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Are Two UAE Government-Owned Companies Related Parties? FTA Says No

UAE related parties corporate tax 2026 - government-owned companies and transfer pricing rules under Article 35 FTA CTP002

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Are Two UAE Government-Owned Companies Considered Related Parties Under Corporate Tax?

If your company is owned by the UAE Federal Government or an Emirate-level government, and so is another company you do business with, you may have been wrongly treating those transactions as Related Party dealings. According to FTA Corporate Tax Public Clarification CTP002, two companies whose only common link is government ownership are NOT Related Parties under Article 35 of the UAE Corporate Tax Law. This means the arm’s length requirement under Article 34 does not apply, and you are not required to maintain transfer pricing documentation for transactions between them.

This clarification has significant practical consequences for government-linked enterprises, state-owned subsidiaries, and companies operating within UAE government-owned groups. In this guide, Qaspro Global breaks down exactly what CTP002 says, who it applies to, and what it means for your corporate tax compliance in 2026.

What Are Related Parties Under UAE Corporate Tax Law?

Article 35 of Federal Decree-Law No. 47 of 2022 defines Related Parties for UAE Corporate Tax purposes. Under this definition, two or more juridical persons can be Related Parties as a result of common ownership of at least 50% or common control, whether direct or indirect. The term also covers natural persons connected by family relationship up to the fourth degree.

The significance of being classified as Related Parties is enormous: once classified, all transactions between those parties must satisfy the arm’s length standard under Article 34. This means prices and terms must reflect what independent parties would agree to in a comparable open-market transaction. Failure to meet this standard can result in the FTA adjusting your taxable income upward, leading to additional corporate tax liability and potential penalties.

Transfer pricing documentation requirements also kick in for Related Party transactions, including maintaining a Local File and, in some cases, a Master File. These documents must demonstrate that transactions were priced at arm’s length. The administrative burden is significant, which is why CTP002’s clarification on government-linked ownership matters so much.

Note: the Related Party rules apply to UAE-resident taxable persons. Non-resident companies with UAE-sourced income are assessed separately under the non-resident CT framework. For a full breakdown of when non-resident entities become liable for UAE corporate tax, see: Does Your Foreign Company Owe UAE Corporate Tax in 2026?

What Is the Arm’s Length Standard Under Article 34?

The arm’s length standard is an internationally recognised principle that requires Related Parties to price their transactions as if they were independent parties dealing at market terms. Under Article 34 of the UAE Corporate Tax Law, this principle applies to all transactions and arrangements between Related Parties when determining taxable income.

In practice, this means if Company A sells goods to Related Party Company B at below-market prices, the FTA can substitute the market price when calculating Company A’s taxable income. The arm’s length standard is designed to prevent profit shifting between related entities and to ensure each taxable person pays the correct amount of corporate tax.

However, this standard only applies when a Related Party relationship exists. If two companies are NOT Related Parties, their transactions are treated as ordinary third-party dealings, and no arm’s length analysis is required.

What Does FTA Clarification CTP002 Say About Government Ownership?

FTA Corporate Tax Public Clarification CTP002 states clearly: common ownership or control by the UAE Federal Government or a Local (Emirate-level) Government is not in itself a basis for being Related Parties under Article 35 of the Corporate Tax Law.

This means: if Company X is 100% owned by the Dubai Government, and Company Y is also 100% owned by the Dubai Government, and the ONLY link between them is that shared government ownership, then Company X and Company Y are NOT Related Parties for UAE Corporate Tax purposes.

The consequences flow directly from this classification:

The arm’s length standard under Article 34 does NOT apply to transactions between them
Transfer pricing documentation requirements do NOT apply to those transactions
No Local File or Master File needs to be maintained for cross-government-group transactions
Transactions are treated as ordinary third-party commercial dealings

Why Did the FTA Issue This Clarification?

The UAE has a large and diverse government-owned economy. Federal entities, Emirate-level sovereign wealth funds, and government-linked corporations span every sector from energy and real estate to logistics and finance. Without CTP002, a rigid reading of Article 35 could have classified virtually every transaction between any two government-linked companies as a Related Party transaction, triggering arm’s length and transfer pricing requirements across thousands of entities.

The FTA’s clarification reflects the commercial reality: two companies owned by different government holding structures but sharing a common ultimate government parent do not operate as if they were controlled by a single private business group. They typically transact with each other at market terms and are managed independently. The government entity is the ultimate but passive common link, not an active controller directing inter-company transactions for tax benefit.

CTP002 brings UAE law in line with international norms, where government-controlled entities are typically treated as independent for transfer pricing purposes unless they share a direct private-sector controlling relationship.

Practical Example: When Government-Owned Companies Are NOT Related Parties

The FTA illustrates this with the following example in CTP002:

A Local Government owns 100% of Entity 1, which in turn owns 100% of Entity A and Entity B (forming Group 1). The same Local Government also owns 100% of Entity 2, which owns 100% of Entity C and Entity D (forming Group 2).

Scenario	Are They Related Parties?	Arm’s Length Required?	Transfer Pricing Docs?
Entity A (Group 1) sells to Entity D (Group 2)	No	No	No
Entity A sells to Entity B (both in Group 1)	Yes	Yes	Yes
Entity 2 sells to Entity C (both in Group 2)	Yes	Yes	Yes
Entity 1 (Group 1) sells to Entity 2 (Group 2)	No	No	No

The key distinction: transactions within the same group structure (Group 1 entities to each other, or Group 2 entities to each other) are Related Party transactions because those entities share direct common ownership without needing to trace through a government entity. However, transactions between Group 1 and Group 2 are NOT Related Party transactions because their ONLY common link is the Local Government.

Are Entities Within the Same Government Group Still Related Parties?

Yes. CTP002 is specific: the exemption only applies when the SOLE basis for related party status is the government ownership link. Entities within the same subsidiary group under a government holding company remain Related Parties to each other.

Using the example above: Entity 1, Entity A and Entity B are all Related Parties to each other, because Entity 1 directly owns Entity A and Entity B (a private holding structure exists below the government layer). Similarly, Entity 2, Entity C and Entity D are Related Parties to each other.

What CTP002 exempts is ONLY the cross-group relationship, where the only connecting thread is the government itself. Once you identify that private-sector-style ownership chains exist within the government structure (e.g., a state-owned holding company owns subsidiaries), those subsidiaries remain related to each other under the normal rules.

What Is the Scope of “Government Entity” Under CTP002?

CTP002 applies to common ownership or control by:

The UAE Federal Government (ministries, federal authorities, federal public bodies)
A Local Government (Emirate-level government, including Dubai Government, Abu Dhabi Government, Sharjah Government, and other Emirate-level authorities)

This covers a broad range of government-linked ownership structures. However, CTP002 does not define “government entity” to include all government-linked companies. The exemption is specifically for cases where the Federal or Emirate-level government itself is the common owner or controller. If a state-owned commercial company (not the government itself) is the common owner, you would need to apply normal Related Party rules.

How Does This Interact With the Corporate Tax Exemption for Government Entities?

It is important not to confuse CTP002 with the corporate tax exemption for government entities under Article 4 of the Corporate Tax Law. That exemption deals with whether a government entity is itself liable for corporate tax. CTP002, by contrast, deals with whether two private taxable persons are classified as Related Parties when they share a government owner.

A company wholly owned by the Abu Dhabi Government may itself be a taxable person (if it is a juridical person conducting business and not directly exempt under Article 4). CTP002 determines how that company’s transactions with OTHER government-owned companies should be classified for transfer pricing purposes.

Qaspro Global advises all government-linked enterprises to conduct a thorough ownership mapping exercise to determine: (1) whether they are taxable persons, (2) which other entities in the government group they should treat as Related Parties, and (3) which cross-group transactions are exempt from transfer pricing requirements under CTP002.

Transfer Pricing Documentation: What You Still Need

Even with CTP002’s clarification, government-linked taxable persons still face transfer pricing obligations for their internal group transactions. Under Ministerial Decision No. 97 of 2023, businesses with annual revenue exceeding AED 200 million, or those that are members of a Multinational Enterprise group with consolidated revenue exceeding AED 3.15 billion, must maintain a Local File and Master File.

Documentation Requirement	Threshold	What It Covers
Disclosure Form (Related Party Schedule)	All taxable persons with Related Party transactions	Summary of all Related Party transactions for the year
Local File	Revenue exceeds AED 200 million	Detailed analysis of material Related Party transactions
Master File	MNE group revenue exceeds AED 3.15 billion	Group-wide transfer pricing and business overview
Country-by-Country Report	MNE group revenue exceeds AED 3.15 billion	Revenue, profit and tax data by jurisdiction

The good news: transactions exempt under CTP002 (cross-government-group dealings) do NOT need to be included in the Related Party disclosure form or Local File as Related Party transactions. They are treated as third-party transactions for all corporate tax purposes.

What Should Government-Linked UAE Businesses Do Now?

If your company is owned directly or indirectly by a UAE Federal or Emirate-level government entity, take these steps immediately:

Map your ownership structure: Identify which companies share a government owner and whether that government is Federal or Emirate-level
Identify your true Related Parties: Apply the CTP002 exemption to remove cross-government-group transactions from your Related Party analysis
Review past filings: If you have been treating cross-government-group transactions as Related Party transactions in prior corporate tax periods, consider whether corrections are needed
Document the exemption: Keep a record of your CTP002 analysis in your corporate tax workpapers, citing the clarification by reference
Maintain documentation for intra-group transactions: Entities within the same government subsidiary group remain Related Parties and must still meet arm’s length requirements

Frequently Asked Questions

Are two Dubai Government-owned companies Related Parties for UAE Corporate Tax?

No. Under FTA Public Clarification CTP002, two companies whose only common ownership link is the Dubai Government (or any Emirate-level government) are not Related Parties under Article 35 of the Corporate Tax Law. Transactions between them do not require arm’s length analysis or transfer pricing documentation.

Does the arm’s length rule apply to transactions between government-owned companies in UAE?

The arm’s length standard under Article 34 only applies to Related Party transactions. Under CTP002, cross-government-group transactions between companies linked solely through Federal or Emirate government ownership are not Related Party transactions, so Article 34 does not apply to them.

Do government-linked companies need transfer pricing documentation in UAE?

Transfer pricing documentation (Local File, Master File) is only required for Related Party transactions. Transactions exempt under CTP002 do not need to be documented as Related Party dealings. However, transactions within the same government subsidiary group (where direct private-sector ownership chains exist) still require transfer pricing documentation if the revenue thresholds are met.

What is Article 35 of UAE Corporate Tax Law?

Article 35 of Federal Decree-Law No. 47 of 2022 defines “Related Parties” and “Control” for UAE Corporate Tax purposes. It covers relationships based on common ownership of at least 50%, common control, and family relationships up to the fourth degree. FTA CTP002 clarifies how this article applies when the common ownership is through a government entity.

What is FTA CTP002?

FTA CTP002 is a Corporate Tax Public Clarification issued by the Federal Tax Authority. It clarifies that common ownership or control by the UAE Federal Government or a Local (Emirate-level) Government is not, by itself, a basis for classifying two companies as Related Parties under Article 35 of the Corporate Tax Law.

Are subsidiaries of the same state-owned holding company Related Parties?

Yes. If a state-owned holding company (not the government itself) owns subsidiaries, those subsidiaries are Related Parties to each other under normal Article 35 rules. CTP002’s exemption applies only when the Federal or Emirate government is the direct common owner. Once a non-government holding company is interposed, normal Related Party rules apply to the entities below it.

Does CTP002 apply to Abu Dhabi Government-owned companies?

Yes. CTP002 applies to both Federal Government and Local (Emirate-level) Government ownership. This includes the Abu Dhabi Government, Dubai Government, Sharjah Government, and other Emirate-level authorities. Two companies whose sole common owner is the Abu Dhabi Government are not Related Parties under CTP002.

What transactions between government-owned groups are still subject to arm’s length rules?

Transactions within the same government subsidiary group remain subject to arm’s length rules. For example, if Entity A and Entity B are both owned by State Holding Company X (which is itself owned by the government), Entity A and Entity B are Related Parties because their direct common link is a private-sector-style holding company, not the government itself.

Does CTP002 affect Qualifying Free Zone Persons (QFZPs) in government groups?

Potentially yes. QFZPs must ensure their “qualifying income” comes from qualifying activities and not from transactions with Related Parties that distort the qualifying income calculation. If CTP002 removes the Related Party classification for certain cross-government-group transactions, those transactions would not be subject to the QFZP-related transfer pricing restrictions either. Specific analysis is recommended.

Can the FTA challenge a transaction between government-owned companies as non-arm’s length?

Under CTP002, the FTA has confirmed that transactions between companies whose ONLY common link is government ownership are not Related Party transactions. Therefore, the arm’s length standard does not apply, and the FTA cannot invoke Article 34 to adjust the pricing of those transactions. This protection only applies when the sole basis for common ownership is through the Federal or Emirate government.

Need Expert Guidance on Related Parties and Transfer Pricing in UAE?

The Related Parties rules under UAE Corporate Tax are complex, and the line between an exempt government-linked transaction and a taxable Related Party transaction can be subtle. Qaspro Global’s tax consultants specialise in UAE Corporate Tax compliance, transfer pricing documentation, and FTA clarification analysis. Contact us today to ensure your government-linked transactions are correctly classified and your transfer pricing obligations are fully met.