Connected persons under UAE corporate tax: who they are and why it matters
What are connected persons in UAE corporate tax?
Connected persons in UAE corporate tax are people or entities with a close personal or ownership link to a taxable business, such as owners, directors, officers, and their relatives, plus entities they control. Payments and benefits given to connected persons are deductible only if they match market value and serve the business. The rule sits inside Federal Decree-Law 47 of 2022.
This guide explains the connected persons uae corporate tax rules in plain English. You will learn who counts, how the arm's length test applies, what documents the Federal Tax Authority (FTA) expects, and how connected persons differ from related parties. For the wider framework, see our UAE Corporate Tax hub.
Why connected persons matter under Federal Decree-Law 47 of 2022
UAE corporate tax applies at 9% on taxable income above AED 375,000, with 0% below that threshold. A 15% domestic minimum top-up tax (DMTT) applies to large multinationals from January 2025. Profit shifting to owners or their families can erode this base.
The connected persons rule stops that leak. It limits deductions for salaries, rent, interest, and other payments made to people close to the business. If a payment is above market value, the excess is added back to taxable income.
The core test in one sentence
A payment or benefit to a connected person is deductible only to the extent it is at arm's length and incurred wholly and exclusively for the business.
Where the rule sits in the law
Article 36 of Federal Decree-Law 47 of 2022 sets out the connected persons rule. It works alongside the transfer pricing articles that cover related parties. Read more in our guide to UAE Transfer Pricing Rules.
Who counts as a connected person?
A connected person of a taxable business includes anyone with ownership, control, or a close personal tie to the business or its owners. The definition is broader than many UAE owners expect.
Individuals who are connected persons
- Owners of the taxable business, directly or indirectly.
- Directors and officers of the business.
- Partners in an unincorporated partnership.
- Relatives of any of the above, up to the fourth degree of kinship or affiliation, including by adoption or guardianship.
Entities that are connected persons
- Companies in which an owner, director, officer, partner, or their relative holds an ownership interest.
- Entities that such people control, alone or together.
Special case for unincorporated partnerships
For an unincorporated partnership, every partner is a connected person of the partnership. Payments between partners and the partnership must pass the arm's length test.
Connected persons versus related parties
People often mix up these two terms. They overlap but are not the same. Related party rules focus on transactions between businesses linked by ownership or control. Connected person rules focus on payments from a business to people close to it.
| Feature | Connected persons | Related parties |
|---|---|---|
| Article 36 | Articles 34 and 35 | |
| Main focus | Payments and benefits to insiders | Transactions between linked businesses |
| Who is covered | Owners, directors, officers, partners, their relatives, and entities they control | Parties linked by 50% ownership, control, or kinship to the fourth degree |
| Standard applied | Arm's length and wholly and exclusively for business | Arm's length principle |
| Typical example | Salary paid to an owner's spouse | Management fee paid to a parent company |
| Consequence if breached | Excess payment disallowed as a deduction | Taxable income adjusted upward |
For the related party side, see our page on Related Party Transactions UAE.
The arm's length test for connected persons
A payment to a connected person passes the test when both conditions hold. First, the amount matches what an independent party would charge for the same service, asset, or financing. Second, the payment serves the business, not a personal purpose.
What the FTA looks at
- Market rates for similar work, rent, or financing in the UAE.
- The actual role and time spent by the connected person.
- Written contracts and board approvals.
- Whether the payment would have been made to an unrelated person.
Common payment types to review
- Salaries, bonuses, and director fees paid to owners and relatives.
- Rent paid for property owned by an owner or relative.
- Interest on loans from owners or family members.
- Management fees and consulting fees to entities owned by insiders.
- Royalties or license fees for brands held by relatives.
Worked example: owner's spouse on payroll
A trading company pays the owner's spouse AED 30,000 per month as a marketing director. Market rate for the same role and hours is AED 12,000. The excess AED 18,000 per month, AED 216,000 per year, is disallowed. Taxable income increases by AED 216,000, and corporate tax at 9% on that excess adds AED 19,440 to the bill.
Documentation the FTA expects
The business must be able to prove the arm's length nature of any payment to a connected person. Documentation does not need to be heavy, but it must exist before the FTA asks.
Minimum file for each connected person payment
- A written contract setting out the role, scope, and rate.
- Evidence of work done: timesheets, deliverables, emails.
- A benchmark showing the market rate, such as salary surveys or comparable rentals.
- Board or partner approval for material payments.
- Bank records matching the contract.
Link to transfer pricing documents
If your group also has related party transactions above the thresholds, you may need a master file and local file. See UAE Transfer Pricing Documentation, Transfer Pricing Master File UAE, and Transfer Pricing Local File UAE. Large multinational groups should also check the CbCR UAE rules.
Exemptions and exclusions
Not every business has to apply the rule in the same way. The law carves out specific situations where the connected persons rule does not bite or applies differently.
Businesses outside the rule's reach
- Businesses with no taxable income, such as those below the AED 375,000 threshold, still must track payments but face no current tax cost.
- Listed companies on a recognised stock exchange, for payments to directors and officers, subject to conditions.
- Payments subject to UAE corporate tax in the hands of the recipient at the standard rate, in many cases.
Qualifying Free Zone Persons
A Qualifying Free Zone Person (QFZP) still applies the connected persons rule. Even though qualifying income may be taxed at 0%, payments to connected persons must remain at arm's length to keep the income properly classified.
Small business relief
Small business relief is available for taxable persons with revenue up to AED 3 million through 2026. Electing for this relief does not switch off the connected persons rule for future years, so keep records anyway.
Step by step compliance checklist
- List every payment to owners, directors, officers, partners, and their relatives.
- List every payment to entities owned or controlled by those people.
- For each payment, find a market benchmark in writing.
- Compare actual amounts to the benchmark and flag any excess.
- Adjust taxable income for the excess in your corporate tax return.
- Store contracts, benchmarks, and approvals for at least seven years.
- Review the list annually before financial year end.
Filing and timing
UAE corporate tax returns are due within 9 months of the financial year end. The first returns for many businesses cover the period starting on or after 1 June 2023. Adjustments for connected persons sit inside the return as add-backs to accounting profit.
For the latest official guidance, see the UAE Ministry of Finance and the UAE Federal Tax Authority websites.
Common mistakes UAE businesses make
Treating family salaries as automatic deductionsOwners often put spouses or adult children on payroll at high salaries with little real work. Without a contract and a benchmark, the FTA can disallow most of the salary.Charging above-market rent to the company
Renting a villa or office from an owner at inflated rates is a frequent issue. Compare to listings on the same street or area before setting the rent.
Ignoring interest on shareholder loans
Interest paid to an owner above market rates is disallowed. So is interest on a loan that has no written terms.
Forgetting in-kind benefits
Cars, school fees, travel, and housing given to connected persons count as benefits. They must also pass the arm's length test.
How connected persons interact with transfer pricing
The connected persons rule and the transfer pricing rules share the arm's length principle but apply to different parties. A single transaction can fall under both. For example, a service fee paid by a UAE company to another UAE entity owned by the same shareholder is both a related party transaction and a connected person payment if the shareholder is also a director.
In that case, you apply the stricter test. You also keep both sets of records. The UAE Transfer Pricing Rules page covers the methods accepted by the FTA: comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split.
Ready to get your records in order?
Clean records on connected persons and related parties also feed your e-invoicing setup once Phase 1 of UAE e-invoicing goes live on 1 January 2027. EInvoice Direct gives you UAE e-invoicing software with an accredited service provider included at no extra charge, so your tax data flows in one place. To get UAE e-invoicing pricing, talk to the team at Massive FZCO.
Questions, answered
Who is a connected person under UAE corporate tax?
A connected person is anyone with a close ownership or personal link to a taxable business. This covers owners, directors, officers, partners in an unincorporated partnership, and their relatives up to the fourth degree. It also covers entities owned or controlled by those people. The definition sits in Article 36 of Federal Decree-Law 47 of 2022.
What is the difference between a connected person and a related party?
Related parties are businesses or people linked by 50% ownership, control, or close kinship, and their transactions are covered by transfer pricing rules. Connected persons are insiders such as owners, directors, and their relatives, and the rule limits deductions for payments made to them. A single transaction can fall under both sets of rules at once.
What payments to connected persons are restricted?
Any payment or benefit can be restricted, including salaries, bonuses, director fees, rent, interest on loans, royalties, management fees, and in-kind benefits like cars or housing. The payment is deductible only up to the market rate and only if it serves the business. Anything above the arm's length amount is added back to taxable income.
How do I prove a payment to a connected person is at arm's length?
Keep a written contract, evidence of the work or asset provided, and a benchmark showing the market rate. Benchmarks can include salary surveys, rental listings, or comparable interest rates. Add board or partner approval for material amounts. Store these records for at least seven years so the Federal Tax Authority can review them on request.
Does the connected persons rule apply to free zone companies?
Yes. A Qualifying Free Zone Person (QFZP) still applies the connected persons rule even though qualifying income may be taxed at 0%. Payments above market value can shift income out of the qualifying category and into the 9% bracket. Free zone groups should document salaries, rent, and management fees with the same care as mainland businesses.
What happens if the FTA finds non-arm's length payments?
The Federal Tax Authority will disallow the excess part of the payment and add it back to taxable income. Corporate tax at 9% then applies to that excess above the AED 375,000 threshold. Administrative penalties for inaccurate returns can also apply. There is no automatic criminal exposure, but repeated issues raise audit risk for future years.
Are payments to a sole owner of a UAE LLC always restricted?
Not always, but they are always reviewable. A reasonable salary to an owner who actively runs the business is deductible. A salary that far exceeds market rates for the role is partly disallowed. Dividends are not deductible at all, since they are a distribution of profit rather than a business expense. Document the owner's role clearly.
Keep reading
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Read the guide →This content is informational and does not constitute tax, legal, or financial advice. Consult an FTA-registered tax agent or a licensed UAE audit firm before acting on this information.
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