Clarification of the terms “director” and “officer” for the purpose of payments to Connected Persons under Article 36 of the Corporate Tax Law

Article 36(1) of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) provides that any payment or benefit made by a Taxable Person to a Connected Person is deductible only to the extent that it reflects the market value of the corresponding service or benefit, and is wholly and exclusively for the purpose of the Taxable Person’s Business.

Under Article 36(2)(b), the definition of a Connected Person includes a director or officer of the Taxable Person. In addition, pursuant to Article 55(1) and the Federal Tax Authority’s published guidance on Corporate Tax Returns, Taxable Persons are required to disclose transactions and arrangements with Connected Persons in their Tax Return where such transactions exceed the prescribed threshold of AED 500,000. Accordingly, payments or benefits provided to Connected Person directors and officers need to be made at market value and appropriately disclosed.

In this context, the Public Clarification issued by the Federal Tax Authority on 29 April 2026 provides guidance on the interpretation of the terms “director” and “officer” for the purposes of Articles 36(2)(b) and 55(1) of the Corporate Tax Law. The clarification only addresses Connected Persons definitions, it does not provide broader clarification on those under Article 36(6) of the Corporate Tax Law that may be exempted from Article 36(1).

Definitions

Director:  

• Any individual formally appointed to the board of directors of a Taxable Person, including executive, non-executive, temporary, permanent, or alternate directors, as well as members of board committees.
• In the absence of a board of directors, any individual holding a position on an equivalent governing body (e.g., board of trustees or board of governors), as determined under the applicable laws governing the entity or its constitutional documents (including the memorandum of association, articles of association, partnership deed, or trust deed).
• Individuals whose job title includes the term “director”, but who do not hold a position on the board of directors, or an equivalent governing body are not considered “directors” for the purposes of Article 36(2)(b).

Officer:

• Has the authority and responsibility for planning, directing, and controlling the activities of a Taxable Person, consistent with International Accounting Standard 24 on Related Party Disclosures.
• Has the authority to make strategic decisions relating to the financial, operational, or commercial affairs of a Taxable Person.
• Has the authority to enter into agreements or approve actions that legally or contractually bind the Taxable Person.
• Does not include individuals who lack final or ultimate strategic decision-making or binding authority.
• May include individuals without a formal title where their actual conduct demonstrates the requisite authority and responsibility.
• Concept of payments to Connected Persons officers applies to all Taxable Persons, including trusts, foundations, and unincorporated partnerships treated as fiscally opaque for Corporate Tax purposes. However, only a natural person can be an officer.
• Where a Person qualifies as both a Related Party and a Connected Person, such Person shall be treated solely as a Related Party for the purposes of the Corporate Tax Law.

Our Comments

The clarification provides welcome guidance on the interpretation of “director” and “officer” under the Corporate Tax Law. However, its practical application is likely to require careful judgement, particularly in organizations with complex governance structures or decentralized decision-making frameworks. While the definition of “director” is grounded in formal legal appointment, the concept of “officer” adopts a substance-over-form approach, focusing on actual authority and decision-making.

For businesses that have already filed a Connected Persons disclosure, the distinction may broaden the scope of individuals such businesses consider to be captured within the Connected Persons framework, particularly in cases involving senior management, dual-hatted roles, or individuals exercising significant influence without formal designation. As a result, businesses may need to review their governance structures, delegation of authority frameworks, and contractual arrangements to ensure that all relevant individuals are appropriately identified. There are also direct implications for the deductibility of payments under Article 36 and the disclosure requirements under Article 55, requiring robust support for the arm’s length nature of such transactions.

How We Can Help

We can support businesses in navigating these requirements through a combination of technical analysis and practical implementation.

This includes reviewing governance structures and organizational roles to identify Connected Persons directors and officers in line with the clarification. In addition, we can assist in the preparation of benchmarking analysis and other supporting documentation for compliance with the market value requirement. Finally, we can assist in the preparation or review of the Connected Persons disclosures in the Tax Return.

Our TP Specialists