How Can You Identify Related Parties under UAE Corporate Tax?
The proposed UAE Corporate Tax will have transfer pricing rules which will ensure that the price of a transaction is not influenced by the relationship between the parties involved in the transaction. In view of this, the UAE will apply the Arm’s Length principle to transactions between related parties and with connected persons. Businesses need to identify the related parties to comply with the transfer pricing rules in the proposed UAE corporate tax regime.
You can consult with the best corporate tax consultants in Dubai to have a better understanding of the transfer pricing rules. In this blog, we will enlighten you on the definition of related parties as stated in the UAE Corporate Tax Public Consultation document. However, businesses are advised to wait for the release of the final UAE Corporate Tax Law to make any tax-related decision. Read ahead for further insights:
Who is a Related Party under the UAE Corporate Tax?
Section 7.1 of the public consultation document defines what a related party is under the UAE corporate tax. As per the document, “a related party is an individual or entity who has a pre-existing relationship with a business that is within the scope of the UAE CT regime through ownership, control or kinship (in the case of natural persons).” Corporate tax advisors in Dubai can advise you further on the definition of a related party for the purpose of corporate tax compliance.
How to Identify a Related Party under Corporate Tax in the UAE?
There are seven ways to identify a related party under the regime of corporate tax in the UAE. The below points will equip you to accurately identify a related party for the purpose of corporate tax compliance in the UAE:
- Two or more individuals related to the fourth degree of kinship or affiliation, including by birth, marriage, adoption or guardianship
- An individual and a legal entity where alone, or together with a related party, the individual directly or indirectly owns a 50% or greater share in, or controls, the legal entity
- Two or more legal entities where one legal entity alone, or together with a related party, directly or indirectly owns a 50% or greater share in, or controls, the other legal entity
- Two or more legal entities if a taxpayer alone, or with a related party, directly or indirectly owns a 50% share of each or controls them
- A taxpayer and its branch or permanent establishment
- Partners in the same unincorporated partnership
- Exempt and non-exempt business activities of the same person
Are Connected Persons Same as Related Parties?
Connected persons are not the same as related parties. The UAE has not yet introduced personal income tax in the country. In such a scenario, excessive payments made to the connected persons can erode the taxable income for the UAE corporate tax regime. This means businesses are required to monitor the payments made to connected persons. Payments to the connected persons will be deductible only if the business proves the below aspects:
- The payments or benefits are as per the market value of the service provided; and
- The payments or benefits are incurred wholly and exclusively for the taxpayer’s business
How to Distinguish Connected Persons from Related Parties?
The UAE corporate tax regime treats connected persons and related parties differently. The following rules must be applied to identify a connected person under the UAE corporate tax regime:
- An individual who directly or indirectly has an ownership interest in, or controls, the taxable person
- A director or officer of the taxable person
- An individual related to the owner, director or officer of the taxable person to the fourth degree of kinship or affiliation, including by birth, marriage, adoption or guardianship
- Where the taxable person is a partner in an unincorporated partnership, any other partner in the same partnership
- A Related Party of any of the above
Consult with the Best Corporate Tax Consultants in Dubai, UAE
Businesses may require the assistance of corporate tax consultants in Dubai as they need to understand complex concepts such as related parties and connected persons under the transfer pricing rules. When it comes to hiring the best corporate tax advisors in Dubai, look no further than s Jitendra Chartered Accountants (JCA). We have an expert team of corporate tax consultants who can help you prepare for corporate tax. JCA’s corporate tax consulting services in Dubai cover CT Assessment & Advisory Services (one-time or retainer basis), CT Compliance Services & CT Agent Services to Represent to the Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE. Talk to our consultants for tax solutions that you can count on.