related Party Disclosures. In particular, an officer is generally a person who:
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Has authority and responsibility for planning, directing and controlling the activities of a taxable person;
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Possesses authority to make strategic financial, operational or commercial decisions; or
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Has the authority to enter into agreements or approve actions that legally or contractually bind the taxable person.
The FTA states that such individuals may include chief executive officers, general managers, chief financial officers, chief operating officers, chief commercial officers and other individuals exercising equivalent decision-making authority.
At the same time, the FTA emphasises that job title, seniority or involvement in day-to-day management alone are not determinative. The key consideration is whether the individual possesses ultimate decision-making authority or the ability to legally or contractually bind the business. Individuals whose responsibilities are limited to implementing decisions, making recommendations or operating within parameters established by senior management or the board would generally not be regarded as officers.
The FTA clarification includes several practical examples illustrating the distinction between individuals who would and would not qualify as officers. For example, a general manager responsible for the overall management of a company or permanent establishment would generally be considered an officer due to their strategic and operational authority. Similarly, a division head with ultimate authority over key business decisions may qualify as an officer. Conversely, individuals who merely execute decisions under the direction of senior management, hold limited powers of attorney for administrative purposes or conclude contracts only after material terms have already been approved would generally not fall within the definition.
Additional Clarifications
The FTA has also provided the following important clarifications regarding the connected person rules:
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Only individuals can qualify as directors or officers. Juridical persons, such as companies, cannot be treated as directors or officers for purposes of Article 36.
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An individual may simultaneously qualify as both a related party and a connected person. In such circumstances, the transaction will be governed by the related party provisions (which have different disclosure thresholds and require more extensive reporting).
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and corresponding arm’s length requirements, rather than the connected person rules.
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The concept of an officer applies broadly across all taxable persons, including companies, trusts, foundations and unincorporated partnerships.
BDO Perspective
The clarifications provide welcome guidance in an area that has generated significant uncertainty since the introduction of the UAE corporate tax regime. But it also may expand the group of individuals treated as connected persons for corporate tax purposes, affecting deductibility, disclosure and compliance obligations.
By focusing on the actual authority exercised by an individual rather than their formal title, the FTA has reinforced a substance-over-form approach that is consistent with international tax principles and the broader objectives of the corporate tax framework.
For businesses, the practical impact of the guidance is the need to reassess who has decision-making or binding authority for purposes of the connected person rules and to mitigate related compliance risks. Businesses should carefully review their governance structures, delegation-of-authority frameworks, employment contracts, powers of attorney and internal approval processes to:
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Determine which individuals may be regarded as directors or officers for corporate tax purposes—a particularly important step where decision-making authority is spread across multiple functions, business units or jurisdictions;
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Assess whether such designations are reinforced by actual authority and sufficient documentation to support the tax position; and
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Identify and, if needed, report connected person transactions.
As the clarification is interpretative in nature, it is expected to apply from the commencement date of the UAE corporate tax regime (i.e., fiscal years starting on or after 1 June 2023). Businesses should therefore assess whether their existing treatment of payments to directors, officers and other potentially connected persons is appropriate and consider whether corrective actions, disclosures or adjustments may be required to ensure ongoing compliance.
Shivendra JhaBDO in United Arab Emirates