Related‑Party Transactions: Disclosure Rules and Red Flags for GCC Investors

When Gulf investors read your financial statements, related‑party transactions (RPTs) jump straight to the top of their risk checklist. Maybe your founder’s consulting company invoices the startup, or a sister entity lends you cash when runway gets tight. However routine they feel, these deals can make or break investor trust if they are not priced and disclosed correctly.

Why transparency matters

• Signal of governance quality – Clear arm’s‑length disclosures tell the world you take controls seriously.

• Regulatory scrutiny – Tax authorities such as ZATCA (Saudi) and the FTA (UAE) love RPTs because they reveal profit‑shifting and VAT misstatements.

• Valuation impact – Undocumented or mis‑priced RPTs often push investors to apply a discount or walk away entirely.

The disclosure rules you cannot ignore

IFRS (UAE, Qatar, Bahrain, and most free‑zones) requires startups to state the nature of the relationship, transaction value, outstanding balances, and any guarantees under IAS 24.

Saudi Arabia follows SOCPA for accounting, but ZATCA also asks for a transfer‑pricing declaration once group revenues or assets exceed SAR 100 million.

United Arab Emirates introduced Article 35 of the Corporate‑Tax Law. Any “controlled transaction” must be arm’s‑length, and contemporaneous documentation is mandatory. Penalties can hit AED 500 k if you skip this step.

Qatar Financial Centre sticks to IFRS too, and its CRO may fine companies for late or incomplete RPT notes.

Bahrain and Kuwait expect IFRS‑compliant financials once turnover crosses the local audit threshold, which means IAS 24 applies by default.

Red flags investors notice before auditors do

• Non‑arm’s‑length pricing – services or goods far below (or above) market rates without a clear rationale.

• Circular cash flows – funds ping‑pong between group entities with no genuine commercial purpose.

• Unsecured loans to shareholders – advances without agreements, repayment terms, or interest.

• Missing counterparty details – vague descriptions such as “consultancy fees” with no entity name or ownership breakdown.

• High concentration – more than a quarter of total expenses flowing to a single related party creates dependency worries.

Five steps to de‑risk your RPTs before fundraising

1. Map the ecosystem. List every entity in which founders or directors hold more than 20 percent, including free‑zone SPVs and offshore vehicles.

2. Benchmark pricing. Gather third‑party quotes or industry data so you can defend the fee structure.

3. Document deals. Keep signed contracts, board approvals, and term sheets for each related‑party arrangement.

4. Reconcile monthly. Tie RPT balances to the general ledger and flag ageing items older than 90 days.

5. Put it on the board agenda. Review related‑party activity at each meeting and minute the decisions.

Founder cheat‑sheet: what to disclose

• Relationship nature – for example, “entity controlled by CEO (60 % shareholding)”.

• Transaction type and value – describe the goods or services and the period total.

• Outstanding balances – receivables, payables, or loans at year‑end.

• Pricing basis – arm’s‑length test or cost‑plus markup.

• Guarantees – any collateral or parent‑company pledge.

Final word

Transparent, well‑documented related‑party dealings reassure both auditors and investors that your governance is as strong as your growth story. Cleaning up RPTs may be the quickest way to boost valuation and shorten due‑diligence time.

Need a rapid health check? E Advisory can benchmark your pricing, draft the disclosure notes, and prepare the audit pack so you can stay focused on scaling.