This blog walks you through the UAE’s transfer pricing framework under corporate tax law. You’ll discover how related-party transactions must be handled, who falls under the radar, how pricing should be set, what documents are mandatory, and what risks come with non-compliance. Whether you’re a large business with global ties or a smaller company dealing with subsidiaries, this is essential reading to get transfer pricing right.
Preface
When businesses trade with each other, the prices are usually dictated by the market. But when two companies are connected—say, they share a common owner or belong to the same group—how do you ensure that the pricing is fair and unbiased?
That’s where transfer pricing comes into play.
UAE’s new corporate tax regime includes specific provisions on this subject. The idea is simple: transactions between related parties should reflect what would happen if those parties were unrelated. But turning that principle into day-to-day practice involves clear definitions, formal documentation, and careful compliance.
Let’s make sense of it step by step.
Transfer Pricing Provisions under UAE CT Law
At the center of UAE’s transfer pricing rules is a concept called the Arm’s Length Principle. It says: when related parties transact, the pricing and terms should be the same as if they were completely independent.
So if your company sells goods or services to a related business—maybe a sister concern or a subsidiary—you must charge a price that’s consistent with market rates.
This principle applies to both UAE-resident businesses and foreign entities with a tax presence in the UAE. It covers every kind of transaction—goods, services, loans, and even use of assets.
Let’s talk about who’s considered a “related party.”
The list is broad and includes:
- Companies under common control or ownership
- Individuals who hold a significant stake in multiple entities
- Family members of shareholders or directors
- Any party with financial, operational, or contractual control over the business
Also included are connected persons, such as owners or managers who influence the business.
Any financial transaction between such entities—whether it’s buying, selling, renting, or lending—must be priced fairly. That’s the government’s way of making sure income is reported where it’s truly earned.
Who Needs to Comply?
If your business has any kind of dealings with related parties or connected individuals, you fall within the scope of transfer pricing rules.
This includes:
- UAE-resident entities
- Foreign companies with a permanent establishment in the UAE
- Any business involved in transactions with related parties, whether locally or internationally
Size doesn’t matter here. Even small enterprises with simple group structures must comply. If your pricing is off—or if you can’t justify it—you risk audits and penalties.
What Needs to be Done?
Compliance involves two parts: disclosure and documentation.
- Transfer Pricing Disclosure Form
This must be submitted with your tax return. It provides an overview of your transactions with related parties and connected persons during the tax period. - Transfer Pricing Documentation
If your business crosses certain thresholds (which the authority will notify), you’ll also need to maintain:- A Master File – explaining the overall group structure and pricing policies
- A Local File – focusing on the specific UAE transactions
These documents should be ready in advance and shared with the Federal Tax Authority (FTA) if they request it. It’s not enough to guess or estimate—you need records that show how you determined your prices.
What Methods are Prescribed?
There’s no single way to prove that your pricing is arm’s length. The UAE Corporate Tax Law allows several globally accepted methods. Here are the key ones:
- Comparable Uncontrolled Price (CUP)
Compare your related-party transaction with a similar transaction between independent entities. - Resale Price Method
Start with the resale price to a third party and subtract an appropriate margin. - Cost Plus Method
Add a reasonable markup to your costs to arrive at the selling price. - Transactional Net Margin Method (TNMM)
Look at net profit margins relative to sales or costs, and compare with industry standards. - Profit Split Method
Share combined profits from a transaction based on the value each party contributes.
If none of these methods fit, you can use any alternative method—as long as it gives a reliable, supportable arm’s length result.
What Happens in Case of a Difference?
Let’s say you undercharge a related party for a service—or overpay them for a product. If your pricing doesn’t reflect fair market value, the FTA can step in and adjust your taxable income.
This means:
- The authority will recalculate your profits using an arm’s length amount
- Your tax liability may increase
- You could be penalized for misreporting
In short, if the numbers don’t add up, they won’t just accept your word for it. You’ll need to prove—on paper—how you reached your prices.
Safe Harbour Rules?
As of now, the UAE law doesn’t grant any blanket relief from transfer pricing compliance. There’s no safe harbour threshold below which you’re automatically exempt.
So even if your business is relatively small, if you transact with related parties, you’re still required to:
- Disclose those transactions
- Maintain justifiable pricing
- Provide documents if requested
That said, the Ministry may release specific thresholds or simplified procedures in the future. But unless and until that happens, full compliance remains mandatory.
Advance Pricing Agreements
Although not yet active, UAE law does include provisions for Advance Pricing Agreements (APAs).
An APA would allow you to:
- Agree in advance with the FTA on the pricing method for certain related-party transactions
- Lock in pricing certainty for a fixed number of years
- Avoid disputes and audits
When rolled out, APAs will especially benefit businesses with large or complex group structures. For now, it’s worth keeping an eye out for official updates on this mechanism.
Final Thoughts
Transfer pricing is no longer just a matter for global giants. With the UAE’s corporate tax now live, businesses of all sizes must ensure they’re not shifting profits unfairly or pricing group transactions below market value.
The good news? The law is clear. The rules follow international standards. And with the right processes in place, staying compliant is fully manageable.
So if your business has related-party dealings:
- Identify all relationships early
- Use fair, supportable pricing
- Keep your records sharp
- Don’t wait until you’re asked—be ready
Transfer pricing compliance is all about being able to answer one simple question: “Would you charge this price to someone you don’t know?” If not, you need to justify why. And now, with corporate tax in play, those answers matter more than ever.
