Compliance Alert: FTA Tightens Rules on Connected Person Payments
The UAE Federal Tax Authority (FTA) has released a crucial Corporate Tax Public Clarification (issued April 2026). This guidance clarifies how businesses must identify "directors" and "officers" when determining the tax deductibility of executive compensation and benefits.
To review the primary source, please consult the official document: "CTP010-Clarification-of-director-and-officer-04-2026.pdf".
1. Why is this clarification necessary?
Under Article 36 of the UAE Corporate Tax Law, any transaction or benefit provided to a Connected Person faces strict regulatory benchmarks. To be deemed tax-deductible, these payments must:
Reflect the true Market Value of the services performed.
Be incurred wholly and exclusively for corporate operational purposes.
2. Who qualifies as a "Director" under the new guidance?
The FTA emphasizes substance over form. An individual is only considered a director if they hold a seat on the formal board of directors or a matching governing body.
Important Note: Having "Director" written in an employee's job title does not automatically make them a director under this law if they lack formal board-level placement.
3. What constitutes an "Officer"?
Classification as an officer depends strictly on functional, real-world authority rather than an administrative title. This category includes individuals who:
Maintain the final authority to contractually and legally bind the business.
Hold ultimate strategic decision-making privileges.
Direct, plan, and control the entity's core activities (aligned with IAS 24 parameters).
Note on Exclusions: Employees who do not possess this ultimate strategic or binding authority are explicitly excluded from being classified as "officers."
4. When do these rules take effect?
Effective Date: This clarification applies retroactively, taking effect as of the implementation date of the Corporate Tax Law itself, unless the authority specifies otherwise.
Reporting Requirements: In accordance with Article 55(1), businesses are legally obligated to formally disclose transactions and arrangements involving Connected Persons within their Tax Returns, provided the values exceed the established regulatory thresholds.