UAE Transfer Pricing for Smaller Businesses: Related Parties, Connected Persons and Owners' Salaries
Who counts as a related party or a connected person, whether an owner's salary is deductible, what the tax return asks and which records the FTA can request.
Last reviewed 27 October 2026 · Updated · 12 min read
In short
Transfer pricing rules apply to every UAE business subject to Corporate Tax, however small: transactions with related parties and payments to connected persons must be at arm's length, as if the parties were independent. Size changes the paperwork, not the rule. Businesses on Small Business Relief, exempt entities and standalone businesses with no related party transactions do not have to prepare transfer pricing documentation, and a master file and local file are needed only where revenue is AED 200 million or more or the business belongs to a multinational group with consolidated revenue of AED 3.15 billion or more. A salary paid to an owner, a director or their relatives is generally deductible only up to market value, and only if incurred wholly and exclusively for the business.
Does transfer pricing apply to a small UAE company?
Yes. Article 34 of the Corporate Tax Law says that, in working out taxable income, transactions between related parties must meet the arm's length standard: the result must be consistent with what unrelated parties would have achieved in a similar transaction under similar circumstances. The Federal Tax Authority (FTA) says in its Transfer Pricing Guide (CTGTP1) that this covers domestic groups as well as multinationals, including transactions between free zone persons.
What the FTA relaxes for smaller businesses is the paperwork, not the rule. Exempt entities, businesses that have elected Small Business Relief and standalone businesses with no related party transactions must still meet the arm's length principle but do not have to prepare transfer pricing documentation. Other businesses below the master file and local file thresholds must still keep reasonable records to support the arm's length nature of their dealings with related parties and connected persons. Our Corporate Tax guide explains who can elect Small Business Relief.
A missing contract does not take a dealing outside the rules. Where property is transferred or a service is provided without a formal arrangement, without payment or below market value, the FTA says the arm's length principle should always be applied.
Who counts as a related party?
Article 35 lists the relationships that make two persons related parties, whether or not the other person is resident in the UAE. The main ones are:
- Family: individuals related within the fourth degree of kinship or affiliation, which reaches as far as first cousins and covers a spouse's relatives to the same degree. The FTA treats a husband and wife as related in the first degree of affiliation, so a spouse counts.
- Owner and company: an individual who, alone or with their related parties, owns 50% or more of a company, directly or indirectly, or controls it.
- Two companies: where one owns 50% or more of the other or controls it, or where the same person owns 50% or more of, or controls, both. Sister companies with a common majority owner are related parties.
- Control: the ability to exercise 50% or more of the voting rights, determine the make-up of 50% or more of the board or receive 50% or more of the profits, or to determine or exercise significant influence over how the other person's business is run.
- Others: a person and its permanent establishment, partners in the same unincorporated partnership, and a trustee, founder, settlor or beneficiary and the trust or foundation concerned.
Who is a connected person?
Connected persons are a separate group that centres on the people behind a business: a minority shareholder, or a director who owns no shares, is a connected person even when not a related party. Where someone is both, for example an individual who owns 50% or more of the company, the FTA's public clarification CTP010 says they are treated only as a related party. Under Article 36, connected persons are:
- an owner, meaning any individual who directly or indirectly owns any ownership interest in the company, however small, or controls it
- a director or officer of the company: CTP010 says a director is someone who sits on the board or an equivalent governing body, so having 'director' in a job title is not enough, and an officer is someone with authority to plan, direct and control the business, make its strategic decisions or bind it, such as a general manager who runs an LLC
- a related party of an owner, director or officer, including their relatives to the fourth degree
- where the business is a partner in an unincorporated partnership, the other partners and their related parties
Can a company deduct the salary it pays its owner or director?
Yes, but only up to market value. Under Article 36(1), a payment or benefit to a connected person is deductible only if, and to the extent that, it corresponds with the market value of what the connected person provides, and is incurred wholly and exclusively for the business. The FTA's Determination of Taxable Income guide (CTGDTI1) gives the salary or bonus of a director, an officer or an owner as an example: it is deductible only insofar as it corresponds with market value rates.
Market value is the price that persons who are not related parties or connected persons would agree in an arm's length free market transaction in similar circumstances, worked out using the Article 34 transfer pricing rules. As an illustration, if a company pays a connected person who is not also a related party AED 900,000 a year for work that would be worth AED 600,000 between unconnected parties, only AED 600,000 is deductible, because the FTA says the part of a payment to a connected person that is not at arm's length is not deductible. The tax return has a field for adjustments of this kind.
Where the owner or relative is also a related party, for example an individual who owns 50% or more of the company, CTP010 treats them only as a related party. The Determination of Taxable Income guide applies the same market value limit to payments to related parties, and says employee costs must meet the arm's length standard where the employee is a related party or connected person, so the same test applies to an owner's or director's spouse or child on the payroll. The Article 36 restriction does not apply to a company whose shares are traded on a recognised stock exchange, to one subject to the regulatory oversight of a competent authority in the UAE, or to any other person the Cabinet specifies by decision.
What does the Corporate Tax return ask?
Article 55(1) lets the FTA require a disclosure of transactions with related parties and connected persons to be filed with the tax return. The FTA's Transfer Pricing Guide says this disclosure form is submitted alongside the return within 9 months from the end of the tax period, and covers the nature and value of the transactions, the related parties and the transfer pricing method used.
As of October 2026, the FTA's Tax Returns guide (CTGTXR1, November 2024) says this part of the return applies to all taxable persons and asks whether there were transactions with related parties and with connected persons in the tax period. Dividends between related parties need not be disclosed in the schedule and are ignored for the AED 40 million and AED 4 million tests, and upward adjustments must not be netted off against downward ones.
A business that elects Small Business Relief is outside Article 55, and the FTA's Small Business Relief guide says it would not be required to file the related party disclosure with its return. CTP010 adds that a person who is both a related party and a connected person is treated only as a related party. The detailed schedules apply only above these thresholds:
- Related parties: where all transactions with all related parties, recorded in the accounts or at market value, exceed AED 40 million in total.
- Within that, each category, such as goods, services or intellectual property, whose total with all related parties exceeds AED 4 million.
- Connected persons: each connected person whose payments or benefits, together with that person's related parties, exceed AED 500,000.
When are a master file and local file needed?
Only at a much larger size. As of October 2026, Ministerial Decision No. 97 of 2023 requires both where the business's revenue in the tax period is AED 200 million or more, or where at any time in the tax period it belongs to a multinational group with total consolidated revenue of AED 3.15 billion or more. The FTA's guide adds that a business in a UAE headquartered group with no business establishments outside the UAE needs a local file at those thresholds but not a master file.
Where required, the FTA expects the files to be prepared at the time of the transactions, or at the latest by the time the return is filed. The Decision leaves transactions with an individual out of the local file where the parties act as if independent of each other. It treats that as met where the transaction is in the ordinary course of business and the parties do not deal exclusively or almost exclusively with each other, but not where one works under the other's detailed instruction or comprehensive control. Transactions left out should still be at arm's length.
What about dealings with a Small Business Relief company or a free zone company?
Dealings with these businesses are among those Ministerial Decision No. 97 of 2023 singles out for the local file at larger sizes (see the list below). For example, a mainland company below the thresholds, and not itself on Small Business Relief, that charges management fees to a sister company on Small Business Relief, or buys services from a related Qualifying Free Zone Person, needs no local file but must still price those dealings at arm's length and keep reasonable records to support them.
The free zone company also has a stake. To be a Qualifying Free Zone Person, it must confirm in its tax return that its related party transactions meet Article 34 and that its transfer pricing documentation has been prepared in accordance with Article 55. A 'No' to any of the return's free zone confirmations means it cannot be treated as a Qualifying Free Zone Person for that tax period and the next four.
At or above the thresholds, Ministerial Decision No. 97 of 2023 requires the local file to cover transactions with related parties and connected persons where the other party is:
- a UAE resident person that benefits from Small Business Relief
- a UAE resident person taxed at a different Corporate Tax rate, such as a Qualifying Free Zone Person
- an exempt person, meaning one not subject to Corporate Tax
- a non-resident person, as in a cross-border transaction, other than a UAE permanent establishment taxed at the same rate as the business
How quickly must documents be produced for the FTA?
Within 30 days. A business that must keep a master file and local file has to submit them within 30 days of an FTA request, and a taxable person must provide information supporting the arm's length nature of its dealings with related parties and connected persons within 30 days of a request, or by a later date the FTA directs. These Article 55 duties do not apply for a tax period in which a business elects Small Business Relief, although the FTA says it can still enquire into that business's affairs and review its transactions, including those with related parties.
The FTA's examples of supporting material include functional analysis, benchmarking studies, intercompany agreements, meeting minutes, evidence of decisions, emails, invoices and workpapers computing the transfer prices.
Do downward adjustments need FTA approval?
No, under the FTA's position as of October 2026. Where a related party transaction is not recorded at arm's length in the accounts, the business must make a transfer pricing adjustment in its return: upward, which increases taxable income, or downward, which reduces it. In public clarification CTP011, issued in July 2026, the FTA states that businesses self-assess these adjustments and need no prior approval, though any adjustment may be subject to a tax audit. The FTA's earlier Tax Returns guide, dated November 2024, says a downward adjustment will be allowed only upon a successful application to the FTA. CTP011 covers only adjustments required under Article 34(1), not corresponding adjustments under Article 34(10) and (11), such as one a business applies to the FTA for after a foreign tax authority adjusts a transaction.
CTP011 also says that every related party transaction with a downward adjustment must be disclosed in the return, irrespective of its value or nature. In its examples, a transaction with an upward adjustment needs this disclosure only where the related party transactions exceed the return's thresholds, while one with a downward adjustment needs it whatever the value. CTP011 says a business making a downward adjustment should keep documents including:
- the rationale, showing why the recorded price was not at arm's length and how the revised figure meets the standard
- an arm's length analysis, including a benchmarking study
- a reconciliation between the values in the financial statements and the arm's length values in the return
- evidence of symmetrical corresponding adjustments by the related parties concerned
How long must transfer pricing records be kept?
Seven years. Article 56 requires a taxable person to keep all records and documents that support its tax return and let the FTA readily work out its taxable income for seven years following the end of the tax period they relate to.
Frequently asked questions
Is a company's sole shareholder a related party or a connected person?
On the wording of the law, both: an individual who owns 50% or more of a company is its related party under Article 35, and any individual with an ownership interest is a connected person under Article 36. But the FTA's public clarification CTP010 says a person who is both is treated only as a related party, so dealings with them fall under the related party rules.
Does a company on Small Business Relief need transfer pricing documentation?
No. For a tax period in which Small Business Relief is elected, Article 21 of the Corporate Tax Law switches off Article 55, so the company files no transfer pricing disclosure with its return, needs no master file or local file and is outside Article 55's 30-day request rule. The FTA says it must still comply with the arm's length principle, and the FTA can still review its transactions, including those with related parties.
Is a salary paid to an owner's spouse deductible?
Only up to market value. The FTA treats a husband and wife as related in the first degree of affiliation, so the spouse of an owner or director is a connected person of the company, or a related party of it where the couple together own 50% or more. Either way, the FTA's guidance limits the deduction to market value, and the cost must be incurred wholly and exclusively for the business.
Do small downward transfer pricing adjustments have to be disclosed?
Yes. The FTA's clarification CTP011 of July 2026 says every related party transaction with a downward adjustment must be disclosed in the tax return, irrespective of its value or nature, even below the AED 40 million and AED 4 million thresholds.
How Indigo Group can help
Indigo Group's Accounting and Audit and Corporate Services teams can help a business work out which of these rules apply to its dealings with related parties and connected persons and coordinate the steps, working alongside a registered tax agent where one is needed. For the wider Corporate Tax rules, see our Corporate Tax guide. Indigo Group's regulated entity, Indigo Financial Analysis and Consultancy LLC, is licensed by the UAE Capital Market Authority (CMA), licence no. 706042.
Read more about our accounting, tax consultancy and CFO services in Dubai.
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Related guides
Sources
- Transfer Pricing Guide (CTGTP1), October 2023, Federal Tax Authority
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (consolidated, January 2026), UAE Ministry of Finance
- Corporate Tax Public Clarification CTP011: Downward adjustments made by a Taxable Person in the Tax Return to comply with the Corporate Tax Law, Federal Tax Authority
- Corporate Tax Guide on Tax Returns (CTGTXR1), November 2024, Federal Tax Authority
- Corporate Tax Public Clarification CTP010: Clarification of the terms director and officer for the purpose of payments to Connected Persons under Article 36, Federal Tax Authority
- Determination of Taxable Income (CTGDTI1), July 2024, Federal Tax Authority
- Taxation of Natural Persons under the Corporate Tax Law (CTGTNP1), November 2023, Federal Tax Authority
- Small Business Relief (CTGSBR1), August 2023, Federal Tax Authority
- Ministerial Decision No. 97 of 2023 on Requirements for Maintaining Transfer Pricing Documentation, Ministry of Finance (published by the Federal Tax Authority)
- Corporate Tax Guides, References and Public Clarifications, Federal Tax Authority
Last reviewed 27 October 2026. This article is for general information only and does not constitute financial, legal or tax advice. Rules change, so please speak to a qualified adviser about your circumstances.
