Transfer pricing in the UAE has become an important tax compliance consideration since the introduction of UAE Corporate Tax. Businesses that conduct transactions with related parties or connected persons must ensure that those transactions follow the arm’s length principle and are properly supported by appropriate documentation.

The UAE Corporate Tax Law requires related-party transactions to be priced as if they were carried out between independent parties under comparable circumstances. The Federal Tax Authority (FTA) has also issued guidance explaining how businesses should determine arm’s length pricing and comply with transfer pricing requirements.

For UAE companies, understanding transfer pricing is particularly important when dealing with group companies, shareholders, directors, branches, subsidiaries or other connected entities.

What Is Transfer Pricing in the UAE?

Transfer pricing refers to the pricing of transactions between related parties or connected persons. These transactions may involve the sale of goods, provision of services, financing, intellectual property, management fees, royalties or other commercial arrangements.

For example, a UAE company may purchase management services from its overseas parent company. The amount charged for those services should be commercially reasonable and comparable to what independent businesses would agree to under similar circumstances.

The objective of UAE transfer pricing rules is to ensure that profits are not artificially shifted between related entities through inappropriate pricing.

The FTA states that transfer pricing rules apply to UAE businesses with transactions involving Related Parties and Connected Persons, whether those parties are located in the UAE mainland, a Free Zone or another country.

What Is the Arm’s Length Principle?

The arm’s length principle is the foundation of transfer pricing in the UAE.

Under the UAE Corporate Tax Law, a transaction between related parties satisfies the arm’s length standard when its results are consistent with what independent parties would have achieved in a similar transaction under similar circumstances.

In simple terms, businesses should ask:

“If these two companies were completely independent, would they have agreed to the same price and conditions?”

If the answer is no, the transaction may need to be reviewed and adjusted for UAE Corporate Tax purposes.

The arm’s length principle can apply to transactions such as:

Who Needs to Consider Transfer Pricing in the UAE?

Transfer pricing rules can apply to UAE taxable persons that enter into transactions or arrangements with Related Parties and Connected Persons.

This includes businesses operating through different structures, including companies that have relationships with:

Importantly, transfer pricing is not limited to cross-border transactions. UAE businesses can also have transfer pricing considerations for certain domestic transactions involving related parties and connected persons.

This means that simply having two entities located in the UAE does not automatically remove transfer pricing considerations.

Transfer Pricing Methods in the UAE

The UAE Corporate Tax Law recognises several transfer pricing methods for determining an arm’s length result.

1. Comparable Uncontrolled Price Method

The Comparable Uncontrolled Price (CUP) method compares the price charged in a related-party transaction with the price charged in a comparable transaction between independent parties.

It can be particularly useful where reliable comparable transactions are available.

2. Resale Price Method

The resale price method starts with the price at which a product is resold to an independent party and deducts an appropriate gross margin for the reseller.

The remaining amount can help determine an arm’s length purchase price.

3. Cost Plus Method

Under the cost-plus method, the costs incurred by the supplier are identified and an appropriate mark-up is added.

This method can be useful for certain manufacturing, supply and service arrangements.

4. Transactional Net Margin Method

The Transactional Net Margin Method (TNMM) examines the net profit margin earned from a controlled transaction and compares it with appropriate independent-party benchmarks.

It is commonly considered when reliable gross-margin comparisons are difficult to obtain.

5. Transactional Profit Split Method

The transactional profit split method allocates the combined profits from related-party transactions between the participating entities based on their respective contributions.

This can be relevant for transactions involving valuable and integrated functions, assets or risks.

The UAE rules allow a taxable person to use another transfer pricing method where the prescribed methods cannot reasonably be applied and the alternative method produces an arm’s length result.

Transfer Pricing Documentation in the UAE

Transfer pricing documentation is an important part of UAE Corporate Tax compliance.

Depending on the applicable conditions, businesses may need to maintain a Master File and Local File. Under Article 55 of the Corporate Tax Law, documentation may need to be submitted to the FTA within 30 days following a request, unless the FTA provides another deadline.

Ministerial Decision No. 97 of 2023 specifies key thresholds for maintaining transfer pricing documentation. A taxpayer may fall within the documentation requirements where its relevant revenue is at least AED 200 million, or where it is part of a multinational enterprise group with consolidated group revenue of at least AED 3.15 billion for the relevant period.

However, businesses should not assume that falling below these documentation thresholds means transfer pricing rules do not apply. The arm’s length principle can still apply to relevant related-party transactions.

What Is a Local File?

A Local File provides information supporting the UAE entity's related-party transactions and demonstrates how the transactions satisfy the arm’s length principle.

It can include information about:

The exact documentation requirements depend on the applicable UAE rules and the nature of the transactions.

What Is a Master File?

A Master File provides a broader overview of the multinational group.

It generally helps tax authorities understand the group's global business activities, organisational structure, transfer pricing policies and allocation of income and economic activities.

For multinational groups operating across multiple jurisdictions, maintaining accurate and consistent transfer pricing documentation can help support their UAE Corporate Tax compliance position.

Transfer Pricing and UAE Corporate Tax

Transfer pricing is directly connected to the UAE Corporate Tax regime.

When related-party transactions do not reflect arm’s length conditions, the taxable income of a UAE business may need to be adjusted in accordance with the Corporate Tax rules.

Businesses should therefore review their intercompany arrangements before preparing their Corporate Tax returns rather than treating transfer pricing as a separate year-end exercise.

The FTA's Transfer Pricing Guide provides guidance on identifying related-party transactions, applying the arm’s length principle and meeting transfer pricing documentation requirements.

How Can UAE Businesses Prepare for Transfer Pricing Compliance?

Businesses can take several practical steps to strengthen their transfer pricing compliance:


  1. Identify related parties and connected persons.

  2. Review all intercompany transactions.

  3. Analyse the functions, assets and risks of each party.

  4. Select an appropriate transfer pricing method.

  5. Perform a benchmarking or comparable analysis where required.

  6. Maintain contracts and supporting financial records.

  7. Prepare required transfer pricing documentation.

  8. Review transfer pricing positions before filing the Corporate Tax return.

Businesses should also maintain supporting records. Under the Corporate Tax Law, relevant records and documents generally need to be retained for seven years following the end of the relevant Tax Period.

Why Professional Transfer Pricing Advice Matters

Transfer pricing can become complicated when a business has multiple related-party transactions, cross-border arrangements, intellectual property, financing structures or multinational group relationships.

A professional review can help identify transactions that may require transfer pricing analysis, select an appropriate methodology, assess documentation requirements and establish a defensible arm’s length position.

At EBS, businesses can seek professional support for UAE Corporate Tax and transfer pricing compliance, including reviewing related-party transactions, analysing transfer pricing requirements and preparing appropriate documentation.

Conclusion

Transfer pricing UAE requirements are an important part of the country's Corporate Tax framework. Businesses dealing with related parties and connected persons should ensure that their transactions are conducted on an arm’s length basis and supported by appropriate records.

Understanding the applicable transfer pricing methods, documentation thresholds and compliance obligations can help businesses reduce tax risks and respond more effectively to FTA requirements.

As UAE tax regulations continue to develop, businesses should regularly review their related-party arrangements and seek professional advice where their transactions or group structures are complex.

Looking for professional guidance on transfer pricing in the UAE? Contact EBS to discuss your Corporate Tax and transfer pricing requirements.


Google AdSense Ad (Box)

Comments