Transfer pricing is one of the parts of UAE Corporate Tax that businesses most often underestimate. The moment you transact with a related party — another group company, a major shareholder, or a director — those dealings must be priced at arm's length and, depending on your size, documented to prove it. This is not just a concern for large multinationals: the rules reach ordinary group structures and owner-managed businesses too. This guide explains the arm's length principle, who is caught, the pricing methods, and the three layers of transfer pricing documentation you may need to keep.
What is transfer pricing?
Transfer pricing is the pricing of transactions between related parties — for example, a sale of goods, a management charge, a loan, or a licence fee between two companies under common ownership. The concern is that connected businesses could set prices to shift profit to where it is taxed least. To prevent that, the law requires these transactions to follow the arm's length principle: they must be priced as if they had taken place between independent parties dealing at market terms. If they are not, the FTA can adjust your taxable income to what it should have been.
Who does it apply to? Related parties and connected persons
The rules bite whenever you deal with a related party or a connected person, so the first step is recognising who they are:
- Related parties — broadly, parties linked through ownership or control (such as companies under common ownership above a set threshold), and individuals linked by kinship up to a defined degree. Group companies and significant shareholders are the common examples.
- Connected persons — broadly, an owner of the business, a director or officer, and their related parties. Payments to them (such as salaries, fees, or rent) must also meet the arm's length test and the rules on deductibility.
Because owner-managed and group businesses almost always transact with related parties or connected persons, transfer pricing is relevant to far more UAE companies than the term "transfer pricing" suggests — not only to large multinational enterprises.
The arm's length principle and the five methods
To show a price is at arm's length, you apply one of the OECD-recognised transfer pricing methods — choosing the most appropriate for the transaction and your data:
| Method | In short |
|---|---|
| Comparable uncontrolled price (CUP) | Compare the price to a similar transaction between independent parties |
| Resale price | Start from the resale price and deduct an appropriate gross margin |
| Cost plus | Add an appropriate mark-up to the supplier's costs |
| Transactional net margin (TNMM) | Compare the net profit margin earned to that of comparable independent businesses |
| Profit split | Split the combined profit between the parties as independents would |
The three layers of transfer pricing documentation
How much you must document depends on your size and structure. There are up to three layers:
| Document | Who it applies to (broadly) |
|---|---|
| Transfer pricing disclosure form | Filed with the Corporate Tax return by taxpayers with related-party and connected-person transactions above the relevant limits |
| Master File and Local File | Businesses in a multinational group with consolidated revenue ≥ AED 3.15 billion, or with the taxable person's own revenue ≥ AED 200 million in the period |
| Country-by-country report (CbCR) | Large multinational enterprise groups with consolidated group revenue ≥ AED 3.15 billion |
What goes in the Master File and Local File?
The two files do different jobs and complement each other:
- The Master File gives a high-level overview of the whole multinational group — its structure, its businesses, its intangibles, its intercompany financing, and its overall transfer pricing policies.
- The Local File zooms in on the specific UAE taxable person — its controlled transactions, the related parties involved, the functional analysis (who does what, owns what, and bears which risks), the method chosen, and the benchmarking that supports the arm's length result.
Why it matters
Transfer pricing is not a box-ticking exercise. If your related-party transactions are not at arm's length, the FTA can adjust your taxable income upward and charge the additional Corporate Tax, with penalties. If you cannot produce the required documentation on request, that is a separate compliance failure with its own penalties. And for free zone businesses, transfer-pricing compliance is one of the conditions of keeping the 0% Qualifying Free Zone Person status — so getting it wrong can have consequences well beyond a single adjustment.
Transfer pricing reaches more UAE businesses than most owners expect, and the documentation cannot be produced overnight when the FTA asks. If you transact with group companies, shareholders, or directors and want your position priced, documented, and defensible, talk to our team and we will put the right transfer pricing framework in place.
Related guideUAE Corporate Tax: What Every Business Needs to KnowKey takeaways
- UAE Corporate Tax requires transactions with related parties and connected persons to follow the arm's length principle — priced as they would be between independent parties.
- Transfer pricing applies far more widely than people expect: it covers dealings within a group, with significant owners, and with directors and officers, not just cross-border multinational structures.
- There are three potential layers of documentation: a transfer pricing disclosure form filed with the return, a Master File and Local File for businesses over the thresholds, and country-by-country reporting for large multinational groups.
- The Master and Local File are generally required where the business is part of a multinational group with consolidated revenue of at least AED 3.15 billion, or where the taxable person's own revenue is at least AED 200 million in the period.
- Documentation should be prepared contemporaneously and must be provided to the FTA on request, usually within a set deadline — having it ready protects your filed position and avoids penalties.
- Transfer pricing rules sit in Federal Decree-Law No. 47 of 2022 and the decisions under it, and are refined over time — treat the thresholds and detail here as the current position and confirm with the FTA or an adviser.
Sources
- Ministry of Finance — consolidated Corporate Tax Law incorporating its amendments, Articles 34 and 55 (PDF)
- Ministerial Decision No. 97 of 2023 — Requirements for Maintaining Transfer Pricing Documentation (PDF)
- Federal Tax Authority — Transfer Pricing Corporate Tax Guide, CTGTP1 (PDF)
- Federal Tax Authority — Corporate Tax legislation