The introduction of Corporate Tax in the UAE through Federal Decree-Law No. 47 of 2022 has significantly reshaped the compliance and governance landscape for businesses. One of the critical areas that has required further clarity is the treatment of transactions with Connected Persons, particularly when such persons are classified as “directors” or “officers.”
The Public Clarification issued by the Federal Tax Authority (FTA) addresses this precise issue, offering detailed guidance on how these roles should be interpreted for the purposes of Articles 36 and 55 of the Corporate Tax Law.
Regulatory Context: Why This Clarification Matters
Under Article 36(1) of the Corporate Tax Law, any payment or benefit provided by a taxable person to a connected person is deductible only to the extent that it reflects market value and is incurred wholly for business purposes. Further, Article 36(2) explicitly includes directors and officers within the definition of connected persons. Additionally, Article 55(1) mandates disclosure of transactions with connected persons in the tax return when they exceed specified thresholds.
Meaning of "Director"
The term “director” is interpreted in a substantive legal sense, not merely based on designation.
A director is:
- A person holding a position on the board of directors or equivalent governing body
- This includes executive, non-executive, temporary, permanent, or alternate directors
- Members of board committees are also covered
Where no formal board exists, the definition extends to individuals in equivalent governing structures, such as trustees or governors, as defined in the taxable person’s constitutional documents. Simply having the word “director” in a job title does not qualify a person as a director for tax purposes. Substance prevails over form.
Meaning of "Officer"
Unlike “director,” the term “officer” is defined based on actual authority and decision-making power, rather than formal appointment.
An officer is any individual who:
- Exercises authority in planning, directing, and controlling business activities
- Makes strategic financial, operational, or commercial decisions
- Has the power to enter into agreements or bind the taxable person legally or contractually
This definition is aligned with International Accounting Standard (IAS) 24.
Who Typically Qualifies as an Officer?
While not exhaustive, the following roles generally fall within this definition:
- CEO, CFO, COO, Chief Commercial Officer
- General Manager
- Authorized representatives with discretionary authority
However, designation alone is not decisive—actual authority is the determining factor.
Substance Over Form: The Core Principle
A consistent theme throughout the clarification is that real authority matters more than job titles.
Even without formal designation:
- A person can still be an officer if they exercise strategic control
- Conversely, a titled executive may not qualify if they lack real authority
This approach ensures that tax treatment reflects economic reality rather than organizational labels.
Additional Important Considerations
Several important clarifications further refine interpretation:
- Only a natural person can be a director or officer
- If a person qualifies as both a Related Party and Connected Person, they are treated only as a Related Party
Conclusion
The FTA’s clarification provides a much-needed principles-based framework for identifying directors and officers under UAE Corporate Tax Law. By prioritizing substance over form, it ensures that businesses cannot rely on superficial designations to influence tax outcomes. For professionals especially those involved in finance, taxation, and corporate governance, this clarification underscores a fundamental shift. Tax compliance now depends as much on understanding organizational power structures as it does on accounting treatment.
