Corporate Tax UAE: Clarification of “Director” and “Officer” Under Article 36 – What Businesses Must Know
Are Director Payments Tax Deductible in UAE Corporate Tax?
Are your Director or management payments truly tax deductible under UAE Corporate Tax? The UAE Federal Tax Authority (FTA) has issued an important clarification that could directly impact how businesses structure compensation, classify roles, and ensure tax compliance.
Introduction to UAE Corporate Tax and Connected Persons
With the introduction of UAE Corporate Tax under Federal Decree-Law No. 47 of 2022, businesses must ensure that transactions with Connected Persons are properly structured and compliant. A recent Public Clarification from the Federal Tax Authority explains how the terms “Director” and “Officer” should be interpreted under Article 36 of the Corporate Tax Law. This is critical because payments to such individuals are:
- Not automatically deductible
- Subject to strict compliance and disclosure rules
Understanding Article 36: Payments to Connected Persons Under Article 36(1) of UAE Corporate Tax Law: Payments or benefits to Connected Persons are deductible only if:
They reflect market value (arm’s length principle) They are incurred wholly and exclusively for business purposes
Additionally, under Article 55:
Businesses must disclose such transactions in their tax return if thresholds are exceeded. Who is a “Director” under UAE Corporate Tax?
A Director refers to:
- A person who is part of the Board of Directors, OR
- A member of an equivalent governing body (e.g., trustees, governors)
Important Clarification: A job title alone does NOT make someone a Director. Even if someone is called “Director”:
- They must be formally part of the governing body
- Otherwise, they are NOT treated as a Director for tax purposes
Who is an “Officer” under UAE Corporate Tax?
The term Officer is broader and based on actual authority. An Officer includes individuals who:
- Have authority to plan, direct, and control business activities
- Make strategic financial or operational decisions
- Can enter into agreements or legally bind the company
Examples of Officers:
- CEO
- CFO
- General Manager
- COO
- Key decision-makers
Substance Over Form: A Key Principle
The FTA emphasizes a substance-over-form approach.
This means:
- Titles alone are NOT sufficient
- Actual decision-making authority matters more
- Even without formal designation, a person can be classified as an Officer
This approach aligns with IAS 24 – Related Party Disclosures. Practical Examples (Easy to Understand)
✔ Example 1:
General Manager with full operational control is Considered as an Officer.
❌ Example 2:
Department Head without decision-making authority is NOT considered as an Officer.
✔ Example 3:
HR Head with strategic authority is Considered as an Officer.
❌ Example 4:
Employee performing routine tasks is NOT Considered as an Officer.
Key Compliance Requirements for UAE Businesses
To ensure compliance with UAE Corporate Tax:
1. Market Value Justification
Payments must follow arm’s length pricing
2. Proper Classification
Clearly identify:
- Director
- Officer
- Other employees
3. Disclosure Requirements
Report transactions with Connected Persons in tax filings
4. Documentation
Maintain:
- Employment contracts
- Role definitions
- Justification for compensation
Key Takeaways
- “Director” – formal board-level role
- “Officer” – strategic decision-maker
- Payments are not automatically deductible
- Must meet market value + business purpose test
- Certain transactions require FTA disclosure
Substance matters more than designation
Conclusion
The FTA’s clarification marks a major shift in UAE Corporate Tax compliance. It’s no longer about titles It’s about real authority, structure, and transparency Businesses that fail to align may face:
- Disallowed expenses
- Increased tax liability
- Compliance risks
Need Help with Corporate Tax Compliance? Are your Director or management payments aligned with UAE Corporate Tax regulations? Contact TFAB Accounting & Business Consulting today Ensure your structure is compliant, optimized, and risk-free.