Is a General Manager, Manager or “a key officer”, named in the trade license in board resolutions, always an “officer” for Connected Person treatment?

Yesterday, the FTA issued the long-awaited Public Clarification CTP010 on the meaning of “director” and “officer” for the purposes of payments to Connected Persons under Article 36 of the UAE Corporate Tax Law. There are many interesting points in this clarification, and some of them deserve separate analysis. In this article, we will focus only on one practical question: “Is a General Manager, a manager named in the trade licence, or a “key officer” referred to in board resolutions always an “officer” for Connected Person purposes?”

Our view is that the answer is no. CTP010 should not be read as creating an automatic title-based rule. Rather, it points to a substance-over-title analysis: the decisive question is whether the person is actually vested with final strategic decision-making authority or binding authority in the real governance process.

1. The FTA’s Public Clarification CTP010 gives the examples where “the GM of a Limited Liability Company (“LLC”) that has the authority and responsibility for the overall management of the LLC”. Therefore the GM would be an “officer” only if he or she “has the authority and responsibility for the overall management of the LLC”. 
2. This reading is reinforced by the FTA’s preceding statement that “a formal appointment or job title may serve as an indicator when assessing whether a Person is an officer or not. However, it should not be relied upon as the sole criterion”. The FTA further explains that even where a person does not have a formal appointment or C-suite job title, that person may still be considered an ‘officer’ if “through their actual conduct effectively has the authority and responsibility for planning, directing, and controlling the activities, or have the authority to make strategic decisions, take or approve actions that legally or contractually bind a Taxable Person, such a Person would still be considered an ‘officer’.”
3. In other words, CTP010 requires a substance-over-title analysis. A GM title alone should not be enough. The decisive question is whether, in the real governance and decision-making process, the GM is vested with final strategic or binding authority. 

Where all material decisions are reserved to the shareholder or another superior body, and the GM merely implements, coordinates, or acts within pre-approved parameters, there is a strong argument that the GM should not be treated as an “officer” for Connected Person purposes.

4. This conclusion is further supported by the FTA’s examples dealing with persons who may appear to have authority, but whose authority is in substance limited, predetermined, or subject to approval by others.
   1. The FTA states that a head of division would not be an “officer” if he or she does not have final strategic authority, but only “reports to and decides matters within frameworks set by, and follows instructions of the C-suite, board of director or an equivalent governing body”.
   2. The same logic appears in the HR example. If the head of HR performs only routine HR functions, such as payroll processing or leave management, and has no discretionary authority, the person would not be considered an “officer”.
   3. The power of attorney example is particularly important. The FTA accepts that an employee holding a power of attorney may be an “officer” where the power of attorney “grants that employee discretionary authority for planning, directing, and controlling the activities, or to make final/ultimate strategic decisions relating to the activities of a Taxable Person”. However, the FTA also clarifies that the same employee may not be an ‘officer’ where “the power of attorney is provided only from an administrative perspective to perform predefined tasks that have already been approved or to follow instructions without final/ultimate strategic decision-making authority”.

This distinction is crucial. A person may have a formal authority to act, sign, process, negotiate, or implement. But if the exercise of that authority is subject to approval by another decision-maker, or confined within parameters predetermined by the shareholder, board, C-suite, or another governing body, that authority should not by itself make the person an ‘officer’.

4. The same approach applies to the example of “an employee named in the trade licence of a Taxable Person as a manager or in board resolutions as a key officer”. The FTA does not say that such formal identification is automatically conclusive. Rather, the person would be an “officer” only “if this gives the employee the final/ultimate authority to approve actions that legally or contractually bind a Taxable Person”.

This can be read together with the GM example. A GM, manager named in a license, key officer under a board resolution, head of division, head of HR, or attorney under a power of attorney should not be assessed by title or formal appointment alone. The key question remains whether the person actually has discretionary, final (ultimate) strategic decision-making authority, or binding authority, in the real decision-making process.

5. Therefore, where a GM or other senior employee must obtain shareholder approval for relevant decisions, acts only within pre-approved thresholds, follows instructions, or implements decisions already taken by others, there is a strong basis to conclude that the person is not an “officer” for Connected Person purposes.

Disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here. You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.