Corporate tax for family businesses in UAE: the rules that bite hardest

Article 35 treats individuals related within the fourth degree of kinship or affiliation as related parties. That reaches parents, children, siblings, grandparents, uncles, aunts and first cousins, and relationships by marriage. Any company those relatives own 50% or more of is also related.

Article 36 adds that payments to an owner, director or officer, and to their related parties, are deductible only to the extent they reflect market value. That is the rule that catches family payroll.

Paying family members is fine, if the pay matches the work. Example: a Sharjah building materials company pays the founder's daughter, a qualified accountant working full time as finance manager, AED 28,000 for each month. That is in line with the market and deductible. It also pays the founder's nephew AED 20,000 for each month for occasional help with deliveries. A market rate for that work might be AED 5,000, so AED 180,000 a year is likely to be added back.

Write a job description for each family employee, keep a contract and pay through payroll. The question the FTA will ask is simple: would you pay a stranger this for this job?

Many families hold a trading company, a property company and a contracting company, owned in slightly different proportions. Transactions between them must meet the arm's length standard in Article 34. Rent charged by the property company to the trading company should be close to market rent; goods sold between companies should be at normal prices.

Splitting one business across several companies to stay under small business relief's AED 3 million threshold is a risk. Ministerial Decision No. 73 of 2023 lets the FTA treat artificial separation as an arrangement to obtain a tax advantage, looking at financial, economic and organisational links between the entities.

Under Article 16, an unincorporated partnership is generally not a taxable person in its own right; the partners are taxed on their shares. The partners can apply for the partnership to be treated as a taxable person instead.

Article 17 allows a family foundation to apply to be treated as an unincorporated partnership, making it transparent for corporate tax, if conditions are met, including that its principal activity relates to managing assets for saving or investment purposes and that its main purpose is not to avoid corporate tax. Families using foundations for succession planning should check whether to apply.

In family companies the line between the family's money and the company's money is often blurred. School fees paid from the company account, a family car on the company lease, a holiday booked on the company card. None of these are deductible business expenses. Post them to the relevant shareholder's current account, and settle by salary, dividend or repayment.

This is as much about family fairness as tax. Clear shareholder accounts show who has taken what, which matters when one branch of the family asks why another has taken more.

• A contract and job description for every family employee
• Market-rate rent and prices between family companies
• Shareholder current accounts for personal costs
• Agreed intra-group balances each quarter

HelloBooks' Business plan keeps each family company as a separate entity under one login, with role-based access so each family member or manager sees what they should. The AI agent flags payments to family members and related companies, and tags them so a year-end related party schedule is ready without searching.

Ask 'what did we pay family members in 2026, by person?' and it answers from the ledger. Your accountant judges market value and prepares the computation. Families that want approval rules, for example any payment to a relative needs a second signatory, can have them set up by emailing hello@hellobooks.ai.