A company may pay its parent business for management support. It may borrow money from another company in the same group or buy products from a related supplier. These arrangements are common, but for UAE Corporate Tax purposes, the way they are priced matters.
UAE Transfer Pricing Compliance means checking that transactions between related parties follow the arm’s length principle, keeping evidence to support the pricing, and meeting any disclosure or documentation duties that apply. The rules can cover transactions inside the UAE as well as those with overseas group companies.
The first step is to understand which rules apply to your business. Not every company must prepare a Master File or Local File. But that does not mean every company below those documentation thresholds can ignore transfer pricing.
What Does Transfer Pricing Mean?
Transfer pricing is the price or terms used when connected businesses trade with each other. The transaction might involve goods, services, loans, intellectual property or a shared business cost.
Imagine a UAE company pays another group company a management fee. The fee should relate to real services, and the amount should have a sound commercial basis. A fee written into an agreement is not enough on its own if the company cannot show what it received or how the charge was worked out.
The same thinking applies to a group loan, royalty or stock purchase. The details differ, so the analysis should fit the transaction rather than rely on one standard mark-up for every situation.
What Is the UAE Transfer Pricing Law?
The main legal framework is Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended. Ministerial Decision No. 97 of 2023 sets conditions for certain transfer pricing documentation, while Federal Tax Authority (FTA) guidance explains how the rules work in practice.
The law and supporting guidance should be read together. A short online summary may explain the broad idea, but it may not cover exclusions, definitions or the rules for a specific tax period.
- Federal Decree-Law No. 47 of 2022, as amended, provides the core Corporate Tax and transfer pricing framework.
- Ministerial Decision No. 97 of 2023 covers the conditions for maintaining a Master File and Local File.
- The FTA Transfer Pricing Guide (CTGTP1) explains the arm’s length principle and related methods.
The current Corporate Tax Return Guide explains the reporting schedules and how to approach relevant thresholds.
Which Businesses Should Review Transfer Pricing?
Any business within the UAE Corporate Tax framework should check whether it deals with Related Parties or Connected Persons. This includes many companies that are part of a group, as well as businesses that make payments to owners, directors or other connected individuals.
The rules are not limited to cross-border transactions. They can also apply to dealings between UAE entities, including mainland and free-zone businesses. A free-zone company should not assume that its status alone removes the need to consider transfer pricing.
Related Parties and Connected Persons
These are legal terms with different definitions. Related Party status generally depends on ownership, control or certain family and business relationships. Connected Persons can include owners, directors or officers and certain people linked to them.
The distinction matters because the pricing principle, reporting schedules and treatment of payments may not be identical in every case. Check the legal definitions against the company’s actual ownership and management structure.
The Arm’s Length Principle in Plain English
The arm’s length principle asks a simple question: would independent businesses agree to similar terms in comparable circumstances?
The answer is rarely found by looking at the price alone. A proper review may need to consider what each party does, which assets it uses, what risks it takes, the contract terms and the market in which it operates.
For a management charge, a business may need to show what work was done, who benefited from it and how the cost was allocated. For a loan, relevant factors may include the amount, currency, term, security, borrower’s financial position and market conditions.
There is no universal margin that automatically makes a transaction compliant. The method and supporting evidence must make sense for the particular facts.
Transactions Worth Checking
A review should start with the company’s records, not just a list of invoice descriptions. Some group transactions are easy to spot; others sit inside monthly recharges or accounting entries.
- Purchases and sales of goods between group companies.
- Management fees, head-office charges and shared-service costs.
- Loans, guarantees and other financing between group entities.
- Royalties and payments for brands, software, intellectual property or know-how.
- Distribution, agency, manufacturing and support-service arrangements.
- Payments, benefits or expenses involving owners, directors and other Connected Persons.
- Restructuring arrangements that move functions, assets or risks between group companies.
This list is not exhaustive. Include transactions that are settled through cost allocations or journal entries if they fall within the relevant rules.
How to Build a Practical Compliance Process
Step 1: Map the relationships
Start with the ownership chart and identify companies and people who may qualify as Related Parties or Connected Persons. Update it when a shareholder, director or group structure changes.
Step 2: Gather the transactions
Create a register showing the counterparty, transaction type, value, currency, contract and accounting period. Reconcile the register with the accounts so that material transactions are not missed.
Step 3: Review how prices were set
Choose a transfer pricing method that suits the transaction and the information available. Methods recognised in the UAE framework include the comparable uncontrolled price, resale price, cost-plus, transactional net margin and transactional profit split methods.
The most suitable method depends on the circumstances. A method should not be selected only because it is familiar or produces a preferred result.
Step 4: Keep evidence that matches the real arrangement
Keep agreements, invoices, service descriptions, cost-allocation calculations, loan terms, pricing analysis and relevant approvals. The paperwork should match what the parties actually did. If a group company charged for support, records should help explain the service and the charge.
Step 5: Check reporting and documentation separately
Find out whether the Corporate Tax Return needs a related-party or connected-person disclosure. Then assess whether the business must maintain a Local File or Master File. These are separate questions and should not be treated as one test.
Step 6: Revisit the position before filing
Compare the actual results with the pricing policy and look into large differences. A policy prepared at the start of the year may need attention if the business changes its functions, takes on new risks or has a major shift in transaction volumes.
UAE Transfer Pricing Rules: Important Thresholds
Thresholds are often the first thing businesses ask about. They are useful, but only when applied to the right obligation and the correct tax period.
Related-party disclosures
The FTA Corporate Tax Return Guide states that the related-party transaction schedule is required when the aggregate value of transactions with all Related Parties exceeds AED 40 million. If that threshold is crossed, further reporting can apply by transaction category when the aggregate for that category exceeds AED 4 million. The guide contains details on calculations and exclusions, so check the current version before filing.
Master File and Local File
Under the framework set by Ministerial Decision No. 97 of 2023, the published conditions include revenue of at least AED 200 million for the relevant tax period, or membership in a multinational enterprise group with consolidated group revenue of at least AED 3.15 billion in the relevant period. The full decision, including its scope and exclusions, should be checked before concluding that documentation is or is not required.
Country-by-Country Reporting
Country-by-Country Reporting (CbCR) is a separate requirement for qualifying multinational enterprise groups. The UAE framework uses a consolidated group revenue threshold of AED 3.15 billion, subject to the applicable rules. CbCR is not the same as a Local File, Master File or related-party schedule.
Most importantly, being below a documentation or reporting threshold does not automatically remove the arm’s length pricing obligation. The obligations have different purposes.
Master File and Local File: What Is the Difference?
Master File
The Master File gives a group-wide picture. It can cover the group’s structure, business operations, main sources of profit and how its economic activity is organised.
Local File
The Local File focuses on the UAE taxpayer and its relevant controlled transactions. It records details about the local business and the analysis used to support its transfer pricing position.
Not every business is required to prepare these files. Where the requirements do apply, the files should be prepared in line with the current rules and kept available as required.
Does Transfer Pricing Apply to Free Zone Companies?
Free-zone status does not, by itself, switch off transfer pricing requirements. A free-zone business should review related-party transactions under the same relevant framework and check any additional rules tied to its own Corporate Tax position.
A Qualifying Free Zone Person also needs to consider its wider eligibility conditions. A preferential tax treatment does not make related-party pricing irrelevant, and the business should keep support for transactions that affect its tax position.
Common Problems to Look For
Transfer pricing problems often start with ordinary processes that nobody has reviewed for a while. For example, a monthly group recharge may continue even though the service has changed, or a loan may be renewed without checking whether its terms still make commercial sense.
- Fees charged without a clear record of the service or benefit.
- Cost allocations with no consistent or explainable basis.
- Loans with terms that do not reflect the borrower’s circumstances.
- Royalties without a clear link to rights used or value received.
- Contracts that do not match how the parties operate in practice.
- Old pricing policies that no longer reflect the business.
- Numbers that differ between the return, accounts and supporting files.
- Assuming a small transaction does not need any review.
These points do not automatically prove a breach. They are prompts to look closer, collect evidence and correct the position where needed.
What If the Pricing Cannot Be Supported?
If the FTA finds that a controlled transaction does not meet the arm’s length standard, the law allows an adjustment to achieve an arm’s length result. That can change the taxable income reported by the business.
A lack of evidence can also make it harder to explain why the company chose its pricing method or charged a particular amount. The sensible response is to identify gaps early, keep a clear record of the analysis and seek advice where the facts are complex. The outcome in any case depends on the law and the circumstances.
A Transfer Pricing Checklist for UAE Businesses
- Keep an up-to-date list of Related Parties and Connected Persons.
- Identify domestic and cross-border transactions with those parties.
- Reconcile the transaction register with the accounting records.
- Check that intercompany agreements match actual conduct.
- Record why the pricing method was selected.
- Keep evidence for services, loans, royalties and cost allocations.
- Check return disclosures and thresholds for the relevant tax period.
- Assess whether a Local File or Master File is required.
- Review CbCR separately if the group may be in scope.
- Update the analysis when the business or its transactions change.
Use this checklist as a starting point. It does not replace a review of the law against the company’s own facts.
When Is Specialist Advice Useful?
A specialist review can be helpful where the company has cross-border transactions, several group entities, large management charges, intercompany financing, intellectual property payments or uncertainty about the documentation rules.
The aim is not simply to produce a report. A useful review should explain which transactions matter, what evidence is missing, which obligations apply and what the business should do next.
For other business setup and government-related requirements in the UAE, golden visa uae special talents offers guidance on available visa options, while consulate services assists with government paperwork and administrative procedures. However, these services are distinct from transfer pricing assessments and should not be considered a substitute for professional tax advice.
FAQs
Q1. What is UAE Transfer Pricing Compliance?
It means reviewing transactions with Related Parties and Connected Persons, applying the arm’s length principle, keeping supporting evidence and meeting any disclosure or documentation duties that apply.
Q2. Do UAE transfer pricing rules apply to domestic transactions?
Yes. The rules can apply to domestic and cross-border transactions, including dealings involving mainland, free-zone and overseas parties.
Q3. Does every UAE business need a Master File and Local File?
No. These files are required only when the applicable conditions are met. A business may still need to apply arm’s length pricing and keep supporting records even if it does not have to prepare those files.
Q4. What is the AED 40 million transfer pricing threshold?
The FTA Corporate Tax Return Guide says a related-party transaction schedule is required when aggregate transactions with all Related Parties exceed AED 40 million, with further category-level reporting conditions. Check the current guide for calculations and exclusions.
Q5. What is the main UAE transfer pricing law?
The main framework is Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended, supported by Ministerial Decision No. 97 of 2023 and FTA guidance.
Conclusion
UAE Transfer Pricing Compliance starts with knowing who the business deals with and how those transactions are priced. A company does not need to be a large multinational to benefit from checking its arrangements with owners, related companies or connected individuals.
The practical work is straightforward in principle, even when the detail takes time: map the relationships, list the transactions, review the pricing, keep records and check which disclosures or files are required. The important part is not to confuse one threshold with the whole transfer pricing regime.
The UAE transfer pricing law gives the FTA a framework to test whether related-party transactions reflect an arm’s length outcome. Businesses are in a stronger position when their records tell the same story as their contracts, accounts and actual operations.
Rules and guidance can change, so confirm the requirements for the relevant tax period before filing. Where transactions are complex, tailored tax advice can help the business apply the rules to its own facts.
For professional guidance on UAE business formation and related requirements, visit Business Setup in Dubai to explore the available services and support for your business needs.
