Transfer Pricing in UAE
Transfer Pricing in UAE
As the UAE continues its journey toward global tax transparency and alignment with international standards, transfer pricing (TP) has become a critical area of compliance for businesses operating in the country. With the introduction of the corporate tax law effective from 1 June 2023, the UAE has firmly established its commitment to OECD-aligned tax practices.
At Maats Auditors and Accountants LLC, we simplify transfer pricing with clear, practical solutions. Our expert team helps businesses stay compliant, manage risks, and optimize international operations so you can focus on growth while we handle the complexities.
Under the UAE Corporate Tax Law, any business that is part of a multinational enterprise (MNE) group with cross-border related party transactions must comply with OECD-style TP requirements.
UAE Transfer Pricing Documentation Requirements
- Transfer Pricing Disclosure Form – to be filed with the corporate tax return.
- Master File & Local File – if thresholds are met (typically if part of a group with consolidated global revenues ≥ AED 3.15 billion or if annual UAE revenue ≥ AED 200 million).
The arm’s length principle must be applied for all related party transactions, including:
- Intra-group services
- Intercompany loans and guarantees
- Royalty and license agreements
- Shared service costs
Who Are Related Parties Under UAE Corporate Tax?
As per Article 35(1) of the Corporate Tax Law, related parties are individuals or entities linked to a taxpayer through:
- Kinship – Family ties up to the 4th degree, including by marriage, adoption, or guardianship.
- Ownership – When a person (alone or with related parties) holds 50% or more of another entity.
- Control – The ability to influence another entity’s voting rights, board composition, profit share, or key business decisions.
These rules apply whether the other party is inside or outside the UAE.
Related Parties
Include family ties (up to 4th degree), entities with 50%+ ownership or control, a person and their Permanent Establishment, partners in the same unincorporated partnership, and trusts/foundations with their founders, trustees, or beneficiaries.
Connected Persons
Owners, directors, officers, their close relatives (up to 4th degree), and partners in unincorporated partnerships. Payments to connected persons are deductible only if arm’s length and business-related.
Controlled Transactions
These are dealings between related parties or connected persons covering goods, services, loans, funding, or use of intangibles (brands, IP, know-how). Both cross-border and domestic transactions, including free zone dealings, must follow the Arm’s Length Principle (ALP)
Arm's Length Principle (ALP)
Applying ALP
- Identify related parties/transactions.
- Select the most appropriate TP method.
- Benchmark to determine the arm's length price.
Consequences of Non-Compliance
- TP Adjustment: Upward adjustments by FTA for transactions not at arm's-length; increases taxable income
- Double taxation: Potential risk of double taxation due to adjustments, although mechanism is in place for corresponding adjustment – Timing difference
- Risk of losing QFZP status: Potential risk of losing qualifying free zone status for a period of 5 years; consequently, paying tax at rate of 9%
- Penalties: Administrative penalties ranging between AED 10,000 to AED 1,000,000 could be imposed
What Should UAE Businesses Do?
- Map All Related Party Transactions – Including services, financing, and IP-related payments.
- Prepare TP Documentation – Maintain a Master File and Local File even if you are near the documentation threshold to be audit-ready.
- Ensure Substance Alignment – Your business model and substance reports (e.g., ESR) must support the pricing of intercompany transactions.
- Review Contracts and Invoicing – Formalize intercompany arrangements with written agreements and ensure consistent invoicing practices.
- Coordinate Across Functions – Align your transfer pricing positions with VAT, ESR, and legal to ensure consistency across filings.
Final Thoughts
Transfer pricing is now an integral part of the UAE’s tax compliance ecosystem. As enforcement becomes more sophisticated and documentation requirements tighten, the time to act is now.
Businesses that take a proactive approach through proper documentation, internal training, and risk assessment will be best positioned to avoid penalties and build trust with the FTA.
Need Support?
If you are unsure about your TP compliance readiness, or need assistance with preparing documentation and disclosures, our professional advice can help you navigate this evolving landscape confidently.