The proposed UAE Corporate tax law defines a related party as an entity or individual who has a pre-existing relationship with a business. This is within the scope of the UAE Corporate tax regime through ownership, kinship, or control.
How To Identify Related Parties
There are many ways to identify related parties under the UAE Corporate Tax Law. These include:
Ownership: Two or more entities or individuals are related parties if one entity or individual has the power to influence or direct the management or policies of the other entity, whether through ownership, voting rights, or other means.
Kinship: two individuals are related parties if they are related to each other to the fourth degree of affiliation or kinship, including by marriage, birth, adoption, or guardianship.
Are Connected Persons Same As Related Parties?
Related parties and connected individuals are not the same thing. Personal income tax has not yet been implemented in the United Arab Emirates. In this case, excessive pay to connected individuals may reduce the UAE corporate tax regime’s taxable income. As a result, businesses are obligated to keep track of payments made to connected parties. Only if the company can demonstrate the following aspects will payments to the connected individuals be deductible:
The benefits or payments are based on the service’s market value; Additionally, the taxpayer’s business is the sole beneficiary of the payments or benefits.
Consequences Of Being A Related Party
The UAE corporate tax law imposes a number of consequences on related parties. These include:
Arm’s Length Pricing: All transactions between related parties must be priced at arm’s length. This means that the price of the transaction must be the same as it would be if the transaction were between unrelated parties.
Disclosure Requirements: Related parties are required to disclose certain information to the tax authorities like the nature of the relationship between the parties, the amount involved in the transaction, and the terms of any transactions between the parties.
Penalties: If a related party fails to comply with the UAE corporate tax Law, they may be subject to penalties, such as imprisonment or fines.
Conclusion
The UAE corporate has a number of provisions that apply to related parties. These provisions are designed to ensure that parties do not engage in transactions that are designed to reduce their tax liability. If you are a related party, it is crucial to understand the UAE corporate Law and the consequences of being a related party.
ebs likewise offer services, such as accounting and bookkeeping services, VAT services, Auditing, Due Diligence audit services, and many more.
Feel free to contact us with any additional inquiries or requests for accounting services. A free discussion will be given to you by our specialists, who will answer your request immediately.