A Complete Guide on Related Parties and Connected Persons Under UAE Corporate Tax Law

A Guide to Related Parties and Connected Persons under UAE Corporate Tax laws

When the UAE rolled out Corporate Tax, one of the biggest questions for business owners was: “Who actually counts as a related party or connected person?”

It’s not always obvious. Paying a director’s salary, renting property owned by a shareholder’s relative, or receiving services from a sister company—all of these can trigger special rules under the law.

And if you do get it wrong, the Federal Tax Authority (FTA) can refuse your deductions or even revise your taxable income.

That’s why it’s crucial to understand how Articles 35 and 36 define corporate tax related parties and connected persons UAE. In this guide, we’ll break it down in simple terms, highlight common mistakes, and show you what to do to stay compliant.

What Does the UAE Corporate Tax Law Cover for Corporate Tax Related Parties and Connected Persons UAE?

The UAE Corporate Tax Law explicitly outlines the limits under which you treat related parties and connected persons. These aren’t merely definitions—they have a direct bearing on whether an expense can be deducted and whether transfer pricing rules apply.

• Article 35 clarifies who is a related party and what “control” actually is.
• Article 36 covers connected persons and puts stricter rules on payments to them.
• The FTA Transfer Pricing Guide clarifies how to apply the arm’s length principle.
• Ministerial Decision 97 of 2023 sets limits on how much thorough documentation is needed.
• And finally, the Corporate Tax Return requires you to disclose certain connected-person transactions once they cross a set value.

Related Parties Under UAE Corporate Tax

Think of related parties as the broader category. They cover not just family ties but also ownership and control relationships between companies and individuals.

You’re dealing with a related party if

• You’re related to someone within the fourth degree of kinship (this includes adoption and guardianship).
• A person (alone or with family) owns or controls at least 50% of a business.
• Two businesses are connected if one owns or controls at least 50% of the other, or if the same individual owns or controls both.
• A company and its permanent establishment (PE) inside or outside the UAE.
• Partners in the same unincorporated partnership.
• A trust or foundation and anyone tied to it, like trustees, founders, or beneficiaries.

And remember, “control” isn’t only about shares. If a person can appoint directors, control board resolutions, or decide on profit rights, that is enough to establish an associated-party relationship.

Who are the Connected Persons Under the UAE Corporate Tax Laws ?

Connected persons in UAE are a narrower group, but the rules around them are tougher. They focus on the people directly tied to your business and its management.

A connected person could be:

• An owner of the company.
• A director or officer.
• A relative of the owner, director, or officer.
• A partner (and their family members) in an unincorporated partnership.

However, if you pay or provide a benefit to a connected person, it’s only deductible if it’s at market value and wholly and exclusively for business purposes. In other words, paying inflated salaries, charging below-market rent, or giving perks without a business reason won’t fly.

Documentation and Thresholds for Related Parties and Connected Persons

Once you’ve identified related parties and connected persons, the next step is paperwork. The law is strict about disclosures, and the thresholds are worth remembering.

• You need a Master and Local File if your UAE company generates AED 200 million or more, or if your group earns AED 3.15 billion or more.
• You must fill out a Related Party Schedule on the tax return if the total value of transactions exceed AED 40 Million threshold.
• You must fill out a Connected Persons Schedule on the tax return if payments to connected persons go over AED 500,000.
• Ordinary transactions with UAE-based individuals acting independently are excluded, but most cross-border or group dealings will be in scope.

Think of this as creating a paper trail. If the FTA ever questions a transaction, you should be able to show clear agreements, pricing benchmarks, and evidence that the deal made business sense.

Pricing Rules You Must Follow

So how do you set prices in these transactions? The law expects two things.

1. Arm’s Length Principle

Transactions between connected parties must have taken place between separate companies. That means using accepted transfer pricing methods, like Comparable Uncontrolled Price or Cost Plus, and having the data to prove it.

2. Market Value and Purpose Test

The bar is higher for connected persons. Payments must have a legitimate business purpose and be made at market value.

The FTA will deny the excess if they discover that you have overpaid or provided needless benefits.

Let’s look at how this works in practice.

Director’s Compensation

Director’s salary is only deductible if it is based on actual services and is equivalent to what similar firms offer.

Rent to a Relative of a Shareholder

Ok if it is at market rate and backed up by valuation or comparable rentals.

Overseas Affiliate Services

Should be arm’s length-based, with reinforcement from a transfer pricing study, and recorded correctly if thresholds are involved.

Map your relationships early, maintain formal agreements, and check your pricing quarterly.

Common Mistakes Businesses Make

Even well-run businesses often stumble on the same issues, such as:

• Using “cost-plus” pricing without benchmarking.
• Paying directors or owners without written agreements.
• Forgetting the AED 500,000 disclosure for connected persons.
• Assuming small payments don’t need transfer pricing support.
• Overlooking control rights that create related-party relationships.

The solution? Map your relationships early, maintain formal agreements, and check your pricing quarterly.

Compliance Checklist

To make this as easy as possible, finance teams and audit firms can use a straightforward procedure:

• Identify all connected and related persons (and family relationships up to the fourth degree).
• Record contracts, board minutes, and agreements.
• Price using accepted transfer pricing methodologies, with market comparisons as evidence.
• File Master/Local Files and disclosure schedules when thresholds apply.
• Check compliance regularly, not only at year-end.

Master Related Parties and Connected Persons under UAE Corporate Tax

In the UAE, getting related parties and connected persons right isn’t merely a box-ticking exercise. Instead, it has a direct bearing on your taxable income. Proper identification, transparent agreements, and evidence-based pricing can save you from expensive adjustments and keep you in good books with the FTA.

The smartest move? Work with specialists. A trusted TAX consultant or one of the top audit firms can help you manage documentation, disclosures, and compliance while keeping your business audit-proof.

Premier Auditing & Accounting LLC helps businesses make these rules a reality with expert corporate tax services in UAE, compliant and accurate filings, and audit-proof status.