Introduction
The Federal Tax Authority (“FTA”) has issued Public Clarification CTP010, providing guidance on the meaning of “director” and “officer” for the purposes of the UAE Corporate Tax regime. The clarification focuses on the application of Articles 36 and 55 of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”), which govern the treatment of Connected Persons and related disclosure obligations.
While the clarification does not introduce new law, it provides important interpretative guidance on how the FTA is likely to approach the classification of individuals within an organisation. In particular, it confirms that the analysis is not limited to formal titles, but requires a substantive assessment of authority, decision-making power, and the role performed in practice.
This may have direct implications for the deductibility of payments, compliance obligations, and the identification of Connected Persons under the Corporate Tax Law. In practice, this requires businesses to look beyond organisational charts and assess who truly exercises authority within the business.
Legislative Context
Article 36 of the Corporate Tax Law restricts the deductibility of payments or benefits provided to Connected Persons. Such payments are generally deductible only to the extent that they:
- Correspond to Market Value; and
- Are incurred wholly and exclusively for the purposes of the Business.
Connected Persons include, among others, owners, directors, and officers of a Taxable Person.
In addition, Article 55 imposes disclosure obligations in respect of transactions with Related Parties and Connected Persons, subject to prescribed thresholds.
The classification of an individual as a “director” or “officer” is therefore not merely definitional. It directly affects both the tax treatment of payments and the scope of reporting obligations.
Meaning of “Director”
The FTA clarification indicates that a “director” generally refers to an individual who holds a position on the board of directors or an equivalent governing body responsible for the management and oversight of the entity.
This is broadly aligned with corporate law principles and is typically determined by reference to formal appointment and legal status under applicable company law.
However, the clarification emphasises that the analysis should not rely solely on designation. In certain cases, individuals who are not formally appointed as directors would not be considered “directors” for the purposes of Article 36, but may instead fall within the definition of an “officer” depending on their functional role and authority.
Meaning of “Officer”
The concept of an “officer” is more expansive and requires a functional analysis.
According to the FTA, an officer is an individual who holds a senior management role and has authority to make strategic or operational decisions on behalf of the business. This may include individuals who:
- Participate in key decision-making processes;
- Exercise significant control over the day-to-day operations of the business; or
- Have the authority to bind the business contractually or commercially.
Importantly, the classification does not depend on job title. Individuals such as general managers, heads of departments, or other senior personnel may fall within the definition of “officer” where their role involves substantive decision-making authority.
Conversely, individuals with senior titles but without final or ultimate decision-making or binding authority would fall outside the definition. In this context, the FTA refers to individuals who possess the authority and responsibility for planning, directing and controlling the activities of the Taxable Person.
Reference to International Accounting Standards (“IAS”) 24 Concepts
The FTA clarification expressly anchors the interpretation of an “officer” to the framework set out in IAS 24 Related Party Disclosures, by reference to individuals who perform key management functions within the organisation.
This is significant. Under IAS 24, “key management personnel” are defined using substantially the same functional criteria. The reference reinforces that classification is expected to depend primarily on substance, with titles serving as a relevant but non-determinative indicator.
While IAS 24 does not determine the Corporate Tax treatment, it provides a relevant reference point. In practice, individuals identified as key management personnel are likely, in many cases, to fall within the scope of “officer” under the Corporate Tax Law.
Treatment of Director Fees under Natural Persons Guidance
It is also relevant to consider the FTA’s Corporate Tax Guide on the Taxation of Natural Persons (CTGTNP1), which addresses the treatment of income received by individuals acting as directors. The guidance indicates that fees received by a natural person in their capacity as a member of a board of directors will generally not be considered as arising from a Business or Business Activity, provided the individual is acting in a personal capacity and not through a licence or as part of a Business, would not be subject to Corporate Tax in the hands of the individual. This position reflects the FTA’s interpretative guidance and is not expressly set out in the Corporate Tax Law.
However, from the perspective of the paying entity, a separate analysis is required at the level of a Taxable Person. Where the individual qualifies as a director or officer of the Taxable Person, payments made to them may still fall within the scope of Article 36 where the individual qualifies as a Connected Person.
Accordingly, the fact that director fees are not subject to Corporate Tax at the level of the recipient does not, in itself, determine their treatment for deductibility purposes. The Market Value requirement and the requirement that the expenditure be incurred wholly and exclusively for the purposes of the Business must still be satisfied.
Asymmetry in Tax Treatment
The treatment of payments under the UAE Corporate Tax regime may differ between the payer and the recipient. In particular, certain forms of remuneration, including employment income (Wage), fall outside the scope of Corporate Tax in the hands of a natural person.
However, this does not determine the treatment of the same payment at the level of the Taxable Person. Where such payments are made to a director or officer, they may still fall within the scope of Article 36 and be subject to the Market Value requirement and the requirement that the expenditure be incurred wholly and exclusively for the purposes of the Business.
Accordingly, the absence of Corporate Tax at the level of the recipient does not, in itself, ensure deductibility for the payer. These assessments must be undertaken independently. This reflects the principle that the tax treatment of a payment in the hands of the recipient does not determine its deductibility for Corporate Tax purposes at the level of the payer.
Substance Over Designation
A central theme of the clarification is the emphasis on substance over form.
The FTA has made clear that the determination of whether an individual is a director or officer depends on the functions they perform and the authority they exercise in practice, rather than their contractual title or internal designation.
This approach is consistent with broader principles under the Corporate Tax Law, which emphasise the economic and commercial reality of arrangements. It also aligns with the increasing emphasis on governance, substance, and functional analysis across the UAE tax framework.
In practice, this requires businesses to assess:
- Who makes strategic decisions;
- Who has authority to approve or conclude transactions; and
- Who effectively directs the operations of the business.
Practical Implications
- Expansion of Connected Persons
The clarification confirms that the category of Connected Persons may extend to individuals who meet the functional definition of an “officer”, even where they are not formally designated as such.
In particular, individuals who are not shareholders or formally appointed directors may still fall within scope if they qualify as “officers”. This may expand the population of individuals whose transactions with the business require analysis under Article 36.
- Deductibility of Payments
Payments or benefits provided to directors and officers are subject to specific deductibility conditions under Article 36.
Even where remuneration is commercially justified, it must:
- Reflect Market Value; and
- Be incurred wholly and exclusively for the purposes of the Business.
Where these conditions are not met, the relevant portion of the payment may be disallowed for Corporate Tax purposes.
This is particularly relevant for:
- Senior management remuneration;
- Bonuses and incentive arrangements; and
- Benefits in kind or non-cash compensation.
- Disclosure Obligations
Transactions with directors and officers may also trigger disclosure requirements under Article 55 where the prescribed thresholds are met.
This introduces an additional compliance requirement, whereby businesses may have to:
- Identify all relevant Connected Persons;
- Monitor transactions with those individuals; and
- Ensure appropriate reporting within the Corporate Tax return.
Key Risk Areas
A key practical challenge for many businesses lies in identifying who qualifies as an “officer” in practice.
Common areas of risk include:
- Senior employees below board level who exercise significant operational control;
- Individuals holding broad powers of attorney, particularly those with authority to enter into or approve transactions, may fall within scope even in the absence of a formal management title.
- Interim or outsourced management roles; and
- Closely held or family-owned businesses where decision-making authority may be informal.
In such cases, the absence of formal designation does not preclude classification as an officer.
Conclusion
The FTA’s Public Clarification provides important guidance on the interpretation of “director” and “officer” under the UAE Corporate Tax regime. While the clarification is interpretative in nature, it provides an indication of how the FTA is likely to approach the assessment of senior personnel and their relationship with the business. In practice, this is likely to form a key area of focus in Corporate Tax audits, particularly in relation to senior management remuneration and governance structures.
The key takeaway is that classification depends primarily on substance, with titles serving as a relevant but non-determinative indicator. Authority, decision-making power, and functional role are the determining factors.
Businesses should therefore review their governance structures, identify individuals who may fall within the scope of “director” or “officer”, and ensure that:
- Payments are aligned with Market Value;
- Documentation supports the business purpose of such payments; and
- Disclosure obligations are appropriately managed.
As the Corporate Tax regime moves into its first full compliance cycle, these considerations are likely to form part of the FTA’s review and audit focus.
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