Connected Persons Under UAE Corporate Tax: What Every Business Owner Must Disclose

Under UAE Corporate Tax Law, payments to owners, directors, and their relatives are not automatically deductible — they are tested. Article 36 of Federal Decree-Law No. 47 of 2022 requires every payment or benefit given to a “Connected Person” to reflect market value, and once those payments cross AED 500,000 in a tax period, they must be separately disclosed to the Federal Tax Authority (FTA). Getting this classification wrong is one of the most common — and most costly — errors we see in owner-managed and family businesses across the UAE.

This guide sets out exactly who counts as a Connected Person, how the arm’s length test works, when disclosure is triggered, and how to keep your business audit-ready.

Who Is a “Connected Person” Under Article 36?

Article 36(2) of the Corporate Tax Law defines a Connected Person by their actual relationship to the business, not their job title. A person is “connected” to a Taxable Person if they are:

An owner — any natural person who directly or indirectly holds an ownership interest in the business.
A director or officer — and the FTA’s Public Clarification CTP010 confirms this is a substantive test, looking at actual decision-making authority rather than a formal job title alone.
A relative of an owner, director, or officer, connected up to the fourth degree of kinship or affiliation — including by birth, marriage, adoption, or guardianship.
A partner, where the Taxable Person is a member of an unincorporated partnership.
A Related Party (as defined under Article 35) of any of the persons above.

This is a broader test than the “Related Party” definition most international readers are familiar with, because the UAE has no personal income tax — without it, there would be an obvious incentive to disguise profit extraction as inflated salaries, consultancy fees, or rent paid to insiders. Connected Person rules exist specifically to close that gap.

The Arm’s Length Test: When Is a Payment to a Connected Person Deductible?

Article 36(1) is unambiguous: a payment or benefit to a Connected Person is deductible only to the extent it reflects market value for the service actually provided, and is incurred wholly and exclusively for the purposes of the business — the same underlying arm’s length standard set out in Article 34 for Related Party transactions generally. In practice, three things must be true at once:

Genuine business purpose — the expense must be incurred wholly and exclusively for the business, not for personal benefit.
Actual service received — there must be a real good, service, or benefit behind the payment, not just a label.
Market value — the amount must not exceed what an unrelated third party would charge for the same service, determined by applying transfer pricing principles.

Any portion of a payment that exceeds market value is simply disallowed as a deduction — it doesn’t need to be “detected” through an audit trigger to be non-compliant; the excess is non-deductible the moment it’s paid.

Note: Article 36 does not apply to Taxable Persons whose shares are traded on a Recognised Stock Exchange, who are subject to regulatory oversight, or who fall within categories the Minister may specify.

The AED 500,000 Disclosure Threshold — How It Actually Works

This is the part most businesses get wrong: the AED 500,000 threshold applies per Connected Person, not per transaction and not as one combined company-wide total.

Under Article 55(1), if the aggregate payments or benefits provided to any single Connected Person — combined with payments to that person’s own Related Parties — exceed AED 500,000 in a Tax Period, that individual’s transactions must be disclosed on the Connected Persons Schedule of your Corporate Tax Return, filed via EmaraTax alongside the return itself (due within nine months of the Tax Period’s end).

This includes salaries, bonuses, consultancy fees, rent, loans, financing arrangements, and non-cash benefits. Even where the AED 500,000 threshold isn’t crossed, the underlying arm’s length obligation under Article 36 still applies — the disclosure form is a reporting mechanism, not the compliance test itself.

Recent FTA Guidance: Director and Officer Classification

The FTA’s Public Clarification CTP010 addresses a question we’re asked constantly: does someone need the formal title of “Director” to be caught by these rules? The answer is no. The Clarification confirms the FTA looks past job titles to the actual authority, decision-making power, and role an individual performs in practice — meaning a “Head of Operations” or “General Manager” with real executive authority can be classified as an officer for Connected Person purposes, regardless of what’s printed on their business card. This has direct implications for how you map out who is, and isn’t, a Connected Person before your next filing.

Documentation Every Business Should Maintain

Strong records are your first line of defence in any FTA review. We advise clients to keep, at minimum:

Service and employment agreements that clearly define roles, responsibilities, and compensation.
Board or shareholder approvals authorising transactions with Connected Persons.
Benchmarking support evidencing that payments reflect current market value.
Bank records and invoices as proof that the transaction actually took place.

Frequently Asked Questions

What happens if I don’t disclose Connected Person transactions above AED 500,000?

Failing to disclose required transactions can result in penalties, disallowance of the related deductions, and increased scrutiny of your Corporate Tax Return by the FTA. Non-compliance with TP disclosure schedules can carry monthly penalties in addition to the underlying tax adjustment.

Is the AED 500,000 threshold per transaction or per year?

It’s an aggregate, per-Connected-Person threshold measured across the Tax Period — not a single-transaction limit. All payments and benefits to that person (and their Related Parties), added together over the year, are tested against the AED 500,000 mark.

Does my company secretary count as a Connected Person?

It depends on actual authority, not title. Following FTA Public Clarification CTP010, the test looks at whether the individual exercises real decision-making power in the business — a role with genuine executive influence can be caught even without the word “director” in the job title.

Can a payment to a Connected Person ever be fully deductible?

Yes — provided it reflects genuine market value for an actual service rendered wholly and exclusively for the business. It’s excess above market value, or payments without a genuine business purpose, that get disallowed.

Are Connected Persons the same as Related Parties?

No. Related Parties (Article 35) are defined by ownership, control, and kinship links between entities and individuals generally. Connected Persons (Article 36) is a narrower, business-specific test covering owners, directors/officers, and their relatives in relation to one particular Taxable Person — the two categories are disclosed on separate schedules with different thresholds (AED 40 million for Related Party transactions vs. AED 500,000 for Connected Persons).

Work With Al Burhan

Connected Person compliance isn’t a box-ticking exercise — it has a direct bearing on your taxable income and your standing with the FTA. As your advisory partner, Al Burhan Accounting & Taxation LLC reviews your ownership structure, benchmarks your payments to owners and directors against market value, and prepares your disclosure schedules before your filing deadline.

Contact Al Burhan Accounting & Taxation LLC:

Phone: +971 50 536 0953
Email: [email protected]
Address: Office 20, 7th Floor, Dubai National Insurance Building, Opposite Deira City Centre, Port Saeed, Dubai

Disclaimer: This content has been prepared for general guidance and understanding about the subject. Al Burhan Accounting and Taxation LLC does not provide any warranty for the accuracy or completeness of the information and will not assume any responsibility or liability for any consequential losses or damages if the information contained herein is relied upon.