Direct Answer
The Federal Tax Authority (FTA) issued Public Clarification CTP010 on 29 April 2026 to clarify who qualifies as a Director or Officer under the UAE Corporate Tax regime and how compensation paid to such individuals should be treated for tax purposes.
Under Article 36 of Federal Decree-Law No. 47 of 2022, both Directors and Officers are considered Connected Persons. Any payment made to a Director or Officer, including salary, bonuses, allowances, benefits, management fees, director fees, profit-linked remuneration, or other compensation, must satisfy the arm’s length principle. The amount paid must reflect the market value of the services actually performed and be comparable to what an independent party would receive in similar circumstances.
Where compensation exceeds arm’s length market value, the excess amount may not be deductible for Corporate Tax purposes and may be added back to taxable income. Businesses must also disclose connected person payments exceeding AED 500,000 in a tax period through the Connected Person Schedule filed with the Corporate Tax return.
Key Points
- FTA Public Clarification CTP010 was issued on 29 April 2026.
- Directors and Officers are Connected Persons under Article 36 of the UAE Corporate Tax Law.
- Salaries, bonuses, benefits, management fees, and board remuneration must satisfy the arm’s length principle.
- Founder salaries are subject to the same rules as any other connected person transaction.
- Compensation must reflect the market value of services actually performed.
- Payments exceeding AED 500,000 to a connected person must be disclosed in the Connected Person Schedule.
- Excessive compensation may be disallowed as a deductible expense.
- QFZPs must comply with arm’s length requirements to maintain eligibility for the 0% Corporate Tax rate.
- Robust documentation is essential to support compensation arrangements during an FTA review or audit.
Why the FTA Issued CTP010
Connected Person rules have existed since the introduction of UAE Corporate Tax. However, many businesses remained uncertain about how the rules applied to founder salaries, executive remuneration, board fees, and compensation paid to individuals holding senior management positions.
In practice, many UAE companies are controlled by founders who simultaneously act as shareholders, directors, and senior executives. Questions frequently arose regarding whether compensation paid to such individuals should be treated as ordinary payroll expenses or connected person transactions.
Public Clarification CTP010 removes this uncertainty by providing the FTA’s interpretation of who qualifies as a Director or Officer and confirming that compensation paid to such individuals falls within the Connected Person framework.
The clarification also reinforces a key principle of UAE Corporate Tax: the economic substance of a transaction matters more than the label attached to it. A payment described as salary, consultancy fees, management remuneration, bonus, housing allowance, or board fees may still be subject to Article 36 if the recipient qualifies as a Director or Officer.
Who Qualifies as a Director Under CTP010?
CTP010 confirms that a Director is generally a person formally appointed to a company’s board and entrusted with decision-making authority over the company’s affairs.
This includes:
- Executive Directors
- Non-Executive Directors
- Independent Directors
- Managing Directors who serve on the board
A Director does not need to be involved in day-to-day operations. Strategic oversight, governance responsibilities, and board-level decision-making authority are sufficient to bring an individual within the Director definition.
For example, a Non-Executive Director attending quarterly board meetings and contributing to strategic decisions may still qualify as a Director for Connected Person purposes.
Who Qualifies as an Officer Under CTP010?
An Officer is a senior executive who exercises managerial authority over the company’s operations or a significant part of its business activities.
Examples commonly include:
- Chief Executive Officer (CEO)
- Chief Financial Officer (CFO)
- Chief Operating Officer (COO)
- Chief Technology Officer (CTO)
- General Manager
- Managing Director
- Country Manager
- Regional Executive
The title itself is not always decisive. Individuals with substantial operational authority may qualify as Officers even if their job title differs from traditional executive positions.
For many UAE businesses, founders simultaneously qualify as shareholders, Directors, and Officers. This means compensation paid to founders often falls within multiple Corporate Tax compliance requirements.
Understanding the Arm’s Length Principle
The arm’s length principle requires compensation paid to a Director or Officer to be consistent with what an unrelated third party would receive for performing comparable services under comparable circumstances.
The objective is to determine what an independent business would reasonably pay an unrelated individual performing the same role.
The assessment considers factors such as
Experience & Qualifications
Scope of Responsibilities
Industry Sector
Company Size
Revenue Levels
Geographic Market
Commercial Complexity
Employees Supervised
Strategic Decision-Making
What Does the Arm’s Length Test Mean for Founder Salaries?
Founder compensation receives particular scrutiny because founders often control both sides of the transaction.
A founder acting as CEO cannot simply determine a salary level based solely on personal preference or tax planning objectives. The compensation should reflect genuine market value for the services provided.
For example, a founder leading a pre-revenue technology startup may reasonably receive lower compensation than a CEO managing an established UAE business with significant revenue and employees. The arm’s length standard recognises commercial realities and business lifecycle stages.
However, situations that may attract scrutiny include:
- Artificially inflated salaries designed to reduce taxable profits.
- Excessive management fees lacking commercial justification.
- Bonus structures unsupported by performance criteria.
- Compensation levels significantly exceeding market benchmarks.
- Payments that effectively represent profit distributions rather than remuneration for services.
The FTA will focus on whether an unrelated person would reasonably receive similar compensation for performing comparable work.
Practical Examples of Arm’s Length Compensation
Founder-CEO Example
A startup founder acts as Chief Executive Officer and receives annual compensation of AED 360,000. Independent salary surveys indicate that comparable UAE startup CEOs typically earn between AED 300,000 and AED 450,000 annually.
Provided the company maintains supporting evidence, the compensation would generally align with arm’s length principles.
Excessive Compensation Example
A small consultancy generating modest revenue pays its founder-director AED 1.5 million annually despite limited operational activity.
If comparable executives in similar businesses earn substantially less, the FTA may conclude that a portion of the compensation exceeds arm’s length value and disallow the excess deduction.
Non-Executive Director Fee Example
A family-owned holding company pays a Non-Executive Director AED 400,000 annually for attending a limited number of board meetings.
Without evidence supporting the commercial reasonableness of the fee, the FTA may challenge whether the remuneration reflects market value for similar advisory services.
Documentation Requirements for Connected Person Compensation
The amount paid is only one part of the compliance requirement. Businesses must also demonstrate how they determined that the compensation is arm’s length.
Recommended documentation includes:
- Employment contracts.
- Appointment letters.
- Detailed job descriptions.
- Salary benchmarking reports.
- Compensation surveys.
- Recruitment consultant reports.
- Comparable market data.
- Board resolutions approving remuneration.
- Shareholder resolutions where applicable.
- Bonus approval records.
- Performance review documentation.
- Payroll records.
- WPS records where relevant.
- Corporate Tax working papers.
- Connected Person Schedule disclosures.
The absence of documentation often creates greater audit risk than the compensation amount itself.
The AED 500,000 Connected Person Disclosure Threshold
Companies must complete the Connected Person Schedule when payments to a connected person exceed AED 500,000 during a tax period.
The disclosure generally requires:
- Name of the connected person.
- Nature of the relationship.
- Type of payment.
- Total compensation amount.
- Arm’s length assessment methodology.
A founder earning AED 50,000 per month receives AED 600,000 annually and therefore exceeds the disclosure threshold.
Businesses frequently overlook this filing obligation because they focus on deductibility rather than disclosure requirements.
Failure to complete the required schedule may expose the company to compliance risks during a Corporate Tax review.
Board Fees and Non-Executive Directors
Board fees are specifically affected by CTP010.
Where Directors qualify as Connected Persons, board remuneration must also satisfy arm’s length requirements.
Factors considered include:
- Company size.
- Governance responsibilities.
- Industry sector.
- Meeting frequency.
- Strategic involvement.
- Market benchmarks for comparable board positions.
Board fees that significantly exceed normal market practice may attract FTA scrutiny, particularly where the recipient is also a shareholder or related party.
Common Compliance Mistakes Under Article 36
Many businesses unintentionally create Corporate Tax risks through poor documentation or informal compensation practices.
Common mistakes include:
- No salary benchmarking evidence.
- No board approval of compensation.
- Treating shareholder withdrawals as salary.
- Paying management fees without documenting services.
- Paying excessive director remuneration.
- Failing to maintain supporting records.
- Missing Connected Person Schedule disclosures.
- Using compensation arrangements designed primarily to reduce taxable income.
Addressing these issues proactively can significantly reduce the likelihood of disputes during an FTA review.
QFZPs Face Higher Compliance Risks
For Qualifying Free Zone Persons, compliance with the arm’s length principle carries additional importance.
To benefit from the 0% Corporate Tax rate on qualifying income, QFZPs must continuously satisfy several conditions, including compliance with transfer pricing and arm’s length requirements.
Where the FTA determines that connected person compensation fails the arm’s length standard, the consequences may extend beyond a simple tax adjustment.
In certain circumstances, a failure to satisfy the arm’s length condition may affect the entity’s ability to maintain Qualifying Free Zone Person status for the relevant period.
For this reason, free zone businesses should review founder compensation arrangements annually and maintain robust supporting documentation.
Ensure Your Founder Compensation Meets FTA Requirements
Founder salaries, director fees, bonuses, and board remuneration must comply with the arm’s length standard under FTA Public Clarification CTP010. IncHub Financial Services FZCO helps UAE businesses benchmark compensation, prepare supporting documentation, and meet Connected Person disclosure requirements with confidence.
Speak to a Corporate Tax AdvisorFrequently Asked Questions
Conclusion
FTA Public Clarification CTP010 provides definitive guidance on how Director and Officer compensation should be treated under UAE Corporate Tax law. Founder salaries, executive remuneration, management fees, bonuses, and board compensation are all subject to the arm’s length principle when paid to Connected Persons.
For many UAE businesses, particularly founder-led companies, family groups, and QFZPs, the greatest risk is not necessarily the compensation amount itself but the absence of documentation supporting how that amount was determined.
By maintaining appropriate benchmarking evidence, formal approvals, and accurate Corporate Tax disclosures, businesses can strengthen compliance, reduce audit risk, and demonstrate adherence to the Connected Person requirements established under Article 36 of the UAE Corporate Tax Law.
