With the implementation of UAE Corporate Tax, one area that is increasingly coming under scrutiny is “Payments to Connected Persons” as individuals in the UAE are generally not subject to Corporate Tax on personal income. Accordingly, without such provisions, businesses could potentially reduce taxable profits by shifting profits from taxable entities to individuals through excessive salaries, management fees, commission, rent, or other payments made to owners or family members.
UAE Corporate Tax on the Taxation of Corporations and Businesses specifically provides that payments or benefits provided to a Connected Person shall be deductible only to the extent that such payments correspond to the Market Value of the services, benefits, or otherwise provided by the Connected Person.
Connected Persons includes,
- Owners and shareholders
- Directors and partners
- Relatives up to the fourth degree of kinship or affiliation
- Related entities under common ownership or control
- Any person connected through ownership, control, or family relationship
Payment to connected person can be in form of remuneration, management fees, consultancy charges, commission payment, rent, interest on related party loan, and other benefits
On 29 April 2026, the Federal Tax Authority (UAE) issued Public Clarification CTP010 to explain the meaning of the terms “Director” and “Officer” for the purposes of payments to Connected Persons.
Why Clarification Was Required
In practice, most businesses interpreted this provision narrowly. The term “Director” was understood to mean only a Board Director, and the term “Officer” was largely overlooked. As a result, compensation paid to senior personnel (e.g., General Managers, CFOs, Heads of Departments, and persons with signing authority) was treated as standard employee costs without assessing tax implications.
This created uncertainty around who qualifies as an “Officer,” necessitating formal guidance.
Key Principle Introduced: Substance Over Form
The guidance explains that while a “Director” is limited to a person sitting on the Board of Directors or an equivalent governing body, the term “Officer” is much broader and aligned with the concept of key management personnel under International Accounting Standard (IAS) 24. The clarification establishes a clear substance over form principle.
A person is considered as an “Officer” if they:
- Plan, Direct, and Control the activities of the business in accordance with framework set out in International Accounting Standard 24 on Related Party Disclosures, or
- Take strategic decisions in financial, operational, or commercial matters, or
- Have the authority to legally or contractually bind the business
Job title, employment contract, or organizational chart are not decisive. Actual authority is decisive.
“Officer” does not include a Person who does not possess the final/ultimate strategic decision-making or binding authority.
What are these changes in practice
This significantly changes how businesses must assess management remuneration. Many individuals previously treated as employees may now qualify as Connected Person.
This may include General Managers, COOs, CEOs, CFOs, Heads of HR responsible for organizational decisions, persons named Managers in trade licenses, individuals holding discretionary powers of attorney, interim Consultants performing executive roles, managers of Permanent Establishments, and trustees of taxable trusts.
Their remuneration is no longer a routine employee cost and must be evaluated under UAE Corporate Tax Law.
A person is considered as an “Director” if he/she:
- An executive, non-executive, temporary, permanent, or alternative director, if they are appointed on the board of directors, including any member of a board committee, or
- A Person that holds a position on any equivalent governing body (including but not limited to board of trustees or board of governors)
However, where a Person’s job title includes the term “Director” but they do not hold a position in Borad of Director or governing body, would not be considered as Director.
Examples Illustrating the Principle
- A General Manager with overall authority → Officer
- A division head with strategic decision power → Officer
- A POA holder with binding authority → Officer
- A consultant acting as CEO → Officer
- Managing Director holding authority of governing strategy of company→ Director
However:
- Individuals executing pre-approved decisions → Not Officers
- Managers operating within defined limits → Not Officers
- HR Director executing HR activities as approved by board → Not Director
Action for Businesses
Before filing the Corporate Tax Return, businesses must:
- Identify individuals with decision-making or binding authority.
- Review the remuneration and benefits paid to such persons.
- Assess whether such payments meet the Market Value requirement.
- Undertaking benchmarking or justification where required.
- Ensure appropriate disclosure in Corporate Tax Return as Connected Person transactions, if financial year thresholds exceeds AED 500,000 (including not only compensation but covers perquisite such has housing rental paid by company).
This assessment must be based on substance, not designation.
This clarification does not introduce a new rule – it explains how Article 36 was always intended to apply. Businesses treating senior management remuneration as routine employee costs, without evaluating Connected Person implications, may face challenges on deductibility and disclosure during tax assessments.
How Agile Vertex Advisory Can Assist
We can support businesses by:
- Review of organizational structures to identify potential Connected Persons
- Assessing management remuneration from an Article 36 perspective
- Conducting Market Value benchmarking for such payments
- Preparation of defensible documentation to support deductibility
- Assisting with Connected Person disclosures in the Tax Return
- Supporting during tax reviews or audits where these matters are examined
Contact us: contact@agilevertexadvisory.com
+971 588073409
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