If your business operates in the UAE and engages in cross-border or intra-group transactions, transfer pricing compliance is now a legal requirement. With the introduction of UAE Corporate Tax in 2023, the Federal Tax Authority (FTA) has implemented clear transfer pricing regulations that all medium to large businesses must understand and follow.
Transfer Pricing in UAE
Transfer pricing refers to the method used to determine the pricing of goods, services, and financial transactions between related parties or connected persons. These also include:
- Subsidiaries and holding companies
- Sister companies within the same group
- Related Free Zone and mainland entities
- Shareholders, directors, and family members
Under UAE tax law, transactions between these must follow the arm’s length principle, meaning they should be priced the same as if the parties were unrelated and negotiating independently.
What is the Arm’s Length Principle
The arm’s length principle means the price charged in a transaction between related parties should be the same as if it were between independent, unrelated parties under the same conditions. It ensures fairness and prevents profit shifting for tax purposes.
Transfer Pricing Regulations under UAE Corporate Tax Law
The UAE introduced Federal Decree-Law No. 47 of 2022 (Corporate Tax Law) which is in effect from June 1, 2023. It includes specific transfer pricing provisions under Articles 34-36 and is supported by:
- Ministerial Decision No. 97 of 2023
- UAE Transfer Pricing Guide (October 2023)
- Alignment with OECD Transfer Pricing Guidelines
These laws mandate complete documentation and fair pricing for all related party transactions.
Who Needs to Comply with Transfer Pricing Rules in UAE?
Businesses must comply with UAE transfer pricing requirements if they meet any of the following conditions:
- AED 40 million+ in related party transactions in the financial year
- AED 500,000+ in benefits provided to connected persons
- AED 200 million+ in total revenue (for documentation requirements)
- Belong to a multinational enterprise (MNE) with AED 3.15 billion+ in global consolidated revenue
Free Zone companies and tax-exempt businesses are also required to comply if they meet the above conditions thresholds.
Definition of Related Parties and Connected Persons
Understanding who qualifies as a related party is crucial.
Related Parties:
- Parent subsidiary companies
- Sister companies under the same ownership
- Joint ventures and group entities
Connected Persons:
- Shareholders holding 5% or more
- Directors or officers of a business
- Family members up to the 4th degree
- Business partners or their relatives
Any transaction with these parties must be priced fairly and disclosed in tax return.
UAE Transfer Pricing Documentation Requirements
To stay compliant with FTA, submit the following:
1. Transfer Pricing Disclosure Form (TPDF)
Must be filed with the annual corporate tax return, disclosing key related party transactions.
2. Master File
Contains global information about the group’s business, structure, and overall transfer pricing policy.
3. Local File
Covers the UAE entity-specific transactions, financials, and transfer pricing analysis.
4. Country-by-Country Report (CbCR)
Applies only to large multinational groups with consolidated revenue over AED 3.15B.
These documents must be made available within 30 days if requested by the FTA.
What is a Benchmarking Study in UAE Transfer Pricing?
A benchmarking study is used to justify that the pricing of intercompany transactions is at arm’s length.
What does it include?
- Functional analysis (FAR analysis)
- Selection of comparable companies using public or licensed databases
- Application of transfer pricing methods such as:
- TNMM (Transactional Net Margin Method)
- CUP (Comparable Uncontrolled Price Method)
- Cost Plus Method
The study uses the Interquartile Range (IQR) to filter out outliers and establish an acceptable pricing range based on market comparables.
This study supports the Local File and is critical for proving compliance during tax audits.
Accepted Transfer Pricing Methods in the UAE
The FTA allows the use of OECD-recommended methods, including:
- Comparable Uncontrolled Price (CUP)
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
Other methods may be used when these are not appropriate, provided they meet the arm’s length principle.
How to Prepare Transfer Pricing Documentation in the UAE
Here is how most UAE businesses ensure they are compliant:
- Identify related and connected parties
- Track all intercompany transactions throughout the year
- Conduct a benchmarking study to determine market-justified prices
- Prepare Master File, Local File, and Disclosure Form
- Submit necessary documents with the tax return or upon request
Most businesses in the UAE work with licensed tax advisory firms for benchmarking, documentation, and compliance reviews.
Penalties for Transfer Pricing Non-Compliance in UAE
Failure to comply with UAE transfer pricing rules can result in:
- Adjustments to taxable income
- Denial of deductions for payments to connected persons
- Monetary penalties from the FTA
- Loss of tax exemptions for Free Zone companies
- Increased audit scrutiny
Maintaining accurate and timely documentation is the best way to avoid fines and legal issues.
Key Takeaways for Transfer Pricing in UAE
- Transfer pricing is mandatory under the UAE corporate tax law
- Related-party transactions must be priced using the arm’s length principle
- Documentation includes the Master File, Local File, and Disclosure Form
- Benchmarking studies are essential to justify pricing
- All businesses that meet revenue or transaction thresholds must comply, including Free Zone companies
Staying compliant helps avoid audits, penalties, and potential disqualification from tax incentives.
Make Transfer Pricing in the UAE Simplified with Bestax
With the new Corporate Tax law now in effect, transfer pricing rules are a legal must, especially if your yearly transactions cross AED 40 million or your business earns more than AED 200 million.
You’ll need to price every deal fairly, follow the arm’s length principle, and keep solid records like the Transfer Pricing Disclosure Form, Master File, Local File, and a proper benchmarking study. Missing any part of this can lead to tax adjustments, fines, or the loss of Free Zone tax benefits.
That’s where Bestax Accountants in Dubai comes in.
Their team of FTA-approved agents knows UAE transfer pricing laws inside and out. Whether it’s preparing reports, comparing your prices to market standards, or handling all your documents in one go, Bestax’s transfer pricing experts make the entire process clear, quick, and compliant.
Quick FAQs
Is transfer pricing mandatory in UAE?
Yes, transfer pricing is mandatory for businesses that meet certain thresholds under UAE Corporate Tax Law.
Who needs to file a Transfer Pricing Disclosure Form in UAE?
Any business with total related party transactions over AED 40 million or connected person payments over AED 500,000 must file TPDF.
What is included in UAE benchmarking study?
A benchmarking study includes comparable company data, profit margin analysis, and application of approved TP methods like TNMM or CUP.
Do Free Zone companies need to follow transfer pricing rules?
Yes. Free Zone entities claiming 0% tax must comply if they engage in related party transactions.
How long do you have to submit TP documents if requested by the FTA?
You must submit documentation within 30 days of a formal request from the Federal Tax Authority.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
