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Transfer pricing was an abstract concern for UAE businesses before June 2023. Under the new corporate tax law, it's a mandatory compliance requirement for every business that transacts with a related party — and the FTA can adjust those transactions, disallow deductions, and impose penalties if the arm's length standard isn't met. Here's what you need to understand.
What is transfer pricing and why does it matter in UAE?
Transfer pricing refers to the prices charged between related parties — group companies, parent-subsidiary relationships, or entities where common ownership or control exists. The arm's length principle requires that these transactions be priced as if they occurred between unrelated parties in comparable circumstances.
In the UAE, the Corporate Tax Law (Federal Decree-Law No. 47 of 2022) explicitly adopts OECD Transfer Pricing Guidelines. Any related-party transaction that is not at arm's length can be adjusted by the FTA to reflect the correct taxable income. Understating taxable income through non-arm's length pricing carries significant penalties.
What counts as a related party in UAE CT?
Related parties under UAE Corporate Tax Law include: natural persons and their close relatives, entities where one party has 50% or more ownership or control of another, business partners, and directors/officers who have significant influence over both entities in a transaction.
Connected persons — an important separate concept — includes founders, directors, and shareholders who transact with their own company. Salaries and other payments to connected persons must also be at arm's length. This catches the common pattern of owner-directors taking excessive salaries or below-market rent on properties they lease to their company.
Transfer pricing documentation: master file and local file
UAE businesses that exceed the relevant thresholds must maintain a master file and local file. The master file provides group-level information: organisational structure, description of the group's business and value chain, group-level financial information, and intercompany financing arrangements.
The local file provides entity-level documentation: description of each material intercompany transaction, functional analysis (who does what, who bears risk, who owns assets), economic analysis benchmarking the transaction against comparable third-party data, and the transfer pricing method applied.
Country-by-Country Reporting (CbCR)
Multinational enterprise (MNE) groups with consolidated annual revenues exceeding AED 3.15 billion must prepare and file a Country-by-Country Report (CbCR) with the UAE Ministry of Finance. The CbCR shows, for each jurisdiction where the group operates: revenue, profit before tax, tax paid, employees, and assets.
The purpose is to allow tax authorities to identify risk areas — jurisdictions where profit allocation appears inconsistent with substance or activity. The UAE exchanges CbCR information automatically with treaty partners under BEPS Action 13.
Practical steps UAE businesses should take now
Start with identification: map all related-party relationships and transactions. For each material transaction, determine the most appropriate transfer pricing method (comparable uncontrolled price, cost plus, transactional net margin, or another OECD-approved method).
Document your analysis before filing your first corporate tax return — retroactive documentation is harder to defend and suggests the pricing wasn't arm's length at the time. If you have intercompany service agreements, management fee arrangements, or loan agreements, review them immediately against the arm's length standard.
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