The 50% Ownership Test for Related Parties in the UAE

The test is mechanical: add up the ownership interests one person holds in another, through every route, and check whether the total reaches 50%. Ownership interests mean shares, units, or any equivalent rights to the capital or profits of the entity. Both voting and economic ownership can matter, depending on the instrument - the question is the interest in the entity, not just the voting power.

Reaching exactly 50% is enough. The test is '50% or more', so a 50/50 joint venture partner is a related party of the venture. Falling just short - say 49% with no other rights - does not trigger this test, though the control test or family links may still apply. Do not treat 49.9% as a safe harbour without checking the other routes in Article 35.

Indirect ownership is where groups most often miss related parties. A holding company that owns 70% of an intermediate company which owns 70% of an operating company is related to the operating company, even though its economic interest is 49%. Article 35 looks at the chain of ownership interests, not the multiplied economic percentage.

Multiple chains are combined. If a person holds 30% directly and another 25% through a subsidiary, the total is 55% and the test is met. Holdings through nominees, bare trusts, and similar arrangements count where the beneficial ownership sits with the person. Map every chain to its end, because a related party three layers down still triggers Article 34 for its transactions with the UAE entity.

Two companies with no shareholding in each other are still related where the same person holds 50% or more of each. This is the everyday sister-company case: a holding company owns 100% of company A and 100% of company B, so A and B are related parties and every transaction between them - sales, services, loans, recharges - must be at arm's length.

The same logic applies down the chain. If the holding company owns 60% of A and 55% of B, A and B are related through common control. And where the common owner is a group of related natural persons - say three brothers - their combined holdings establish the common control. The question is always who ultimately sits above both companies, not whether they hold shares in each other.

Transfer pricing is one connected system: the arm's length standard, the method you choose, and the documentation you keep all have to tell the same story. Start by mapping every transaction with a related party or connected person, confirm the pricing method for each category, and keep the supporting analysis on file before the corporate tax return is due. The guides below walk through each building block in detail, so work through the ones that match your transactions.