Before a business can comply with UAE transfer pricing rules, it needs to answer two questions correctly: who counts as a Related Party or Connected Person, and which of its transactions actually fall under Article 34's arm's length requirement. Both tests are wider than most businesses initially assume — kinship reaches the fourth degree, control can exist without majority ownership, and in-scope payments extend well beyond obvious intercompany invoices.
The legal starting points are Articles 34, 35 and 36 of the Corporate Tax Law and the FTA Transfer Pricing Guide (CTGTP1). For how those relationships are identified in practice, see how to identify Related Parties under UAE Corporate Tax and Connected Persons payments, benefits and transfer pricing risks.
Who is a Related Party under Article 35?
Article 35 of the Corporate Tax Law defines Related Parties across three broad categories:
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Two or more natural persons related within the fourth degree of kinship or affiliation, including by adoption or guardianship.
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A natural person and a juridical person, where the natural person (with their Related Parties) owns 50% or more of, or controls, the juridical person.
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Two or more juridical persons, where one owns 50% or more of, or controls, another, or both are related to a common third party.
A Person's capacity to exercise significant influence over another Person's business and affairs — even without meeting the 50% ownership or control test — can also create a Related Party relationship.
Who is a Connected Person under Article 36?
Connected Persons are a narrower, ownership-and-role-based category. A Connected Person of a Taxable Person is any of the following:
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An owner of the Taxable Person (anyone with a direct or indirect ownership interest, or who Controls it).
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A director or officer of the Taxable Person.
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A Related Party of an owner, director or officer described above.
Where the Taxable Person is a partner in an Unincorporated Partnership, every other partner — and their Related Parties — is also a Connected Person. After FTA Public Clarification CTP010, "director" and "officer" are substance tests, not job titles.
How is Control actually tested?
Control is not limited to majority shareholding. FTA guidance treats a Person as having Control where they can direct or determine the conduct of another Person's business, whether through voting rights, board composition, contractual rights, or the practical ability to direct decisions. A minority shareholder with veto rights or a management contract can still meet the test.
Which transactions with Related Parties are in scope?
Article 34 applies to any transaction or arrangement between Related Parties that could affect taxable income. In practice that covers:
| Transaction category | Typical examples |
|---|---|
| Goods and inventory | Intra-group sales, purchases and stock transfers |
| Services | Management, administrative, technical and shared-service charges |
| Financing | Intercompany loans, guarantees and related interest |
| Intellectual property | Royalties and licensing of trademarks, know-how and other IP |
| Cost sharing | Cost-sharing and cost-contribution arrangements |
| Restructurings | Transfers of functions, assets or risks between related entities |
A Person and its permanent establishment, whether inside or outside the UAE, are treated as Related Parties, and transactions between them are subject to the same arm's length requirement.
Which payments to Connected Persons are in scope?
Article 36 targets payments or benefits from the Taxable Person to a Connected Person — salaries, bonuses, pension contributions, housing and education allowances, and other benefits tied to ownership, directorship or employment. These are deductible only where they are wholly and exclusively for business purposes and reflect an arm's length amount for the service actually received.
An owner's own remuneration from the business is a Connected Person payment. It must be wholly and exclusively for business purposes and set at an arm's length amount to be deductible.
Are there any exceptions to the Connected Person deduction limit?
Yes. The arm's length deduction limitation on payments to Connected Persons does not apply where the Taxable Person is listed on a Recognised Stock Exchange, or is regulated by a competent authority in the UAE. Both are treated as carrying sufficient independent oversight of related payments already.
Does a Free Zone company fall under these rules?
Yes. Related Party and Connected Person rules apply to Free Zone Persons in the same way as to mainland Taxable Persons, including Qualifying Free Zone Persons. The arm's length requirement is separate from — and sits alongside — the Qualifying Income conditions that determine the 0% rate. The FTA Corporate Tax FAQs confirm that the analysis is not limited to cross-border counterparties.
Do disclosure thresholds create an exemption from Article 34?
No. The AED 40 million Related Party and AED 500,000 Connected Person figures are disclosure-form thresholds, not exemptions. Article 34's arm's length requirement applies regardless of transaction size. What must be disclosed with the return, and when a Master File or Local File is required, is covered in the UAE transfer pricing compliance guide.
How should a UAE finance team start with the facts?
Build a transaction inventory before choosing a tax result. List each Related Party and Connected Person, describe the transaction, identify the contractual terms, record the annual value, and note the pricing method currently used. Then compare that list with the general ledger, intercompany confirmations, contracts and tax-return disclosures.
Differences between those records often matter more than a small difference in the final margin. They can show that the group has not consistently applied its own policy. A transfer pricing policy is only as strong as the inventory it is built on.
A practical action plan for mapping coverage
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Map all Related Parties, Connected Persons and transaction categories against the legal-entity structure and general ledger.
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Document the commercial facts: functions, assets, risks, contractual terms and actual conduct.
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Separate Article 35 Related Party dealings from Article 36 Connected Person payments so the right disclosure schedule is used.
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Reconcile annual values to invoices, ledgers and the Corporate Tax return.
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Retain agreements, calculations and the evidence used to support Market Value, in a file that can be produced if the FTA asks for it.
Frequently asked questions
Can a minority shareholder still be a Related Party?
Yes, if they meet the control test — the ability to direct the business's conduct — even without a 50% shareholding, or if their combined direct and indirect interest reaches 50%.
Are siblings, cousins or in-laws covered by the kinship test?
The fourth-degree kinship test under Article 35 is broad and includes relationships well beyond immediate family. Businesses with family ownership structures should map the full family tree, not just direct shareholders.
Is a UAE branch of a foreign related company in scope?
Yes. A Person and its permanent establishment, whether inside or outside the UAE, are treated as Related Parties, and transactions between them are subject to the same arm's length requirement.
Do Connected Person rules apply to a sole owner-manager's own salary?
Yes. An owner's own remuneration from the business is a Connected Person payment and must be wholly and exclusively for business purposes and set at an arm's length amount to be deductible.
If a transaction is below the disclosure threshold, is it exempt from the arm's length rule?
No. The AED 40 million and AED 500,000 figures are disclosure-form thresholds, not exemptions. Article 34's arm's length requirement applies regardless of transaction size.
Primary sources and further reading
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Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
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FTA Public Clarification CTP010 – director and officer (April 2026)
How SBC Tax Consulting can help
SBC's transfer pricing team maps Related Parties and Connected Persons against the legal-entity structure, transaction ledger and disclosure schedules so Article 34 coverage is complete before documentation starts. Corporate tax specialists then align the same facts with the return. Contact SBC to review who is in scope 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.