Updated August 2025 – The UAE Corporate Tax Law requires businesses to identify Related Parties and assess Control in order to comply with Article 34 and its transfer pricing requirements. A clear classification ensures accurate reporting, reduces audit risk, and keeps documentation in line with Federal Tax Authority (FTA) expectations.
In this article, we will only answer two important questions:
- How the law defines Related Parties.
- How Control is determined for tax purposes.
What Qualifies as a Related Party
Under UAE Corporate Tax rules, entities and individuals are connected as Related Parties when certain thresholds of ownership, control, or kinship are met. Primary connection types:
- Natural person to natural person – Family relationships up to fourth‑degree kinship, including through marriage.
- Natural person to legal entity – Where the person, alone or with others classed as Related Parties, holds a significant ownership stake or influence.
- Legal entity to legal entity – Where one holds a majority interest or exercises control over the other.
This applies to UAE and foreign entities, making the scope wider than many business owners realise.
Ownership Thresholds
The generally accepted line for related classification is 50% or more:
- 50%+ in voting rights.
- 50%+ entitlement to profits.
This can be met through direct holdings or indirect arrangements via other Related Parties. Even equal ownership of 50% can trigger classification if influence is established.
Example: A company with two shareholders, each holding 50%, where both are brothers; the kinship element confirms Related Party status alongside ownership.
Kinship Degrees Recognised
The FTA takes into account family ties that extend well beyond the nuclear family. All degrees apply on both a person’s and their spouse’s side.
| Degree | Examples |
|---|---|
| 1st | Parents, children |
| 2nd | Grandparents, grandchildren, siblings |
| 3rd | Great‑grandparents, great‑grandchildren, uncles, aunts, nephews, nieces |
| 4th | Great‑great‑grandparents, great‑great‑grandchildren, granduncles, grandaunts, grandnieces, grandnephews, first cousins |
This inclusive definition prevents avoidance of classification through extended family arrangements.
Special Cases Defined by Law
The Corporate Tax Law lists certain situations where Related Party treatment applies automatically:
Permanent Establishments
A head office and its UAE or foreign permanent establishment are related for tax purposes. All dealings must observe transfer pricing rules.
Unincorporated Partnerships
All partners are Related Parties. If their only connection is through the partnership, and transactions follow agreed‑upon economic terms, the FTA generally assumes these meet the arm’s‑length requirement.
Trusts and Foundations
Trustees, founders, settlors, and beneficiaries are related to the trust/foundation and to each other in dealings linked to that structure.
Understanding “Control”
Control means the ability to influence another person or entity’s decisions or business conduct. It can arise without majority ownership if other rights give significant influence. Indicators include:
- 50% or more of voting rights.
- Power to appoint or remove a majority of directors.
- Right to a majority of profits.
- Practical ability to steer operations or policies.
Important Point: Control can exist through contractual rights, shareholder agreements, or dominant market position, not just equity stakes.
Compliance Impact
Incorrect Related Party mapping can cause:
- Misapplication of transfer pricing rules.
- Missing disclosures on the corporate tax return.
- Higher audit risk and potential penalties.
For Article 34 compliance, businesses must:
- Accurately identify all Related Parties.
- Price transactions using the arm’s‑length principle.
- Maintain evidence supporting pricing decisions.
Building a Related Party Register
A practical step for compliance teams is to maintain an updated register. Suggested process:
- Ownership mapping: Include direct and indirect stakes meeting or exceeding 50%.
- Kinship mapping: Extend to fourth degree for individuals, including spouse’s family.
- Control rights review: Identify influence arising from agreements or voting structures.
- Structure charting: Use diagrams to show links between entities and individuals.
- Annual updates: Refresh before each filing period and after any structural changes.
Applying the Arm’s‑Length Principle
Once Related Parties are identified:
- Benchmark prices against market rates.
- Keep agreements and invoicing consistent with independent terms.
- Record rationale for pricing decisions.
- Consider local and cross‑border tax implications.
Transactions commonly scrutinised:
- Service fees.
- Licensing and royalty arrangements.
- Intragroup loans.
- Transfers of goods or assets.
Practical Scenarios
Scenario A: A Dubai company is 55% owned by an individual who also owns 60% of a Sharjah company. Transactions between them are subject to transfer pricing compliance.
Scenario B: Two cousins each own 50% of separate companies. The kinship connection makes the companies Related Parties, requiring arm’s‑length pricing for any dealings.
Scenario C: A UAE foundation has a founder who also owns a trading company. Any transactions between the foundation and the company must follow Related Party rules.
Checklist for Compliance Teams
- All equity holdings ≥50% identified (direct and indirect).
- Family relationships up to the fourth degree documented.
- Permanent establishments mapped and linked.
- Partnerships and trusts assessed.
- Control through agreements noted.
- Transfer pricing documentation prepared.
- Disclosures ready for corporate tax filing.
Why Specialist Advice Helps
Accurate classification requires an understanding of both the letter of the law and how the FTA applies it in practice. Specialist Tax consultants can:
- Review your ownership and control structures.
- Prepare formal Related Party registers.
- Draft compliant transfer pricing policies.
- Represent you in FTA queries.
Need clarity on your Related Party status or Control criteria?
Our tax advisory team can audit your current setup, address compliance risks, and prepare documentation that meets FTA requirements. Contact us to arrange a review before your next return period.
Mostafa is a seasoned Tax Consultant with over 5 years years of experience gained in diverse taxations matters. He has vast expertise in settling tax disputes with the Federal Tax Authority and handling of tax procedures in compliance with tax laws. He is adept in investigating underlying tax intricacies and offering expert tax advisory. He is also well-versed in conducting tax analysis’s and negotiations with the Tax Regulators, upon tax preparation and filing. Mostafa specializes in the areas of Tax law, Auditing, Accounting and Banking law.
