UAE Corporate Tax: Secondment Arrangements Under CTP010 – Are You Exposed?

With the introduction of Corporate Tax in the UAE, businesses are increasingly relying on secondment arrangements to manage operations, particularly at the C-suite level. However, the recent clarification CTP010 issued by the Federal Tax Authority (FTA) has introduced a critical distinction that many taxpayers are overlooking.

The key issue is simple yet highly technical:

Does a seconded executive create a Connected Person transaction?

📌 Understanding CTP010 – “Officer” Classification

Under CTP010, an individual will be classified as an “Officer” if they have the authority to:

• ✔ Plan, direct, and control business activities
• ✔ Make strategic financial, operational, or commercial decisions
• ✔ Legally or contractually bind the company

Importantly, this classification is based on substance over form. Therefore, a seconded individual performing C-suite functions may qualify as an Officer, even if they are not formally employed by the UAE entity.

⚠️ The Critical Distinction – Who Are You Paying?

While the individual may qualify as an Officer, the tax treatment of the arrangement depends on a different question:

Who is receiving the payment?

In most secondment structures, payments are made to the employing entity (i.e., the service provider), not the individual.

📊 Connected Person Analysis Under Articles 35 & 36

Under the UAE Corporate Tax Law:

• A Connected Person includes owners, directors, and officers
• However, the transaction test applies to the counterparty receiving the payment

Accordingly:

• ✔ If the service provider is related or part of the same group → the payment is a Connected Person transaction
• ❌ If the service provider is an independent third party → the payment is not a Connected Person transaction

This remains true even if the seconded individual is effectively acting as a CEO, CFO, or General Manager.

🚨 Why This Matters

This distinction has significant implications for:

• Deductibility of expenses under Article 36
• Transfer Pricing and Arm’s Length Principle
• Disclosure requirements under Article 55
• FTA audit risk and tax adjustments

Misclassification can lead to:

• ❌ Disallowed expenses
• ❌ Recharacterization of payments
• ❌ Increased compliance exposure

🧠 Practical Insight

The FTA’s approach clearly separates:

• Functional analysis → Determines if a person is an Officer
• Relationship analysis → Determines if a payment is a Connected Person transaction

Businesses must ensure that both tests are independently satisfied.

📢 Final Thoughts

Secondment arrangements are no longer a routine operational matter—they are now a Corporate Tax risk area.

Companies operating in the UAE should immediately review:

• ✔ Structure of secondment agreements
• ✔ Nature of authority granted to secondees
• ✔ Relationship with service provider entities
• ✔ Transfer pricing documentation

Ignoring this distinction may result in unexpected tax exposures.

🤝 Let’s Discuss

Are your secondment arrangements compliant with CTP010 and UAE Corporate Tax Law?

Let’s discuss your structure and identify potential risks before the FTA does.