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UAE Corporate Tax: Related parties and connected person transactions

 

UAE Corporate Tax: Related parties and connected person transactions

 

The Corporate Tax Guide on Tax Returns (CTGTXR1), a comprehensive resource designed to offer clarification on a number of company tax filing-related topics, was introduced by the Federal Tax Authority. Many queries and concerns about the corporate tax filing procedure have been answered by this tutorial, which has proven to be quite helpful. The initial introduction of this guidance is a significant step towards improving transparency and expediting tax processes within the corporate taxation system of the United Arab Emirates.

One of the main subjects covered in the guide is how "related parties" and "connected persons" are treated in transactions. With its comprehensive explanation of the disclosure procedure, the guide gives the companies much-needed clarity on this commonly unclear area of corporate tax. Particularly, a crucial information that was not previously disclosed a threshold for disclosure is introduced in the guide. By ensuring that companies understand the specific disclosure requirements, this innovation encourages better transparency and adherence when it comes to reporting related-party transactions.
 


RELATED PARTIES

According to Article 35 of the Federal Decree Law No. 47 of 2022, a related party is composed of the following:

  • Natural persons related within the fourth degree of kinship, including adoption or guardianship.
  • A natural person and a juridical person where the natural person, alone or with related parties, owns or controls 50% or more of the juridical person. 
  • Two or more juridical persons, where one owns or controls 50% or more of the other, or where any person owns or controls 50% or more of two or more juridical persons. 
  • A person and its foreign or domestic permanent establishments. 
  • Partners in the same unincorporated partnership. 
  • Trustees, founders, settlors, or beneficiaries of a trust or foundation, along with their related parties.

If the total value of the transactions, as shown in the Financial Statements or at market value, exceeds AED 40 million, then all Taxable Persons conducting business with Related Parties during the Tax Period are required to complete the Related Party Disclosure Schedule.

Any individual transaction consisting of Related Parties under a particular category that has a total value of more than AED 4 million must be disclosed once this threshold is exceeded. Greater transparency can be assured by this requirement, which also makes it easier to comply with the Federal Tax Authority's corporate tax requirements.

CONNECTED PERSONS

According to Article 36 of the Federal Decree Law No. 47 of 2022, a connected person is composed of the following:

  • A natural person who directly or indirectly owns an ownership interest or controls the taxable person. 
  • A director or officer of the taxable person. 
  • Partners in the same unincorporated partnership 
  • Related parties of any of the above.

Every Connected Person whose total payment or benefit, including transactions with their Related Parties, exceeds AED 500,000 must complete the Connected Person Disclosure Schedule. This provides compliance to the essential reporting specifications for significant transactions.

Maintaining corporate tax compliance in the United Arab Emirates might be challenging, but it's necessary to prevent fines and obtain tax advantages. Your company can remain on track by establishing efficient compensation practices and precisely defining related parties and connected persons.

 

If you need any professional advise/ guidance regarding UAE CT and VAT, you may please contact our Tax Department:

Email:     [email protected]
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Phone:    +971 454 13205
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Visit our Website : www.chrysalisserve.com

 

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