Many UAE companies make payments to individuals connected to the business during the year.

This may include salaries, bonuses, director fees, consultancy fees, commissions, rent, management fees, or benefits such as company cars, accommodation, travel, or other allowances.

Under the UAE Corporate Tax regime, these payments may fall within the Connected Person rules. This means they may directly affect whether the company can claim the payment as a deductible expense.

The key point is simple:

The FTA looks at substance, not only titles.

A person does not need to formally hold the title of “Director” to fall within the rules. If they have real authority to manage the business, make strategic decisions, sign contracts, or legally bind the company, they may be treated as an officer and therefore as a Connected Person. The FTA’s April 2026 clarification explains that an officer includes a person who has authority and responsibility for planning, directing, controlling activities, making strategic decisions, or binding the taxable person legally or contractually.

Why this matters for UAE businesses

Payments to Connected Persons are not automatically deductible.

Under Article 36 of the UAE Corporate Tax Law, a payment or benefit made to a Connected Person is deductible only if it:

• reflects Market Value;
• is incurred wholly and exclusively for business purposes; and
• is properly disclosed where required.

In practical terms, if a company pays an owner, director, general manager, authorized signatory, or related individual more than what an independent third party would reasonably receive, the excess may be challenged.

Who may be considered a Connected Person?

A Connected Person may include:

• an owner, shareholder, partner, or proprietor;
• a director or member of an equivalent governing body;
• an officer, such as a GM, CEO, CFO, COO, authorized signatory, or key decision-maker;
• a related party of the above, including certain family members or related entities.

The FTA also clarifies that only a natural person can be a director or officer of a taxable person.

It is not limited to salary

A common misconception is that Connected Person rules apply only to salaries.

In reality, the rules may apply to a wide range of payments and benefits, including:

• salaries and bonuses;
• director fees;
• management or consultancy fees;
• sales commissions;
• rent paid to an owner, director, or related person;
• company car, housing, school fees, travel, or other personal benefits;
• interest-free or low-interest loans;
• guarantee fees;
• royalties or license fees;
• reimbursements for unsupported or personal expenses.

The practical question is:

Would the company pay the same amount to an unrelated person in the open market?

The AED 500,000 threshold is not a safe harbor

The AED 500,000 threshold is generally relevant for disclosure purposes. It does not mean that payments below this amount are automatically acceptable.

Even if the payment is below AED 500,000, the company should still be able to demonstrate that the payment is commercial, reasonable, and aligned with Market Value.

For example, a normal full-time salary of AED 180,000 may require basic supporting documentation such as an employment contract, job description, pay slips, and evidence of business purpose.

However, if an owner-manager is paid AED 480,000 in a small business, or receives a combination of salary, bonus, car benefit, rent, commission, and consultancy fees, stronger support may be required.

Why salary benchmarking matters

Salary benchmarking helps answer a question the FTA may reasonably ask:

Would an independent company pay this amount to an unrelated person for the same role?

Benchmarking may support:

• the commercial basis for the payment;
• the person’s role and responsibilities;
• the market range for similar positions;
• the reasonableness of salary, bonus, and benefits;
• the company’s Corporate Tax deduction position.

This is especially relevant where payments are made to owner-managers, shareholder-directors, general managers, authorized signatories, Power of Attorney holders, family members, or senior employees receiving high remuneration.

Does this apply to Free Zone companies?

Yes.

Free Zone companies are also within the UAE Corporate Tax framework. Even where a Qualifying Free Zone Person may benefit from 0% Corporate Tax on qualifying income, transfer pricing and documentation obligations remain relevant.

In simple terms:

0% tax does not mean 0% documentation.

Free Zone companies should still review payments made to owners, directors, officers, authorized signatories, managers, and related individuals.

What about NRIs or non-residents?

The Connected Person rules may still apply.

The focus is not only on the individual’s residence status. The key issue is the relationship between the individual and the UAE taxable person.

If a UAE company pays an NRI shareholder, director, officer, consultant, or related person, the company should still assess whether:

• the person is a Connected Person;
• the payment reflects Market Value;
• the payment is wholly and exclusively for business purposes;
• disclosure is required;
• proper documentation is available.

The individual’s personal tax position in another country should be reviewed separately, but non-resident status does not automatically remove the UAE Corporate Tax risk.

When should companies be alert?

Businesses should review their position carefully where:

• the owner receives salary, bonus, rent, commission, or consultancy fees;
• a director is paid separately for management services;
• a General Manager or authorized signatory controls company decisions;
• a family member is on payroll;
• a Power of Attorney holder can sign contracts;
• rent is paid to a shareholder or related person;
• payments are made without written agreements;
• payments approach or exceed AED 500,000;
• the company is claiming a Corporate Tax deduction;
• the company is a Free Zone entity claiming 0%;
• the company has low profit but high payments to owners or managers.

Key takeaway

Connected Person payments are not prohibited.

But they must be defensible.

The FTA is not only concerned with what a person is called. It will look at what the person actually does, the authority they hold, and whether the payment makes commercial sense.

Before filing the Corporate Tax Return, every UAE business should ask:

Can we prove that payments to owners, directors, officers, managers, and related persons are at Market Value?

If the answer is unclear, the documentation should be reviewed before filing.

Need support?

Dawia Family Office can help businesses identify Connected Persons, review salary and non-salary payments, assess Market Value support, prepare salary benchmarking, review disclosure requirements, and strengthen Corporate Tax documentation before filing.