Corporate Tax UAE

UAE Corporate Tax on Director and Shareholder Payments 2026: FTA’s Article 36 Deductibility Rule Explained

Boardroom meeting discussing UAE Corporate Tax director and shareholder payment deductibility under Article 36

13 min read

Published: 19 August 2026

Quick answer: Under Article 36 of the UAE Corporate Tax Law, a payment or benefit given to a director, officer, shareholder, or other Connected Person is only tax-deductible if it reflects market value and was incurred wholly and exclusively for the business. Any amount above market value is disallowed. The Federal Tax Authority confirmed this in Corporate Tax Public Clarification CTP010, issued 29 April 2026, which also widens who counts as a “director” or “officer” beyond formal job titles.

If your company pays a salary, fee, bonus, benefit, or any other form of compensation to an owner, board member, senior manager, or authorised signatory, this clarification directly affects what you can deduct on your Corporate Tax return. This guide explains the rule, who it applies to, how the FTA now defines “director” and “officer,” what documentation protects your deduction, and the practical steps to take before your first Corporate Tax return is due on 30 September 2026.

What Article 36 Actually Says

Article 36 of Federal Decree-Law No. 47 of 2022 (the UAE Corporate Tax Law) governs payments made by a Taxable Person to its Connected Persons. A Connected Person includes an owner of the business, a director or officer of the business, and certain relatives and related entities of those individuals.

The rule is straightforward in principle but easy to get wrong in practice: a payment or benefit to a Connected Person is deductible for Corporate Tax purposes only where two conditions are both met.

The payment corresponds to the market value of the service, benefit, or role actually provided.
The payment is incurred wholly and exclusively for the purposes of the business.

Any portion of a payment that fails either test is not deductible. It does not matter that the payment was actually made, recorded in the accounts, or agreed between the parties. Deductibility is decided by substance, not by internal agreement.

The FTA’s 2026 Clarification (CTP010) Explained

On 29 April 2026, the Federal Tax Authority issued Corporate Tax Public Clarification CTP010, focused specifically on how the terms “director” and “officer” should be interpreted for Article 36 purposes. Professional advisory firms including KPMG, Grant Thornton UAE, and Aurifer Tax reported on the same clarification through July and August 2026, confirming its scope and practical direction.

The clarification does not introduce a new law. It explains, with worked examples, how the FTA will apply the existing Article 36 wording during reviews and audits. Three points stand out for UAE businesses preparing their first full Corporate Tax return.

A job title alone does not decide the outcome. The FTA confirmed that simply calling someone a “director” in an organisation chart or offer letter does not automatically bring them inside Article 36, and the reverse is also true: someone without the word “director” in their title can still be caught if they hold real decision-making or binding authority. The test is substantive, based on the authority the person actually exercises, not the label on their business card.

The population of people in scope is wider than most businesses assume. The clarification covers owners, board members, senior management, general managers, authorised signatories, and any other individual who can make strategic decisions or bind the company. A general manager with signing authority over contracts can fall inside Article 36 even if they hold no shares and no formal director title.

Related Party rules take priority where both apply. Where a person qualifies as both a Related Party and a Connected Person under the Corporate Tax Law, they are treated as a Related Party for Corporate Tax purposes. This matters because Related Party transactions carry their own transfer pricing documentation obligations in addition to Article 36’s deductibility test.

Who Counts as a Director or Officer

Based on the FTA’s clarification, review each of the following roles against the substance test, not the title on the payroll record:

Shareholders and owners who also draw a salary, fee, or benefit from the business
Board members and non-executive directors
General managers with authority to sign contracts or approve payments
Authorised signatories on bank accounts or key business agreements
Senior management with strategic decision-making authority, even without a “director” title
Family members of the above who receive payments from the business

If a payment goes to anyone on this list, Article 36 applies to that payment, and it needs the same market-value evidence as a payment to a formally appointed director.

The Market Value Test in Practice

Demonstrating market value means showing that an independent business, dealing with an unrelated party on arm’s-length terms, would have paid a comparable amount for the same role, service, or benefit. In practice, this usually means gathering:

Comparable market data for similar roles, seniority, and industry, such as salary benchmarking reports or recruitment agency data for the UAE market
A written contract or employment agreement setting out the role, responsibilities, and agreed compensation before payments began
Board resolutions or minutes approving the payment, particularly for bonuses, one-off fees, or benefits outside a standard salary
Evidence the role is real, such as calendars, meeting attendance, signed approvals, or deliverables tied to the position
A record of how the amount was set, showing it was benchmarked against the market rather than fixed arbitrarily by the owner

Businesses that can produce this evidence on request are in a materially stronger position during an FTA review than businesses relying only on the fact that a payment was made and recorded.

What Happens If a Payment Is Disallowed

Where a payment or part of a payment to a Connected Person cannot be shown to meet the market value and wholly-and-exclusively tests, the FTA can disallow that amount as a deductible expense. The practical effect is that the disallowed amount is added back to taxable income, increasing the Corporate Tax liability for the period, even though the cash was genuinely paid out of the business.

This is not a penalty in itself, but it can trigger a reassessment, additional tax payable, and in some cases late payment interest if the adjustment is identified after the original filing. A business that overstates director or shareholder compensation without supporting evidence is effectively understating its taxable profit, which is exactly the pattern the FTA’s compliance review process is designed to catch.

Article 36 vs the General Deductible Expenses Rule

	General business expenses	Connected Person payments (Article 36)
Deductibility test	Incurred wholly and exclusively for business, not capital in nature	Same test, plus must reflect market value
Documentation standard	Invoice, contract, or receipt is usually sufficient	Requires market benchmarking, contract, and approval evidence
Who it applies to	Any supplier or service provider	Owners, directors, officers, and related family members
Risk on audit	Standard expense substantiation	Additional related-party and market-value scrutiny
Related obligation	None beyond normal recordkeeping	May also trigger transfer pricing documentation and Article 55 disclosure

If you already understand the general deductible expenses rules, Article 36 sits on top of them as an extra layer that applies specifically to payments made to people connected to the business.

How This Interacts With Transfer Pricing Documentation

Article 36 does not operate in isolation. Where a Connected Person is also a Related Party under the Corporate Tax Law’s related party definitions, the transaction can fall within the scope of transfer pricing rules as well. This means a business may need to maintain a Local File or Master File, depending on revenue and transaction thresholds, showing that the pricing of the payment is consistent with the arm’s-length principle used internationally.

In practice, the evidence a business gathers to satisfy Article 36’s market value test (comparable salary or fee data, a written agreement, board approval) overlaps heavily with what transfer pricing documentation requires. Businesses preparing one set of evidence should build it to satisfy both requirements at the same time, rather than treating them as separate exercises. For the full documentation standard, see our guide to transfer pricing documentation for UAE businesses.

Article 55 Disclosure Requirements

Transactions with directors and officers can also trigger disclosure obligations under Article 55 of the Corporate Tax Law once the prescribed thresholds are met. This is separate from the deductibility question: even where a payment is fully deductible because it meets the market value test, it may still need to be disclosed in the Corporate Tax return if it crosses the relevant threshold. Businesses should treat documentation and disclosure as two connected but distinct compliance steps, not one combined task.

Practical Steps Before Your First CT Return

With the first UAE Corporate Tax return due 30 September 2026 for many businesses, use the run-up to filing to close any gaps in Connected Person documentation.

List every Connected Person receiving a payment or benefit from the business, using the substance-based definition above, not just the formal payroll records.
Match each payment to a written agreement. If a shareholder or director has been paid without a contract or board resolution, put one in place now and document the basis for the amount.
Benchmark compensation against the market. Use recruitment agency salary guides or industry compensation surveys for the UAE to support the amounts paid.
Separate salary from benefits. Housing allowances, vehicles, and other non-cash benefits to Connected Persons are also subject to the market value test and need their own justification.
Check the Related Party overlap. Confirm whether any Connected Person is also a Related Party, and prepare transfer pricing documentation accordingly.
Review Article 55 thresholds with your tax adviser to confirm whether any payments require separate disclosure in the return.
Keep everything for the statutory record-keeping period. Corporate Tax records, including the evidence behind Connected Person payments, must be retained under the UAE’s seven-year record-keeping requirement.

Common Mistakes UAE Businesses Make

Assuming that because a family member’s salary was actually paid and shows up in the bank statement, it is automatically deductible in full.
Treating “director” narrowly as only the person with that exact title, and missing general managers or authorised signatories who also fall within scope.
Setting owner compensation as a round, convenient number rather than one supported by market benchmarking.
Failing to put a written agreement or board resolution in place until after an FTA query arrives, rather than before the payment is made.
Overlooking the overlap with Related Party and transfer pricing rules, and preparing only Article 36 evidence while ignoring transfer pricing documentation obligations.

Frequently Asked Questions

Does Article 36 apply to every UAE company, or only large businesses?
Article 36 applies to any Taxable Person making a payment or providing a benefit to a Connected Person, regardless of company size. Small businesses that pay a salary or fee to an owner-director are just as much in scope as large groups, though the amount of documentation expected can scale with the size and complexity of the payment.

Can a shareholder still legally draw a salary from a UAE company?
Yes. Nothing in Article 36 prevents a shareholder from being paid a salary or fee. The rule only controls how much of that payment is tax-deductible, based on whether it reflects market value for the role performed. See our related guide on whether UAE company owners can draw a salary for the underlying mechanics.

What counts as an “officer” if the person has no formal director title?
The FTA’s clarification looks at actual authority rather than job titles. A general manager, authorised bank signatory, or senior manager with strategic decision-making power can be treated as an officer under Article 36, even without the word “director” anywhere in their contract.

What happens if we cannot produce market value evidence for a past payment?
If a Connected Person payment already made cannot be supported with market value evidence, the safest approach is to gather what documentation is available now (comparable salary data, role description, any approvals that exist) and correct the position going forward. Speak to a tax adviser about whether a voluntary disclosure is appropriate for the period already filed.

Is a board resolution mandatory for every payment to a director?
It is not a strict legal requirement in every case, but it is one of the strongest pieces of evidence available to support that a payment was properly authorised and reflects an arm’s-length decision, rather than an informal arrangement between related individuals.

Does this clarification change the Corporate Tax rate or any thresholds?
No. CTP010 does not change the 9% Corporate Tax rate, the AED 375,000 taxable income threshold, or any other rate or threshold. It only clarifies how the existing Article 36 deductibility rule should be interpreted and applied.

How does this interact with the Small Business Relief election?
A business that has elected for Small Business Relief is treated as having no taxable income for Corporate Tax purposes in that period, so the Article 36 deductibility question does not arise in the same way. Once a business exits Small Business Relief, Connected Person payments need to be reviewed under the normal Article 36 rules.

Are non-cash benefits like housing or a company car also covered?
Yes. Article 36 covers “payments or benefits,” which includes non-cash items such as housing allowances, vehicles, or other perks provided to a Connected Person. These need the same market value justification as a cash salary or fee.

Who should review our Connected Person payments before the 30 September 2026 deadline?
A UAE tax adviser familiar with both Corporate Tax and transfer pricing should review Connected Person arrangements, since the evidence required often overlaps with transfer pricing documentation and Article 55 disclosure thresholds. Waiting until after a query from the FTA to gather this evidence is far riskier than preparing it before filing.

Does this apply to free zone companies claiming the Qualifying Free Zone Person regime?
Yes. Article 36 is a general Corporate Tax Law provision and applies regardless of whether a business is on the mainland or operating under the Qualifying Free Zone Person regime. A free zone business paying a director or shareholder still needs market value evidence for that payment to be deductible against its non-qualifying income, and the arrangement can also affect qualifying income calculations if not properly documented.

Get Your Connected Person Documentation Right Before Filing

Article 36 documentation is not something to assemble after the FTA asks for it. If your business pays a salary, fee, bonus, or benefit to an owner, director, or senior manager, get the market value evidence and Related Party review done before your 30 September 2026 filing deadline. Contact Qaspro Global on WhatsApp to have your Connected Person payments reviewed against the FTA’s 2026 clarification.