Issue
Corporate Tax in the UAE is regulated by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business and its amendments ("Corporate Tax Law"), and its implementing decisions.
As per Article 36(1) of the Corporate Tax Law, a payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if and to the extent that the payment or benefit corresponds with the Market Value of the service or benefit provided by the Connected Person.
The definition of Connected Person as per Article 36(2)(b) of the Corporate Tax Law includes a director or officer of the Taxable Person.
Further, in accordance with Article 55(1) of the Corporate Tax Law, the FTA requires a Taxable Person to disclose transactions and arrangements with Connected Persons as part of the Tax Return submission, if they exceed a specified threshold.
This Public Clarification intends to clarify the terms "director" and "officer" in the context of Articles 36(2)(b) and 55(1) of the Corporate Tax Law.
Summary
A "director" refers to a Person that holds a position on the board of directors or an equivalent governing body as determined under the applicable law governing the Taxable Person's incorporation, or constitutional documents.
An "officer" includes a Person who:
- possesses the authority and responsibility for planning, directing, and controlling the activities of a Taxable Person, in accordance with the framework set out in International Accounting Standard 24 on Related Party Disclosures, or
- has the authority to make strategic decisions in relation to financial, operational, or commercial matters of a Taxable Person, or
- has the authority to enter into agreements or to approve actions that legally or contractually bind a Taxable Person.
The term "officer" does not include a Person who does not possess the final/ultimate strategic decision-making or binding authority.
Detailed Analysis
Under Article 36(1) of the Corporate Tax Law, a payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if and to the extent the payment or benefit corresponds to the Market Value of the service, benefit or otherwise provided by the Connected Person and is incurred wholly and exclusively for the purposes of the Taxable Person's Business.