Every transfer pricing analysis starts with one question: who is a Related Party? Identifying Related Parties is one of the first steps in complying with the UAE transfer pricing rules. While many businesses focus only on parent and subsidiary companies, the UAE Corporate Tax Law has a much broader definition.
Related Party relationships can arise through ownership, control, family relationships, partnerships, trusts and permanent establishments. Failing to identify these relationships may lead to incomplete transfer pricing documentation and incorrect tax reporting. The legal tests sit in Article 35 and are explained in the FTA Transfer Pricing Guide (CTGTP1). Once the map is complete, who is covered and which transactions are included is the next question.
Who is a Related Party?
Article 35 of the UAE Corporate Tax Law defines a Related Party as a Person connected through ownership, control or kinship. The definition applies to both individuals and legal entities and covers direct as well as indirect relationships.
It is important to distinguish Related Parties from Connected Persons. Related Parties determine whether transfer pricing rules apply to a transaction. Connected Persons are mainly relevant for the deductibility of payments made to owners, directors, partners and certain related individuals — see Connected Persons under UAE Corporate Tax.
How do ownership and control create Related Party status?
A Related Party relationship generally exists where a person, directly or indirectly:
-
owns 50% or more of another person;
-
controls 50% or more of the voting rights or profit entitlement; or
-
has the ability to control or significantly influence the business decisions of another person.
Control is not limited to share ownership. It may also arise through contractual rights, financing arrangements, or the ability to influence key management decisions.
| Route | What to test |
|---|---|
| Direct ownership | 50% or more of shares, voting rights or profit entitlement |
| Indirect ownership | Ownership percentages multiplied through each level of the chain |
| Control without ownership | Veto rights, board composition, management contracts, lender approval rights |
| Significant influence | Capacity to direct another Person's business and affairs even below 50% |
| Kinship | Natural persons related within the fourth degree, including by adoption or guardianship |
| Common third party | Two juridical persons related to the same controlling person or entity |
Do family relationships create Related Parties?
For individuals, Related Party status also extends to family members up to the fourth degree of kinship or affiliation, as recognised under UAE law. Businesses owned or controlled by such family members may therefore be treated as Related Parties. The kinship test is broader than immediate family, so a family-ownership map should go beyond the names on the share register.
Why does correct identification matter?
Correctly identifying Related Parties determines whether transactions are subject to the UAE transfer pricing rules, including the arm's length principle in Article 34, transfer pricing documentation requirements, and the Transfer Pricing Disclosure Form. The FTA Corporate Tax FAQs confirm that the analysis is not limited to cross-border counterparties.
Missing a relationship is not a documentation formatting issue. It can leave a material dealing off the disclosure schedule and unsupported if the FTA asks for the file.
How does indirect ownership work in practice?
Indirect ownership is calculated by multiplying the ownership percentages through each level of the ownership chain.
Example: Company A owns 80% of Company B, and Company B owns 70% of Company C. Company A indirectly owns 56% of Company C (80% × 70%), making them Related Parties.
Looking only at direct shareholding is one of the most common mistakes in UAE Related Party mapping.
Can control exist without owning shares?
Yes. A Related Party relationship may arise where one person has the ability to control or significantly influence the other's business decisions.
Example: a lender has the contractual right to approve a company's major business decisions. Even without owning shares, the lender may be considered to have control, depending on the facts and circumstances. Minority shareholders with veto rights, and managers with the practical ability to direct decisions, can fall in the same analysis.
What are the common mistakes when identifying Related Parties?
-
Looking only at direct shareholding and ignoring indirect ownership.
-
Assuming control exists only through majority ownership.
-
Overlooking family relationships when identifying Related Parties.
-
Confusing Related Parties with Connected Persons.
-
Treating a Free Zone entity, branch or permanent establishment as outside the map.
Practical compliance checklist
-
Identify all direct and indirect ownership relationships.
-
Review voting rights, contractual arrangements and other indicators of control.
-
Consider family relationships where businesses are individually owned.
-
Include partnerships, trusts, foundations and permanent establishments where the legal tests are met.
-
Update the Related Party assessment whenever ownership or governance changes.
-
Reconcile the map to the general ledger so material dealings are not omitted from transfer pricing compliance.
Key takeaways
-
Related Party status can arise through ownership, control or family relationships.
-
Control may exist even without majority ownership.
-
Indirect ownership should be considered when assessing Related Party relationships.
-
Correct identification of Related Parties is essential for complying with UAE transfer pricing requirements.
Frequently asked questions
Can two companies be Related Parties without one owning shares in the other?
Yes. A Related Party relationship may arise where one person has the ability to control or significantly influence the other's business decisions.
How is indirect ownership determined?
Indirect ownership is calculated by multiplying the ownership percentages through each level of the ownership chain. In the example above, 80% of 70% is 56%, which meets the 50% test.
Do family relationships matter for transfer pricing?
Yes. Family members up to the fourth degree of kinship or affiliation may be considered Related Parties under the UAE Corporate Tax Law.
What is the difference between a Related Party and a Connected Person?
A Related Party determines whether a transaction falls within the UAE transfer pricing rules. A Connected Person is a separate concept that primarily applies to the deductibility of payments made to owners, directors, partners and certain related individuals.
Does looking only at the share register complete the analysis?
No. Indirect ownership, contractual control, significant influence and fourth-degree kinship can all create Related Party status that a direct shareholding list will miss.
Primary sources and further reading
How SBC Tax Consulting can help
SBC's transfer pricing team maps ownership, control and kinship so Related Party inventories are complete before documentation and disclosure begin. Corporate tax specialists then keep the same map consistent with the return. Contact SBC to review the Related Party assessment before the next filing.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.