Many medium and large businesses struggle when the UAE corporate tax rules ask them to identify “related parties” and treat them lawfully.
This pressure grows when a business deals with family-owned groups, free zone companies, or partners who share control. When business relationships are not recorded properly, tax returns become risky. The situation becomes even worse during audits, when unclear records or missing details can create real legal and financial problems.
Tax Gian helps you understand these rules so that corporate taxation in the UAE becomes easier for you. With the right support of our corporate tax agents in Dubai, you can report transactions correctly, keep your records clean, and avoid fines.
What “Related Parties” Mean Under UAE Corporate Tax
The UAE Corporate Tax Law, mainly Article 35, explains that related parties can be individuals or legal entities connected through ownership, control, or family ties. The purpose is to make sure that transactions between connected persons are treated fairly for tax reporting and transfer pricing.
The category is wider than most people think. It covers family members up to the fourth degree, business owners, companies in the same group, and even trusts or foundations.
Related Parties Among Individuals
The law defines family connections up to the fourth degree of kinship or affiliation. The list is long because the UAE aims for full transparency in close personal relationships.
First Degree
Parents, children, and the same for the spouse.
Second Degree
Grandparents, grandchildren, and siblings from both sides.
Third Degree
Great-grandparents, great-grandchildren, uncles, aunts, nieces, and nephews.
Fourth Degree
Great-great-grandparents, great-great-grandchildren, grand uncles, grand aunts, grandnephews, grandnieces, and first cousins.
If any of these individuals conduct business with each other or with a company owned by them, the relationship must be treated as a related-party link.
Want further clarification? Consult our expert corporate tax agents in the UAE.
When Does an Individual and a Company Become Related
A person and a company are considered related when:
- The person or their related family members own 50% or more of the company.
- The person directly or indirectly controls the company.
- The person and the company act together in business decisions.
Even if the shareholding is split among multiple relatives, the combined ownership matters.
Related Parties Linked Through Trusts or Foundations
A person is related to a trust or foundation when they act as:
- Trustee
- Founder
- Settlor
- Beneficiary
Related Parties Among Companies
Companies become related parties when there is ownership or control that reaches 50% or more. The rules apply whether the ownership is direct or indirect.
A legal entity is a related party when:
- One company, alone or with its related parties, owns at least 50% of another company.
- One company controls another, even without majority ownership.
- A third person owns 50% of two or more companies, creating a group relationship.
Branches also count; a company and its permanent establishment or foreign branch are automatically related.
Still unsure about related parties? Ask corporate tax consultants in Dubai.
Connected Persons Under UAE Corporate Tax
Connected persons are a special category under Article 36. These are not always covered under the main related-party rules, but the UAE still treats them with the same attention in corporate tax.
A connected person includes:
- The owner of the taxable person
- A director or officer
- Anyone who is a related party to the owner or director
Payments or benefits to connected persons fall under transfer pricing checks. This includes salaries, bonuses, allowances, loans, and other rewards.
How to Identify Related Parties in Your Business
A business should review all owners, managers, and family connections. It should also check shareholding in group companies, joint ventures, partnerships, and trusts. Every relationship must be mapped to see if it meets the 50% ownership or control rule.
Businesses should have proper and clear records of:
- Shareholding structures
- Family relationships relevant to the tax law
- Control arrangements
- Payments to owners, directors, or relatives
Businesses can also seek assistance from corporate tax agents in Dubai in identifying related parties and connected persons.
Payments to Related or Connected Persons
Payments only qualify for tax deduction when:
- They meet the arm’s length criteria
- They connect purely to business activities
- They are not capital in nature
The law treats many forms of payments as related-party transactions. These include salaries, bonuses, pension contributions, interest, housing, education, and any other benefit linked to employment or ownership.
If these rules are ignored, the tax authority can deny the deduction, which raises the taxable income of the business.
Why UAE Businesses Should Review Compensation Policies
Companies should design clear compensation policies for owners, directors, and senior staff. These policies help prove that payments are fair and reasonable. They also reduce the chances of disputes with the tax authority.
The policies must be updated regularly to match the market. All decisions should be documented to show why a payment was made and how it reflects the value of services.
How can Tax Gian help?
Tax Gian has years of experience in guiding businesses on tax matters, including corporate tax in the UAE. With the help of field experts, we make sure that our clients are always in line, register and file correctly, and remain compliant the whole time.
