Connected person: what it means in UAE tax.

What connected person means

Also called: Connected Persons.

A Connected Person is someone close to the running or ownership of a business: an individual owner, a director or officer, or a Related Party of any of them. The term comes from Article 36 of the Corporate Tax Law and exists for one purpose, to stop a business cutting its tax by paying the people behind it more than their work is worth.

The rule is simple. A payment or benefit to a Connected Person is deductible only if, and only to the extent that, it matches the market value of what the person provided, and it is incurred wholly and exclusively for the business. Anything above market value is added back to Taxable Income.

This is the rule that bites most often in owner-managed SMEs, where the owner's salary, a spouse's consultancy fee or rent on the owner's own property run through the accounts. Listed companies and businesses under the oversight of a UAE regulator are outside the rule. The Related Party test, which is wider and covers companies as well as people, has its own page.

How it works

• An owner is any natural person who directly or indirectly holds an ownership interest in the Taxable Person or controls it (Article 36(3)).
• Directors and officers are Connected Persons whether or not they own shares (Article 36(2)(b)).
• Related Parties of owners, directors and officers, such as close family, are Connected Persons too (Article 36(2)(c)).
• Market value is tested using the arm's length rules in Article 34 (Article 36(5)).
• The rule does not apply to companies whose shares trade on a recognised stock exchange or to businesses under the regulatory oversight of a competent UAE authority (Article 36(6)).

Worked example

A Dubai marketing agency is owned and run by one person, who draws a salary through the company. Salary surveys show that a general manager in a similar agency would be paid about AED 600,000 a year. The agency's Taxable Income is already above AED 375,000.

Salary paid to the owner-manager	AED 1,200,000
Market value of the role	AED 600,000
Amount added back to Taxable Income	AED 600,000
Extra Corporate Tax at 9%	AED 54,000

The owner still receives the full salary, but only the market value part reduces the company's tax.

Common mistakes

• Treating the owner's salary as fully deductible because it is paid through payroll.
• Forgetting that a non-shareholder director, or an owner's close relative, is also a Connected Person.
• Paying the owner no salary at all and assuming this creates a problem; the rule limits excessive deductions, it does not require a salary.

The law

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Article 36 (Payments to Connected Persons)
• Federal Decree-Law No. 47 of 2022, Article 28(1) (Deductible Expenditure)

Frequently asked questions

Is a Connected Person the same as a Related Party?

No. Related Parties are defined by family links, ownership of 50% or more, or control, and cover companies. Connected Persons are the owners, directors and officers of the business and their Related Parties. One person can be both.

Do payments to Connected Persons need to be reported in the return?

The FTA return guide (November 2024) asks for a Connected Person schedule where payments or benefits to one Connected Person, together with its Related Parties, exceed AED 500,000.

Related terms

Related party · Arm's length principle · Transfer pricing · Taxable income. See every term in the UAE tax glossary.

For the full picture, read our guide: Transfer Pricing Basics for UAE SMEs That Deal With Their Own Owners.

Need help with Corporate Tax filing? See our Corporate Tax filing service.