Related Party Transactions in UAE Corporate Tax

Related party transactions have become one of the most closely watched areas of UAE Corporate Tax compliance as the regime matures into its third filing cycle. Since the Federal Tax Authority (FTA) began enforcing Federal Decree-Law No. 47 of 2022, businesses with group structures, shareholder arrangements, or cross-border affiliates have had to prove that intercompany dealings are priced fairly and documented properly. Heading into 2026, the FTA has sharpened its scrutiny of these transactions, and businesses that treat documentation as an afterthought are increasingly finding themselves exposed during audits and return reviews.

This shift matters because related party rules in the UAE do not only apply to large multinational groups. A family-owned trading company that pays rent to a shareholder’s property firm, a startup that receives an interest-free loan from its parent, or a group of companies that share management staff across entities can all fall within scope. Understanding what counts as a related party, what needs to be disclosed, and what records must be kept on file is now a core part of running a compliant business in the UAE.

Understanding Related Party Transactions in UAE Corporate Tax

Who Qualifies as a Related Party

Article 35 of the Corporate Tax Law defines related parties broadly, covering relationships built on ownership, control, or family connection. Two persons are treated as related if one owns or controls at least 40 percent of the other, whether directly or indirectly, or if both are under common ownership or control by a third person. The law also extends to individuals connected by family ties up to the fourth degree of kinship, which brings a wide range of family-run businesses into scope even when formal shareholding structures look modest.

This 40 percent ownership threshold is notably lower than the 50 percent or 25 percent thresholds used in many other jurisdictions, which means the UAE rules capture minority shareholders and smaller affiliated entities that might escape related party classification elsewhere. A separate but connected category, “connected persons,” extends the concept further to include owners, directors, officers, and certain individuals linked through specific arrangements, such as a fund manager and the fund itself.

The Arm’s Length Principle

Article 34 requires that transactions and arrangements between related parties be priced as if the parties were unrelated and negotiating under normal market conditions. If the FTA determines that a transaction does not reflect arm’s length pricing, it has the authority to adjust the taxable income of the UAE entity accordingly. The burden of proof sits with the taxpayer, not the tax authority, which means a business must be able to demonstrate, on request, that its intercompany pricing is commercially justifiable rather than simply asserting that it is fair.

This creates a practical complication in cross-border situations. If the FTA increases a UAE entity’s taxable income following a transfer pricing adjustment, the counterpart tax authority overseas does not automatically grant a corresponding reduction to the related entity in its jurisdiction. Businesses with foreign group companies should therefore treat arm’s length pricing as a matter of genuine economic substance, not a compliance formality.

Disclosure Requirements for Related Party Transactions

The AED 40 Million Threshold

Not every related party transaction needs to be reported in detail, but disclosure obligations apply once certain thresholds are crossed. If the aggregate value of transactions with related parties, as recorded in the financial statements or at market value, exceeds AED 40 million in a tax period, the taxpayer must disclose these transactions through the Related Party Transaction schedule filed alongside the Corporate Tax return. Within that aggregate figure, any individual transaction category, such as goods, services, financing, or the use of intangible assets, that exceeds AED 4 million must be separately identified in the disclosure.

The FTA’s Corporate Tax Guide for Tax Returns, issued in November 2024, clarified how this schedule should be completed within the EmaraTax portal, including the specific data points expected for each transaction category. The disclosure form itself does not require submission of full transfer pricing documentation at filing stage, but it gives the FTA an early data point that can trigger closer review if the figures look inconsistent with the taxpayer’s broader financial position.

Connected Persons Transactions

A parallel disclosure obligation applies to connected persons transactions, though the threshold is considerably lower. Aggregate connected person transactions exceeding AED 500,000 must be disclosed, and any individual category above AED 500,000 also needs separate reporting. Businesses that pay salaries, benefits, or other consideration to owners and directors beyond what is reasonable for the role performed should pay particular attention to this category, since payments that are not commercially justified can be disallowed as deductions.

Master File and Local File Documentation

When Master File Is Required

Ministerial Decision No. 97 of 2023 sets out the conditions under which businesses must prepare comprehensive transfer pricing documentation in the form of a Master File and a Local File. A Master File becomes mandatory where the taxpayer is a constituent entity of a multinational enterprise group with total consolidated global revenue exceeding AED 3.15 billion, aligning with the international threshold used for Country-by-Country Reporting. The Master File provides a group-wide overview of the business, its organisational structure, its intangible assets, and its intercompany financial arrangements, giving the FTA a picture of the broader value chain the UAE entity sits within.

When Local File Is Required

A Local File requirement is triggered independently, and applies where the UAE-based entity’s own revenue in the relevant tax period reaches AED 200 million or more, regardless of whether it operates on the mainland or within a free zone. The Local File is entity-specific, setting out a detailed functional analysis of the UAE business, the related party transactions it entered into, and the transfer pricing method used to justify the pricing applied.

Exemption for Domestic-Only Groups

There is a practical carve-out for groups that operate solely within the UAE with no foreign related parties. Such groups are not required to prepare a Master File, since there is no cross-border value chain to document, but they must still prepare a Local File if their revenue exceeds the AED 200 million threshold. This distinction is often missed by wholly domestic UAE groups that assume transfer pricing documentation only applies to businesses with overseas operations.

Transfer Pricing Methods Accepted in the UAE

Businesses required to justify their related party pricing can rely on methods broadly aligned with OECD Transfer Pricing Guidelines. The Comparable Uncontrolled Price method compares the price charged in a related party transaction to the price charged in a similar transaction between independent parties. Where a direct comparison is not available, businesses may instead apply the Resale Price Method, the Cost Plus Method, the Transactional Net Margin Method, or the Profit Split Method, depending on which best reflects the economic reality of the transaction and the availability of reliable comparable data. Choosing and consistently applying an appropriate method, and documenting the reasoning behind that choice, is central to withstanding FTA scrutiny.

Practical Documentation Businesses Should Maintain in 2026

Even businesses that fall below the Master File and Local File thresholds are not excused from the underlying arm’s length requirement. Every taxable person with related party dealings should be able to produce basic supporting evidence if the FTA asks for it. This typically includes signed intercompany agreements setting out the terms of the arrangement, evidence of comparable market pricing used to benchmark the transaction, board or management resolutions approving significant related party dealings, and a clear written rationale explaining why the pricing applied reflects arm’s length terms.

This obligation affects a large number of UAE small and medium enterprises with straightforward group structures. A company charging management fees to a related entity, a business paying rent to a shareholder-owned property company, or an entity receiving an interest-free or below-market loan from its parent should all maintain contemporaneous records rather than reconstructing justifications after the fact. The FTA has also opened domestic unilateral Advance Pricing Agreements from December 2025, with cross-border unilateral APAs expected to follow during 2026, giving larger businesses a formal route to gain certainty over their transfer pricing positions in advance.

Penalties for Non-Compliance

Failure to meet these obligations carries real financial consequences. Late filing of the Corporate Tax return attracts a penalty starting at AED 500 per month for the first twelve months, rising to AED 1,000 per month thereafter, while late payment of tax due carries a separate penalty calculated at 14 percent per annum on the outstanding amount. Beyond these standard penalties, a related party pricing adjustment made by the FTA can result in a significant increase to taxable income, additional tax payable, and potentially penalties for underpayment, none of which can typically be recovered from a foreign related party even where that party’s own tax position is affected.

How My Taxman Can Help

Navigating related party rules, disclosure thresholds, and Master File or Local File obligations can be genuinely complex for businesses that are focused on running their operations rather than tracking every regulatory update from the FTA. My Taxman works with UAE businesses of all sizes, from family-owned groups to larger multinational subsidiaries, to review intercompany arrangements, determine which disclosure and documentation thresholds apply, and prepare the supporting records needed to demonstrate arm’s length pricing with confidence. Whether a business needs a straightforward review of its related party exposure or full Master File and Local File preparation ahead of its Corporate Tax return, My Taxman brings practical, UAE-specific experience to make the process manageable rather than overwhelming, helping businesses stay compliant while avoiding unnecessary penalties in 2026 and beyond.