Related Party Transactions in UAE

Two weeks ago we covered Transfer Pricing. This post is about the rule founders confuse with it.

If you have more than one UAE entity, or any family member sitting in your shareholder register, you almost certainly have related party transactions. Every management fee, intercompany loan, IP licence and lease between connected entities falls into this category. Most founders we speak to know this in principle. Far fewer know that pricing those transactions correctly is only half the obligation.

The other half is disclosure. And that is where the gap usually sits.

The Distinction Founders Miss

There are two separate rules at play in UAE Corporate Tax. They live in the same chapter of the law. They cover the same transactions. They are not the same rule.

Transfer Pricing (TP) is the pricing rule. Article 34 of Federal Decree-Law No. 47 of 2022 says that any transaction between related parties must be priced at arm’s length. The fee, royalty or interest rate must reflect what two independent parties would have agreed to in the market. This is what we covered in the Transfer Pricing post.

Related Party Transactions (RPT) is the disclosure rule. Articles 35 and 36 define who counts as a related party or connected person, and the FTA’s guidance on the Corporate Tax return requires those transactions to be reported in a dedicated Schedule. Reporting is required regardless of whether your pricing is perfect.

Here is what that means in practice. A founder can price every intercompany transaction exactly at market rate. Document everything. Have the agreements in place. And still be non-compliant if the Related Party Transactions Schedule is missing or incomplete on the Corporate Tax return.

The two rules overlap. They are not interchangeable. A clean mental model: TP is what you charge. RPT is what you tell the FTA.

Article 35 of the Corporate Tax Law sets the definition. The categories that matter for most founders:

A natural person who directly or indirectly owns 50% or more of a company, or otherwise controls it
A company that owns 50% or more of another company, alone or together with its related parties
Two or more companies under common 50%+ ownership or control
A taxable person and its branches or permanent establishments

In practice this captures almost every multi-entity structure UAE founders build. Holding company plus operating subsidiary. Freezone entity plus mainland entity under the same shareholder. Two operating businesses owned by the same individual.

Then Article 36 adds Connected Persons. A Connected Person is anyone who:

Owns the business (any percentage)
Sits as a director or officer
Is a relative within the degree set by the law [Verify exact degree wording. Article 36 references “relatives up to the fourth degree of kinship” in published guidance]
Is a related party of any of the above

The Connected Persons concept matters because it pulls in transactions that founders rarely think of as intercompany. Owner salaries. Director fees. Family members on payroll. A villa owned personally by the founder and leased to the company. All of those sit inside Article 36.

A useful way to think about it: Article 35 catches the entities you own. Article 36 catches the people connected to them, including yourself.

When Disclosure Is Triggered

The Corporate Tax return contains a dedicated Schedule for related party transactions. Whether you have to complete it depends on your transaction volume.

Per current FTA Corporate Tax Guide guidance [Verify against latest Cabinet Decision], the thresholds are:

Aggregate trigger: AED 40 million in total related party transactions across the tax period requires the full Schedule
Per-category trigger: AED 4 million in any single transaction category (goods, services, royalties, interest, IP, loans) requires that category to be disclosed even if aggregate is below AED 40 million

For Connected Persons specifically, a separate trigger applies [Verify current AED level. The FTA Corporate Tax Guide indicates a per-person, per-tax-period threshold for Connected Persons disclosure].

A practical read: most founders running businesses in the AED 1-50 million revenue range will sit below the AED 40 million aggregate trigger. That does not mean nothing is required. It means the formal Schedule disclosure may not apply, but the underlying obligations still do. Arm’s length pricing applies from AED 1 of intercompany activity. Documentation of the agreements still needs to exist if the FTA queries them. And the Connected Persons threshold can be triggered at much lower amounts than the AED 40M aggregate.

If your structure has any meaningful intercompany flow, the safest position is to assume disclosure may be required and document accordingly, rather than wait until you cross the line.

What the Schedule Actually Asks For

The Related Party Transactions Schedule on the CT return requires:

Name of each related party or connected person
Jurisdiction of that party (UAE or foreign)
Type of relationship (parent, subsidiary, sister company, individual owner, family member)
Nature of the transaction (services, royalties, interest, goods, IP, loans, leases)
Total value per transaction category in AED
Confirmation that arm’s length pricing was applied

This is a transparency exercise. The FTA is not asking for benchmarking studies in the Schedule itself. It is asking who you transact with, what you transact and how much. The benchmarking sits in the Local File for businesses above AED 200 million revenue. For everyone else, the documentation evidence stays in your records and is provided on request.

What gets you in trouble is not having the answers when the Schedule asks for them. Empty rows. Estimates. Aggregates without breakdown. Those are penalty triggers in their own right.

Three Founder Scenarios

Scenario One: Holding Company Pays Management Fee to Operating Company

Holding company owns the operating company 100%. OpCo pays HoldCo AED 240,000 per year as a management fee. Same shareholder, same UAE.

Are they related parties? Yes. Article 35 applies (common ownership).
Is the Schedule triggered? At AED 240K, this single transaction is well below both the AED 40M aggregate and the AED 4M per-category threshold. The Schedule line for this specific founder may not be required.
What is still required? A written intercompany agreement. Evidence the management services were actually provided. Defensible pricing. The AED 240K must reflect what an independent provider would charge for the same scope.
Penalty risk: Low for disclosure, real for pricing. The FTA can disallow the deduction if the management fee does not hold up.

Scenario Two: UAE Entity Licenses IP From EU Parent

UAE OpCo pays a EUR-denominated royalty equivalent to AED 1.2 million per year to an EU parent company. Same group, cross-border.

Are they related parties? Yes. Article 35 applies (common control across jurisdictions).
Is the Schedule triggered? AED 1.2M is below the AED 4M per-category trigger and well below the AED 40M aggregate, on its own. But if the UAE OpCo also pays management fees, interest on intercompany loans or has other flows with the EU parent and its affiliates, the aggregate can cross AED 40M quickly.
What is still required? A written licence agreement. DEMPE analysis showing where the IP value is created and where the IP rights sit. Benchmarking on the royalty rate. Withholding tax considerations at the EU end (separate issue).
Penalty risk: Medium. Cross-border IP flows are a higher-scrutiny area for the FTA.

Scenario Three: Founder Leases Personal Property to Own Company

The founder personally owns a villa in Dubai. The operating company uses it as office space. The company pays the founder AED 360,000 per year in rent.

Are they related parties? This is a Connected Persons transaction under Article 36. The founder is the owner of the company.
Is the Schedule triggered? Connected Persons disclosure has its own threshold structure [Verify current AED level]. AED 360K per year is potentially in scope depending on the per-person trigger.
What is still required? A written lease agreement. Market rate for comparable Dubai office property. A valuation reference. A traceable rent payment trail through the company books, not informal cash transfers.
Penalty risk: High, because most founders treat this scenario informally. They have a verbal arrangement with themselves. No agreement, no benchmarking, no Schedule line. That is a clean failure of both the pricing rule and the disclosure rule.

The third scenario is where most founders sit. Not the AED 40M structure they read about in tax updates. The everyday personal-into-business arrangements they never thought of as related party transactions.

Common Mistakes

A short list of what we see most often when reviewing multi-entity structures.

Assuming arm’s length pricing means no documentation. It does not. Even if your management fee is at market rate, the existence of the agreement, the proof of services and the line in the CT return Schedule are separate obligations.

Missing the Schedule on the CT return. Filing the return on time but leaving the Related Party Transactions Schedule empty when it should not be. This is the most common compliance gap we see, and it triggers penalties on its own.

Treating shareholder loans informally. A founder lends AED 500K to their own company. No interest charged. No agreement. No documentation. Under the rules, this is a related party transaction. The FTA expects an arm’s length interest rate or a documented justification for why none is charged.

Ignoring Connected Persons completely. Family on payroll without a defined role. A spouse drawing director fees without board minutes. A relative receiving a “consulting fee” with no scope. All Article 36 transactions. All in scope.

Confusing the Tax Group with RPT relief. A UAE Tax Group eliminates intercompany transactions for the consolidated return. It does not eliminate Articles 35 and 36 for the underlying entities outside the group, or for groups not yet elected. The UAE Tax Groups post covers this in detail.

What the Penalties Look Like

The penalty framework for RPT disclosure failures sits inside the broader Corporate Tax penalty structure.

Late CT return (which includes the Schedule): AED 500 per month for the first twelve months, AED 1,000 per month thereafter [Verify against latest penalty schedule]
Incorrect or incomplete return: depending on cooperation and severity, penalties can scale from AED 500 to AED 50,000 per violation [Verify current bands]
Voluntary disclosure after filing: a fixed monthly percentage applied to the underpaid tax [Verify exact rate currently in force]
Transfer pricing documentation failures (Local File / Master File when triggered): up to AED 50,000 per violation

The point is not the headline numbers. It is that the disclosure failures and the pricing failures carry separate penalties. A founder can be hit with both for the same underlying transaction.

The Four-Question Framework

If you read nothing else from this post, run your structure through these four questions.

1. Do you have related parties? If you have any second entity, any family in ownership, common control across companies or director and officer relationships beyond yourself, the answer is yes. For most founders the answer is yes.

2. Have you ever transacted with them? Services, fees, loans, leases, IP, inventory, salaries to family. Almost always yes.

3. Have you documented those transactions? Written agreements. Defined scope. Evidence the work happened. Benchmarking on the pricing. This is where the answer usually starts to shift to no.

4. Did you disclose them in your last Corporate Tax return? The Schedule. The line items. The aggregate value per category. This is where the answer is almost always no.

If you answered yes to questions 1 and 2 and no to questions 3 and 4, the gap is real. It is not catastrophic if you address it before the next return cycle. It becomes harder to fix once a CT return has been filed without disclosure and the FTA queries it.

Closing

Related Party Transactions are not Transfer Pricing. They overlap, they govern the same entities, but they answer different questions. TP is what you charge. RPT is what you tell the FTA.

Most multi-entity founders we work with were aware of the pricing rule and surprised by the disclosure rule. The fix is not complicated. Map the related parties, list the transactions, paper the agreements, complete the Schedule. The work is real but it is finite.

If you have a multi-entity UAE structure or family in your shareholder register and you have not yet mapped your related party transactions, this is the right month to do it. The next CT return cycle will ask the questions. The Schedule will be there.

Lumea Finance helps UAE founders close exactly this kind of gap before it becomes a query letter from the FTA. If you want a clear picture of what your structure should be disclosing, reach out at /contact.