“Director” and “Officer” are classified as Connected Persons under the UAE Corporate Tax Law. However, their meaning was subject to interpretation due to the absence of a proper explanation in the law itself.
The Federal Tax Authority (FTA) has now clarified the meaning of “Director” and “Officer” for the purpose of Connected Person payment and disclosure under UAE Corporate Tax Law. This clarification underscores the importance of a substance over form approach and is intended to help UAE Taxable Persons correctly characterize these payments.
What you need to know?
- Deductibility: Payments or benefits provided to Connected Persons are deductible under UAE Corporate Tax Law only if:
- Business purpose: payments are made wholly and exclusively for business purposes; and
- Market value: the benefit corresponds to the market value of the service, benefit, or otherwise provided by the Connected Person.
- Connected Person: Only individuals (natural persons) can be classified as Connected Persons under this provision.
- Director: A director is not defined by designation but by formal appointment to a board of directors or equivalent governing body. A director can be executive, non-executive, permanent, temporary, or an alternate – as long as they are formally appointed to the board.
- Officer: Any individual, regardless of job title, who meets any one of the following tests:
- Strategic Control Test: Authority and responsibility for planning, directing, and controlling (PDC) the activities of the UAE entity (in line with IAS 24 on Related Party Disclosures)
- Strategic Decision-Making Test: Authority to make final/ultimate strategic decisions on financial, operational, or commercial matters for the UAE entity
- Binding Authority Test: Authority to legally or contractually enter into agreements or approve actions that legally bindthe UAE entity
Typical examples include CEO, General Manager, CFO, COO, CCO, and authorised representatives with discretionary authority (collectively “C-suite”).
- Substance over form: An individual without a formal C-suite title but who effectively runs the business, by making strategic decisions or signing binding contracts, would still be treated as an officer.
A “consultant” engaged on an interim basis to act as CEO, for example, qualifies as an officer for the duration of that authority. Conversely, a person who only follows instructions, reports to the C-suite, and holds no final strategic or binding authority may not be regarded as an officer. Routine functions without discretionary power may not qualify. - Related party supersedes Connected Person: Where an individual qualifies as both a Related Party and a Connected Person, they are treated solely as a Related Party for UAE Corporate Tax purposes.
- Disclosure: Taxable Persons are required to disclose payments or benefits made to Connected Persons in their Corporate Tax Return where the aggregate amount exceeds AED 500,000 in a tax period.
- Documentation: The company’s legal or constitutional documents (e.g. Memorandum of Association, Articles of Association, partnership deed, or trust deed) may support the characterisation of an individual as a Connected Person. Supporting documentation may also be relevant to substantiate that payments are at market value.
How can we help?
Accurate classification is crucial for correct reporting and disclosure in the Corporate Tax Return. Our tax experts can assist with:
- Identifying and Characterizing: Reviewing legal and constitutional documents, undertaking functional analysis, and determining the appropriate characterisation of Connected Persons.
- Reporting and Disclosure: Preparing and filing the UAE Corporate Tax Return with appropriate disclosure in the Connected Person schedule, where required.
- Retrospective Review and Remediation: For entities that have already filed prior period returns, assessing and taking corrective action where needed.
- Compliance and Documentation:Establishing frameworks to maintain ongoing identification and disclosure, and ensuring documentation is audit-ready for FTA review.
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Re/think is an award-winning regional multi-service business advisory and outsourced services firm providing accounting, regulatory and compliance, tax and VAT advisory, audit, HR consultancy and recruitment services to regulated firms, multi- and single-family offices, and other operating businesses.
Established in the UAE in 2013, the firm has 80 staff across three offices in Dubai and Abu Dhabi providing clients with timely, proactive and customized business solutions – from set-up and early development to the latest stages of a business lifecycle.
