Connected Persons UAE – Complete Business Guide
Connected persons UAE are individuals or entities that have a close relationship with a business. This includes people who own, control, or influence the company’s decisions.
The UAE defines connected persons under the Corporate Tax Law to ensure transparency and fairness in related-party transactions. By identifying connected persons, the Federal Tax Authority (FTA) can check if transactions follow the arm’s length principle and meet tax compliance requirements.
Understanding Connected Persons in UAE
Connected persons can be shareholders, directors, related companies, or family members of key decision-makers. Their transactions with the business must be recorded and reported accurately.
Examples of connected persons include:
- Shareholders owning a significant percentage of shares.
- Directors or managers influencing business decisions.
- Relatives of owners or directors.
- Subsidiaries, parent companies, and affiliates.
- Entities with shared ownership or control.
Why Connected Persons Are Important in Tax Law
The FTA monitors transactions with connected persons to prevent tax avoidance and profit shifting. These transactions must be at market value, the same as they would be with independent parties.
Key objectives of connected person rules:
- Prevent unfair transfer of profits.
- Maintain fair competition.
- Ensure compliance with UAE tax laws.
Transactions Covered Under Connected Persons Rules
Common transactions between connected persons include:
- Sale or purchase of goods or services.
- Licensing of intellectual property.
- Loan agreements and financial guarantees.
- Management and consultancy fees.
- Asset transfers.
All these dealings must be documented and priced at market value.
Documentation for Connected Persons Compliance
Businesses must maintain clear records for all connected persons transactions:
- Contracts and Agreements – Signed documents showing transaction terms.
- Invoices and Payment Records – Proof of actual dealings.
- Transfer Pricing Documentation – Justification of prices used.
- Disclosure Forms – Submitted to the FTA with annual tax filings.
Challenges in Managing Connected Persons Transactions
Businesses may face difficulties such as:
- Identifying all connected persons under UAE law.
- Keeping up with changing ownership structures.
- Collecting accurate market price data.
- Meeting FTA reporting deadlines.
Working with professionals can reduce compliance risks.
Penalties for Non-Compliance
Failure to comply with connected persons rules can lead to:
- Significant fines from the FTA.
- Additional tax assessments.
- Increased scrutiny and audits.
- Damage to business credibility.
Compliance is essential to avoid legal and financial problems.
Best Practices for Connected Persons Compliance
To stay compliant with connected persons rules:
- Review ownership and management structures regularly.
- Keep detailed documentation for all related-party transactions.
- Ensure all prices match market value.
- File all disclosures with the FTA on time.
What Can Help – Mubarak Al Ketbi (MAK) Auditing
Mubarak Al Ketbi (MAK) Auditing helps companies in the UAE identify and manage connected persons UAE compliance. We assist in documentation, pricing analysis, and FTA reporting to avoid penalties. In business, an ounce of prevention is worth a pound of cure.
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Contact/WhatsApp: +971 50 276 2132
