If your business deals with a related company — a parent, a sister entity, a shareholder-owned supplier, even a close relative’s business — the UAE Corporate Tax Law has specific rules for you, and they apply whether or not money is actually changing hands at unusual prices. Many SME owners assume related party rules are a “big company” problem. They are not. The arm’s length principle applies to every related party transaction, regardless of size, and the disclosure thresholds are lower than most owners expect.
What actually counts as a “related party”
Article 35 of the Corporate Tax Law defines related parties broadly. Two entities are related if one owns 40% or more of the other, if they’re under common control, or if the individuals involved are related by blood or marriage up to the fourth degree of kinship. That last point catches people off guard — a transaction with your sibling’s or cousin’s company can fall inside these rules even with no shared ownership structure at all.
“Connected persons” is a related but separate category, covering owners, directors, and their relatives dealing directly with the business itself (for example, a shareholder renting property to their own company).
The arm’s length principle applies to everyone, disclosure or not
This is the part that’s easy to miss: Article 34 requires every related party and connected person transaction to be priced as if the parties were unrelated — what an independent third party would have agreed to under comparable circumstances. This obligation exists regardless of whether your business ever crosses a disclosure threshold. A small business with one related-party transaction still has to be able to demonstrate the pricing was fair, even if it never has to file a formal disclosure schedule about it.
When you actually have to disclose it
Two separate thresholds trigger formal disclosure in your tax return:
- The Related Party Transactions Schedule is triggered once the combined value of all your related party transactions exceeds AED 40 million in the tax period. Once triggered, you disclose each individual category of transaction that exceeds AED 4 million.
- The Connected Persons Schedule has a much lower bar: it’s triggered once transactions with connected persons exceed AED 500,000 in aggregate.
That AED 500,000 connected persons threshold is the one that quietly catches SMEs — a modest management fee to an owner, or rent paid to a shareholder’s personal property, can cross it faster than people expect.
How pricing is actually justified
The Corporate Tax Law prescribes five transfer pricing methods, broadly aligned with OECD guidelines, to test whether a related party price reflects market terms: comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split. If none of these can reasonably be applied to your situation, the law allows you to use another method — but you still need to be able to explain and support your choice.
In practice, for most SMEs this means keeping a simple record for each material related party arrangement: what was charged, what a comparable independent arrangement would look like, and why the two align. It doesn’t need to be a formal transfer pricing study for most businesses below the documentation thresholds — but it does need to exist.
Where this shows up in day-to-day decisions
The rules aren’t abstract. They apply directly to things founders do routinely:
- Charging (or not charging) a management fee between related companies
- Renting office or warehouse space from a shareholder or their family
- Interest-free or below-market loans between related entities
- Salaries paid to family members that don’t reflect market rates for the role
- Goods or services transferred between related companies at cost, or at a discount
Any of these can be entirely legitimate — the requirement isn’t that related parties can’t transact, only that the terms need to hold up to the same scrutiny an unrelated transaction would.
Building this into how you run the business
The businesses that handle this well don’t treat it as a once-a-year tax return exercise. They track related party and connected person transactions as they happen, keep a short written rationale for how each was priced, and check the running totals against the AED 40 million and AED 500,000 thresholds well before the return is due — not after. Waiting until year-end to reconstruct months of intercompany activity is exactly how avoidable disclosure gaps happen.
If you’re not sure whether your related party arrangements would hold up under FTA scrutiny, or whether you’re already close to a disclosure threshold without realizing it, that’s a conversation worth having before your return is due, not after. Get in touch with EMP AccounTax to have it reviewed.