Transfer pricing in the UAE has come into the limelight with the passage of the Corporate Tax Law, which requires all taxable persons to price related party and connected person transactions at arm’s length and substantiate results with robust evidence where thresholds are met. According to the OECD Transfer Pricing Guidelines, the UAE regime has disclosure forms, master and local files, and now an Advance Pricing Agreement (APA) channel to seek future certainty for advanced intercompany arrangements.
This end-to-end guide provides an overview of transfer pricing, including who is subject to compliance, accepted methods, documentation requirements, deadlines, penalties, audit procedures, and practical steps for implementing compliance in ERP and policies for 2025 filing.
Transfer pricing refers to the prices used when companies within the same group buy or sell goods to each other, and those prices must be set as if they were dealing with an unrelated, independent business (this is called the arm’s length principle). In simple terms: if a UAE subsidiary sells a service to its parent company, it should charge about the same price it would charge any outside customer for that same service.
Why it exists
Tax rules require fair, market‑based prices between related companies so profit isn’t artificially shifted to low‑tax places. Using arm’s length prices helps each country (including the UAE) tax the right share of a group’s profit.
Everyday examples
- Goods: A UAE distributor buys products from its group factory abroad. The transfer price should be similar to what a non‑group distributor would pay for the same goods.
- Services: A regional head office provides HR or IT support to the UAE group entities. The fee should reflect real costs and a reasonable markup, like an external service provider would charge.
- Financing: A group lends money to its UAE company. The interest rate should be similar to what a bank would charge a business with the same risk.
- IP/royalties: A UAE company pays to use the group’s brand or software. The royalty should be comparable to what independent companies pay for similar rights.
Who is in scope in the UAE?
Transfer pricing UAE provisions apply to all taxable persons under the Corporate Tax Law, including mainland and free zone entities, regardless of the tax rate applicable, and to transactions with both related parties and connected persons, domestically and cross‑border.
Small Business Relief removes the obligation to prepare TP documentation when elected, but the ALP still applies to the pricing itself, and the Federal Tax Authority may still request evidence. Multinational groups may face additional reporting (CbCR) where consolidated group revenue is at least AED 3.15 billion and the UPE is in the UAE, with notifications and filings on set timelines.
Arm's length principle and accepted TP methods
The UAE recognizes the five OECD methods and expects taxpayers to adopt the “most appropriate method” considering transaction nature, comparables availability, and functional/risk profiles: CUP, Resale Price, Cost Plus, TNMM, and Profit Split. The selection must be defendable, consistent, and supported by contemporaneous analysis; secondary methods and cross‑checks are encouraged where warranted.
Adjustments may be required if tested results fall outside arm’s length ranges; policies should set tolerance bands and remediation steps in‑year to avoid year‑end surprises.
Disclosure, master file, and local file thresholds
A TP disclosure form accompanies the corporate tax return where thresholds are met, summarising controlled transactions by category and counterparty, and is mandatory in the UAE regime as specified in FTA guidance and market practice summaries.
A master file and a local file are required annually if either revenue is at least AED 200 million or the taxpayer is part of an MNE group with consolidated revenue of at least AED 3.15 billion in the period, aligning with Ministerial Decision No. 97 of 2023 and FTA practice. The FTA can request master/local files and expects submission within 30 days of request; contemporaneous preparation is strongly advised to meet this short deadline.
Materiality and category thresholds for disclosure
The related party schedule is generally triggered when aggregate related party transactions exceed AED 40 million in a period, with individual category disclosures commonly required at AED 4 million for goods, services, IP, interest, assets, liabilities, and other categories per leading advisor summaries.
Payments or benefits to connected persons may require separate disclosure above indicative thresholds cited by advisors; taxpayers should map each counterparty and transaction type early to avoid omissions at return time. Regardless of thresholds, all related and connected person transactions must meet ALP, and pricing not at arm’s length risks deduction, denial and assessments.
Advance Pricing Agreements (APAs): new certainty route
The FTA has announced an APA framework, enabling unilateral APAs with applications expected to open in the fourth quarter of 2025, providing forward‑looking certainty on transfer pricing methods and outcomes for specified transactions.
Decision No. 2 of 2025 clarifies the framework and procedures, aligning the UAE with international best practice and giving businesses a strategic tool to de‑risk high‑value or complex intercompany arrangements. While unilateral APAs address domestic certainty, bilateral APAs may follow; multinationals should monitor timing for cross‑border APA pathways to mitigate double taxation.
Who Are Related Parties and Connected Persons?
Related Parties
A related party may include:
- A parent-subsidiary relationship.
- Entities with 50% or more ownership/control.
- Individuals related up to the fourth degree of kinship.
- Any entity under significant influence of another.
Connected Persons
Unique to the UAE, this category includes:
- Company owners/shareholders.
- Directors, officers, and their relatives.
- Anyone exerting influence over decision-making.
Connected persons and deduction restrictions
The UAE uniquely emphasizes “connected persons,” requiring that payments (e.g., director fees, shareholder services) meet ALP to be deductible; excessive or unsubstantiated charges can be disallowed, even if paid to UAE residents. Policies must distinguish shareholder vs. stewardship costs (often non‑deductible) from genuine intra‑group services with demonstrable benefit, supported by cost allocation keys, SLAs, and evidence of delivery. Board approvals and documentation trails are recommended for material connected‑person payments to withstand FTA review.
Benchmarking and comparables in the UAE context
Utilise internal comparables where available; otherwise, utilize external databases to enable independent benchmarks with geographic filters and qualitative screening for determining functional similarity and credible adjustments.
For distribution and typical service models in the UAE, TNMM would generally be used along with operating margin benchmarks, while for unique intangibles or integrated value chains, PSM or CUP would be more appropriate where credible data are available. Document selection criteria, tried party choice, and comparability adjustments were applied to create defensible ranges aligned with OECD 2022 guidance, which the UAE embraces.
Intercompany finance and guarantee fees
Financial transactions such as loans, cash pooling, and guarantees require arm’s-length interest and charges, commensurate with borrower creditworthiness, collateral, terms, and group synergies.
UAE taxpayers need to employ interest rate policies that quote market yield curves, credit ratings (or surrogates), and implicit versus explicit guarantees support, according to OECD policy on financial transactions. Higher interest and non-arm’s-length finance charges are vulnerable to partial disallowance of deduction; regular checks are advisable when rates and risk profiles change.
Intra‑group services and management fees
Demonstrate benefit, necessity, and no duplication; exclude shareholder activities; and document allocation keys, mark‑ups, and deliverables in SLAs and local file narratives. Low value‑adding services may use simplified approaches with modest mark‑ups if supported by policy and evidence; however, UAE reviewers will still expect proof of receipt and benefit. Consider periodic benefit tests, timesheets, and KPIs to evidence value delivered to UAE entities.
Intangibles and DEMPE functions
For IP‑heavy groups, map Development, Enhancement, Maintenance, Protection, and Exploitation (DEMPE) functions and align returns to entities controlling risks and performing key functions, in line with OECD guidance adopted by the UAE. Contractual allocation without substance in the UAE will attract scrutiny; free zone incentives do not bypass ALP or substance expectations for returns to IP. Ensure intercompany licenses and royalties reflect economic contributions and market evidence, with clear ownership and registration documentation.
Free zones and qualifying income
Qualifying Free Zone Persons remain subject to ALP and TP documentation; related party pricing must be arm’s length even if an incentive rate applies to qualifying income. Track de minimis non‑qualifying income and ensure transfer pricing policies do not inadvertently taint qualifying status; separate accounting and agreements can help maintain clarity. Inter‑free zone and mainland transactions should be benchmarked like any other related party dealings, with practical invoicing and SLA controls.
Documentation quality, timing, and retention
Prepare master and local files contemporaneously and finalize before or shortly after year-end to meet the 30-day production window commonly referenced in practice; retain for at least the statutory retention period, which market guidance indicates can be up to seven years for TP documentation.
Ensure consistency across CT return, TP disclosure, financial statements, and intercompany agreements; mismatches are a common audit trigger in transfer pricing UAE reviews. Maintain version‑controlled policies, benchmarking workpapers, and board minutes approving intercompany charges and changes
Compliance calendar and internal controls
- Establish a TP calendar aligned to CT return deadlines, disclosure form submission, CbCR notifications/filings, and APA milestones once open; assign owners and backup approvers to mitigate key‑person risk.
- Implement quarterly monitoring of margins vs. arm’s-length ranges to enable in-year true-ups and avoid year-end surprises.
- Train finance teams on transfer pricing and evidence standards, allowing operational teams to capture the required support in real time, rather than retroactively.
Penalties, adjustments, and dispute readiness
Administrative penalties may apply for late or incomplete submissions under Cabinet Decisions on penalties; transfer pricing adjustments can increase taxable income, disallow deductions, and create knock‑on VAT and withholding effects where applicable.
Maintain robust files to defend against FTA inquiries; voluntary disclosures and proactive true‑ups can mitigate exposure where issues are identified. For complex areas, consider pre‑filing meetings toward future APAs to reduce dispute risk once applications open in late 2025.
Why choose My Taxman for transfer pricing in the UAE?
Comprehensive coverage: policy development, benchmarking, intercompany arrangements, disclosure, master/local records, and audit defence, aligned with corporate tax and VAT positions to ensure consistency in filings.
UAE‑specific expertise: connected‑person rules, free zone nuances, and documentation production within 30 days of FTA request, aligned with FTA’s Transfer Pricing Guide and ministerial decisions.
Strategic certainty: readiness for the APA framework to lock in prospective pricing for critical flows and reduce double taxation risk over time.
Conclusion
Transfer pricing in the UAE demands rigorous adherence to the arm’s length principle, careful method selection, timely documentation, and disciplined disclosure to satisfy the FTA and avoid costly adjustments and penalties under the Corporate Tax Law. My Taxman helps set policies, benchmark transactions, prepare master/local files, and defend positions—while preparing for APA opportunities to secure future certainty for key intercompany arrangements. For a tailored transfer pricing readiness review and documentation plan, speak to a specialist at +971‑543223140 today.
FAQs
Q1. What is transfer pricing in the UAE?
It is the requirement to price related party and connected person transactions at arm’s length, aligned with OECD principles and enforced under the Corporate Tax Law.
Q2. Does transfer pricing in the UAE apply to free zone companies?
Yes. All taxable persons, including Qualifying Free Zone Persons, must comply with the arm’s length principle and, where thresholds are met, with TP documentation requirements.
Q3. What are the documentation thresholds for master and local files?
Prepare annually if revenue is at least AED 200 million or if the group’s consolidated revenue is at least AED 3.15 billion in the period; maintain contemporaneously and provide within 30 days on FTA request.
Q4. What triggers the TP disclosure form?
A related party schedule is generally required when aggregate related party transactions exceed AED 40 million, with category thresholds around AED 4 million per category referenced in adviser materials; confirm exact applicability when preparing returns.
Q5. Are APAs available in the UAE?
Yes. An APA framework has been announced, with unilateral APAs expected to open for applications in Q4 2025 under Decision No. 2 of 2025, providing forward certainty on methods for specified transactions.
Q6. Do payments to connected persons face special rules?
Yes. Payments to connected persons must meet arm’s length standards to be deductible; shareholder activities are non‑deductible and should be carved out from intercompany charges.
Q7. Which TP method is best?
There is no universal best; select the most appropriate method (CUP, RPM, CPM, TNMM, PSM) based on transaction characteristics, functions, risks, and comparable data, documented in the local file.
