FTA has clarified the meaning of “director” and “officer” as Connected Persons under Corporate Tax Public Clarification CTP010, outlining their relevance to deduction limits under Article 36 and disclosure obligations under Article 55, with a focus on market value rules and substance-based assessment of authority.
The UAE Federal Tax Authority (FTA) has issued Corporate Tax Public Clarification CTP010 to define the terms “director” and “officer” as Connected Persons under the UAE Corporate Tax Law.
The clarification is relevant to the rules under Article 36, which restrict the deduction of payments made to Connected Persons where such payments are not at market value, and Article 55, which sets out the obligation to disclose transactions with Connected Persons in the corporate tax return.
Deductibility and connected persons
Under the Corporate Tax Law, payments or benefits provided to a Connected Person (which includes directors and officers) are only deductible if they:
- Correspond to the Market Value of the service or benefit provided.
- Are incurred wholly and exclusively for the purposes of the Taxable Person’s business.
- Are appropriately disclosed in the Tax Return if they exceed specified thresholds.
Definition of a “Director”
A “director” is a person who holds a position on the board of directors or an equivalent governing body as determined by the law governing the entity’s incorporation or its constitutional documents (e.g., Articles of Association, Trust Deed).
- Broad Scope: This includes executive, non-executive, temporary, permanent, or alternative directors, as well as members of any board committee.
- Equivalent Bodies: If there is no formal board, the term applies to governing bodies like a board of trustees or a board of governors.
- Title vs. Substance: Having “Director” in a job title does not automatically make someone a director for tax purposes unless they hold a seat on the board or equivalent governing body.
Definition of an “Officer”
An “officer” is defined by their authority and responsibility rather than just their title. A person is an officer if they meet any of the following criteria:
- Control Activities: They possess authority for planning, directing, and controlling the activities of the Taxable Person, following the framework of IAS 24.
- Strategic Decision-Making: They have the authority to make final/ultimate strategic decisions regarding financial, operational, or commercial matters.
- Binding Authority: They have the authority to enter into agreements or approve actions that legally or contractually bind the Taxable Person.
- C-suite Roles: This typically includes the CEO, CFO, COO, CCO, General Manager, or authorised representatives with discretionary authority.
- Exclusion: The term does not include individuals who lack final strategic decision-making or binding authority.
Key application rules
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- Natural Persons Only: Only a natural person can be considered a director or officer.
- Entity Coverage: These definitions apply to all Taxable Persons, including trusts, foundations, and fiscally opaque unincorporated partnerships.
- Substance Over Form: If a person’s actual conduct involves strategic planning or binding the entity, they are considered an officer even if they lack a formal C-suite title.
- Related Party Conflict: If a person is both a Related Party and a Connected Person, they are treated only as a Related Party for Corporate Tax Law purposes.
Practical examples and clarifications
- Head of a Division: Considered an officer only if they make final strategic decisions; not an officer if they merely follow instructions from the board or C-suite.
- Head of HR: Considered an officer if they make strategic decisions on manpower planning or organisational structure; not an officer if their role is limited to routine functions like payroll or leave management.
- Power of Attorney (PoA): An employee with a PoA is an officer if it grants discretionary authority for planning or strategic decisions; they are not an officer if the PoA is for administrative/predefined tasks.
- Outsourced Management: Third-party or outsourced personnel are generally not officers if they only negotiate terms already agreed upon; they are officers if they have final authority to bind the entity or make strategic decisions.
- Interim Roles: A consultant acting as an interim CEO is considered an officer if they have authority for planning, directing, and controlling activities.
- Legal/Court Appointments: A trustee or administrator appointed by a court is not an officer if they only carry out assigned duties without discretionary authority
