Public Clarification- Clarification on terms “Director” and “Officer” for the purpose of Connect Persons under UAE Corporate Tax Law

• Payments/benefits provided by taxable person to Connected Person are deductible only to the extent that they reflect the market value of the service or benefit received
• Disclosure required in the CT return where the payments/benefits made to “Connected Persons” exceeds a threshold of AED 500,000 during the relevant tax period

• The CT Law defines “Connected Persons” to include “director” and “officer” of a taxable person
• The clarification further specifies that only a natural person can be considered as a “director” or “officer”

• Any individual who holds a position on the Board of Directors (BoD) or an equivalent governing body (such as Board of Trustees, Board of Governors, etc.), as per the entity’s incorporation or constitutional documents (such as MoA, AoA, partnership deed, trust deed, etc.)
• Covers all categories of director, including executive, non-executive, temporary, permanent or alternative director including any member of board committee

Other Considerations:

• The mere use of the term “director” in job title is not, by itself, determinative. The individual must meet the above conditions to be considered as “director”

Inclusions:

• An “officer” generally refers to a person who possesses:
  • Authority and responsibility for planning, directing, and controlling business activities consistent with principles set out under IAS 24 on Related Party Disclosures
  • Authority to make strategic financial, operational or commercial decisions
  • Authority to enter into agreements
  • Authority to approve actions and enter agreements that legally bind a taxable person
• Typically includes C-suite executives such as CEO, CFO, COO, CCO as well as any authorised representative with discretionary authority

Other Considerations:

• Person who does not possess the final/ultimate strategic decision-making authority may fall outside the scope
• Formal appointment or job title may not be a conclusive criterion to determine whether person qualifies as an “officer”
• The substance of the persons role—particularly the extent of actual authority and responsibility exercised—is the key factor; the person should have effective decision-making power within their functional remit.

• Where a person qualifies as both, a Related Party as well as Connect person (eg: shareholder who also serves as a director), the person will only be considered as “Related Party” for the UAE CT Law purpose

• A divisional head who exercises final strategic decision. eg: head of HR with the final authority to make strategic decisions such manpower planning, management, etc.
• Employee designated as “manager” on Trade license where such employee has final authority to approve actions that are legally and contractually binding a taxable person
• A power of attorney (POA) holder where the POA grants discretionary authority for making final strategic decisions as opposed to merely executing administrative tasks
• An interim CEO even though titled as ‘consultant’ would be considered as an officer for the relevant period provided the person has the authority and responsibility for strategic decision making

• Identify all directors and officers based on substance of their roles and actual authority, rather than solely relying on job tittles
• Ensure that compensation and benefits is benchmarked to market value
• Maintain comprehensive documentation (including job role descriptions, contractual arrangements, and transfer pricing analysis)
• Review existing governance and remuneration structures in advance of filing CT returns