Definition of a Related Party (UAE Corporate Tax Law – Article 35)
Under UAE Corporate Tax Law, Related Parties include:
- Individuals related within the fourth degree (e.g., family, including adoption or guardianship).
- A natural person and a company if the person or related persons hold 50% or more ownership or have control.
- Two or more companies where one directly or indirectly holds 50% or more ownership or control over another.
- Companies or persons and their Permanent Establishments.
- Partners in the same Unincorporated Partnership.
- Individuals associated with a trust or foundation (trustees, founders, beneficiaries).
“Control” is defined as the ability to:
- Exercise 50% or more of voting rights.
- Appoint or influence 50% or more of the Board of Directors.
- Receive 50% or more of profits.
- Significantly influence business operations and decisions.
Related Party Transactions
Reporting Requirements – You must report Related Party transactions when:
- Total transactions exceed AED 40 million in a financial year.
- Individual transaction categories (goods, services, intellectual property, interest, assets, liabilities, etc.) exceed AED 4 million.
Transactions Excluded:
- Dividends declared between Related Parties.
Information to Report:
- Name of the Related Party: Official name as per legal records.
- Type of Transaction: Specify if transactions involve goods, services, intellectual property, interest, assets, liabilities, or other categories.
- Country of Tax Residence: Where the Related Party is tax resident.
- Corporate Tax TRN/TIN: Tax Registration Number (UAE) or Taxpayer Identification Number (foreign jurisdiction).
- Gross Income/Expenses: Amount without deducting expenses or taxes.
- Transfer Pricing Method Used: Methodology for determining transaction price (Comparable Uncontrolled Price, Resale Price, Cost-Plus, etc.).
- Arm’s Length (Market) Value: Price that would apply between unrelated parties.
- Tax Adjustment: Automatically calculated difference between reported and market values.
Definition of a Connected Person (UAE Corporate Tax Law – Article 36)
Connected Persons under UAE Corporate Tax Law include:
- Owners (individuals holding direct or indirect ownership interests or control).
- Directors or officers of the taxable entity.
- Related Parties of owners or directors/officers.
- Partners in the same Unincorporated Partnership and their Related Parties.
Connected Person Transactions
When to Report: Transactions with Connected Persons exceeding AED 500,000 per year must be disclosed.
Details Required:
- Connected Person Name and TRN/TIN: Official identification numbers.
- Type of Payment or Benefit: Clearly categorize the transaction.
- Description: Detail the specific nature of services or benefits provided.
- Value of Payment or Benefit: As recorded in financial statements.
- Market Value: The transaction’s value if conducted between unrelated parties.
- Adjustment: Automatic calculation of any differences between reported and market values.
Importance for Businesses
Proper reporting avoids penalties, ensures regulatory compliance, and maintains transparency in financial records.
For further guidance, consult UAE Corporate Tax guidelines or seek professional tax advisory support.
Sources:
- UAE Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
- Corporate Tax Guide | CTGTXR1
- UAE Corporate Tax Guide on Transfer Pricing
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