What Is Transfer Pricing In UAE: Rules, Documenation & Compliance

The Transfer Pricing Guide in the UAE, released by the Federal Tax Authority (FTA) on October 23, 2023, offers valuable insights and practical guidance to taxpayers regarding the Transfer Pricing (TP) regulations outlined in the Corporate Tax Law of the United Arab Emirates.

Transfer pricing in UAE aims to safeguard transactions from undue influence based on the affiliations of the involved parties. The corporate tax system enforces the Arm’s Length Principle for transactions and agreements involving related parties and connected persons. In this article, we explore the key aspects of the Arm’s Length Principle under the proposed UAE Corporate Tax framework.

If you’re looking for transparency and want to avoid unnecessary expenses in your transfer pricing arrangements, Now Consultant’s corporate tax consultants in the UAE can help. We ensure full compliance with government regulations and guide you through the entire transfer pricing process efficiently.

What Is Transfer Pricing In UAE?

Transfer pricing, as defined by the Organisation for Economic Co-operation and Development (OECD), refers to the pricing of transactions involving the transfer of tangible or intangible assets, goods, or services between associated enterprises.

• These transactions could include: Sale or purchase of goods between subsidiaries
• Licensing of intellectual property
• Intercompany loans or service agreements

Proper transfer pricing ensures that such transactions reflect market-based values, preventing artificial shifting of profits to low-tax jurisdictions.

How Transfer Pricing Works In UAE – OECD Transfer Pricing Guidelines:

To align with international best practices, the UAE has adopted the Base Erosion and Profit Shifting (BEPS) framework developed by the OECD, Under this model, the UAE enforces transfer pricing documentation, disclosure, and reporting standards to ensure tax fairness.

These UAE transfer pricing regulations also influence other financial and compliance areas such as:

• Customs duties
• Withholding taxes
• Excise and value-added taxes (VAT)
• Cross-border remittances and service charges

The UAE’s adoption of BEPS demonstrates its commitment to creating a transparent, internationally recognized corporate tax environment.

Legal Basis of Transfer Pricing In The UAE Under Corporate Tax Law:

Article 61 of the Corporate Tax Law:

According to Article 61, the opening balance for corporate tax purposes must reflect the closing balance sheet adjusted in accordance with the arm’s length principle.
This ensures that financial statements accurately represent the true taxable position of companies under the new tax regime.

Ministerial Decision No. 97 of 2023:

This decision provides detailed requirements for maintaining transfer pricing documentation, including the Master File and Local File, which must be submitted upon request by the FTA.

Who Is Required To Comply With UAE Transfer Pricing Regulations?

Transfer pricing regulations apply to all taxable persons in the UAE engaging in related-party transactions, including both mainland and free zone entities.

Free Zone Companies:

Even Free Zone entities benefiting from 0% tax rates are subject to transfer pricing rules to determine whether income qualifies for exemption under Article 18 of the Corporate Tax Law.

Mainland Companies:

Mainland businesses under the Department of Economic Development (DED) must comply with TP requirements for both domestic and cross-border dealings involving related parties.

Transfer Pricing Rules In The UAE:

Section 7 of the Public Consultation Document (PCD) outlines the UAE’s adherence to the Arm’s Length Principle (ALP) for transactions involving related and connected persons.

These rules require that the results of such transactions mirror those that would occur between independent parties in similar conditions, ensuring fairness and compliance across all corporate structures.

Related Parties:

According to the corporate tax framework of the UAE, the following criteria decide whether two parties involved in a transaction are related parties: 

• Two or more persons who are related up to the fourth degree of kinship or affiliation, including relationships through birth, marriage, adoption, or guardianship.
• When an individual, either independently or in conjunction with a related party, holds a direct or indirect ownership stake of 50% or more, or exercises control over a legal entity.
• When one company, by itself or with a related party, owns over half of another company or has control over it, those companies are considered related parties.
• A taxpayer and its branch or permanent establishment are said to be related parties.
• Individuals who are partners within the same unincorporated partnership.
• Business activities classified as exempt and non-exempt are conducted by the same individual.

Connected Persons:

Connected Persons are different from Related Parties under the corporate tax regulations in the UAE. The following categories define whether an individual is connected to a business subject to the corporate tax framework in the UAE:

• An individual who has an ownership interest in or controls the taxable person, either directly or indirectly.
• A director or officer of the taxpayer.
• Someone related to the owner, director, or officer of the taxpayer up to the fourth degree of kinship or through marriage, adoption, or guardianship.
• If the taxpayer is a partner in an unincorporated partnership, any fellow partner within that partnership.
• An entity related to any of the above parties.

Transfer Pricing Documentation:

Transfer pricing documentation ensures that businesses can justify their pricing practices to the FTA and demonstrate compliance with the Arm’s Length Principle.

Documentation Includes:

1. Transfer Pricing Policy:
Outlines how the business determines and supports arm’s length prices in related-party transactions.

2. Master File:
Provides a global overview of the group’s structure, transfer pricing strategy, and overall business operations.

3. Local File:
Contains detailed information on specific UAE transactions, applied methods, and supporting data.

Under Ministerial Decision No. 97 of 2023, these documents must be made available upon FTA request, typically within 30 days.

Transfer Pricing Threshold

As per Article 55(2) of the CT Law, Taxable Persons involved in domestic transactions (under conditions specified in Ministerial Decision No. 97) or cross-border transactions with Related Parties or Connected Persons, during a Tax Period, and meeting specific thresholds, are required to maintain MF and LF:

• If, at any point during the applicable tax period, the taxpayer is part of a multinational enterprise (“MNE”) group with a total consolidated group revenue in that tax period of AED 3.15 billion or more; or
• If the taxpayer’s revenue during the relevant tax period amounts to at least AED 200 million.

The specified revenue threshold of AED 200 million provides Taxable Persons who do not meet the earlier criteria with exemption from maintaining comprehensive transfer pricing documentation, thus reducing the regulatory burden on smaller taxpayers.

Benchmarking Study and Accepted Transfer Pricing Methods In The UAE:

A benchmarking study forms the foundation of transfer pricing analysis, ensuring the applied prices are aligned with market standards.

Here are the 5 main methods of transfer pricing in the UAE:

• Comparable Uncontrolled Price (CUP) Method
• Transactional Net Margin Method (TNMM)
• Cost Plus Method
• Profit Split Method
• Resale Price Method

Each method is selected based on the nature of the transaction, availability of comparable data, and business model.

Compliance Timelines & FTA Audit Preparation:

Businesses must retain their transfer pricing documentation for at least 5 years, If the FTA requests documentation, it must be submitted within 30 days.

During an audit, the FTA may ask for:

• Master File & Local File
• Disclosure Form (TPDF)
• Intercompany agreements
• Functional and risk analysis reports

Timely preparation and record-keeping are key to demonstrating transparency and compliance.

Penalties For Non-Compliance With UAE Transfer Pricing Rules:

Non-compliance with UAE transfer pricing rules can result in:

• Tax reassessments for underreported income
• Disallowance of deductions on related-party payments
• Loss of Free Zone benefits for failing to maintain compliance
• FTA audits or investigations under Articles 61–62

Even if specific penalties are not yet codified, maintaining proper documentation minimizes risk exposure.

FAQs:

How We Can Help You?

Businesses engaging in transactions with affiliated companies, whether within the UAE or internationally, as well as owners or directors receiving payments on behalf of the business, must assess their ability to adhere to UAE transfer pricing requirements.

Whether you’re a multinational group or a local business dealing with related-party transactions, Now Consultant provides end-to-end support in transfer pricing and corporate tax compliance across the UAE.