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FTA Clarifies Director and Officer Rules in UAE Tax

FTA Clarifies Director and Officer Definitions Under UAE Corporate Tax Connected Persons Rules

UAE Corporate Tax Alert: FTA Clarifies “Director” and “Officer” Under Connected Persons Rules

The Federal Tax Authority (FTA) has issued Public Clarification CTP010, providing important guidance on the interpretation of the terms “director” and “officer” for the purposes of the UAE Corporate Tax regime.

While the clarification may appear technical at first glance, it has practical implications for many businesses, particularly regarding Connected Persons, the deductibility of expenses, and disclosure requirements.

Background

Under the Federal Decree-Law No. 47 of 2022, payments or benefits provided to Connected Persons are only deductible if they:

Reflect market value, and
Are incurred wholly and exclusively for business purposes

In addition, certain transactions with Connected Persons must be disclosed in the Corporate Tax return where applicable thresholds are met.

Importantly, the definition of Connected Persons includes directors and officers, which is where this new clarification becomes critical.

Key Clarifications

1. “Director” – A Formal Role, Not Just a Title

The FTA confirms that a director is a person who:

Holds a position on the board of directors, or
Sits on an equivalent governing body (e.g., board of trustees)

Key insight:

Having “director” in a job title does not automatically qualify a person as a director for Corporate Tax purposes. The determining factor is a formal appointment under the company’s legal or constitutional framework.

2. “Officer” – Defined by Authority, Not Title

The definition of an officer is broader and more nuanced.

An officer is any individual who has real authority and responsibility, including:

Making strategic decisions (financial, operational, or commercial)
Directing or controlling business activities
Binding the company legally or contractually

This may include roles such as:

CEO, CFO, COO
General Manager
Authorised signatories with discretionary powers

Key insight:

An individual does not need a formal title to be considered an officer. If they exercise decision-making authority in practice, they may fall within scope.

3. Substance Over Form is Key

One of the most important takeaways from this clarification is the FTA’s clear emphasis on substance over form.

Job titles alone are not determinative
Actual roles, responsibilities, and authority are what matter

This aligns the UAE Corporate Tax framework with international tax principles, particularly in areas such as transfer pricing and related-party governance.

4. Broad Application Across Structures

The concept of “officer” applies not only to companies but also to:

Foundations
Trusts
Partnerships and other arrangements are treated as taxable persons

This makes the clarification relevant for family structures, holding entities, and group structures.

Practical Implications for Businesses

This clarification has several immediate implications:

✔ Review Connected Persons Mapping

Businesses should reassess who qualifies as a director or officer, especially where roles are not clearly defined.

✔ Assess Payments to Key Individuals

Compensation, benefits, or other payments to such individuals must:

Be justified at market value, and
Be properly documented

✔ Revisit Governance and Delegation

Companies should evaluate:

Delegation of authority frameworks
Who actually makes decisions vs. who holds formal titles

✔ Ensure Proper Disclosure

Transactions with directors and officers may need to be disclosed in Corporate Tax filings, depending on thresholds.

Our Perspective

This clarification is not just about definitions—it reflects a broader direction in UAE Corporate Tax:

Substance-based assessment is becoming the standard
Governance and decision-making structures are now tax-relevant

Businesses that rely solely on formal titles or documentation, without aligning them to actual practice, may face tax risks, particularly around deductibility and disclosures.