UAE Transfer Pricing: Requirements and Compliance Guide
The United Arab Emirates introduced transfer pricing (TP) rules as part of its Corporate Tax Law (Federal Decree-Law No. 47 of 2022). These rules require related party transactions to be conducted at arm’s length, with documentation obligations that mirror the OECD Transfer Pricing Guidelines. This article explains what transfer pricing is, the regulatory requirements in the UAE, and what you must do to comply.
What Is Transfer Pricing?
Transfer pricing refers to the rules and methods for pricing transactions between related entities (e.g. a parent company and its subsidiary, or two entities under common control). The core principle is that related party transactions must be priced as if they were between independent parties – this is called the arm’s length principle.
Without transfer pricing rules, businesses could shift profits to low-tax jurisdictions by charging inflated prices for goods, services, or intangibles. The UAE’s TP regime prevents this by requiring taxpayers to demonstrate that their related party dealings reflect market conditions.
UAE Transfer Pricing Regulations
The UAE TP framework is set out in:
- Corporate Tax Law, Articles 34 and 35.
- Ministerial Decision No. 97 of 2023 (Transfer Pricing Regulations).
- Ministerial Decision No. 98 of 2023 (Transfer Pricing Documentation).
- FTA Transfer Pricing Guide (published February 2024).
The regulations apply to all taxable persons with related party transactions or transactions with connected persons. A related party includes:
- An owner or partner with 50% or more ownership (direct or indirect).
- Entities under common control or common ownership of 50% or more.
- Directors, officers, and their family members.
- Entities outside the UAE that are controlled by the same group.
The Arm’s Length Principle
The arm’s length principle is the foundation of transfer pricing. It requires that the conditions of a related party transaction (price, terms, risk allocation) are consistent with what independent parties would have agreed in comparable circumstances.
The OECD recognises five transfer pricing methods to test arm’s length pricing:
| Method | Best suited for | Description |
|---|---|---|
| Comparable Uncontrolled Price (CUP) | Commodities, financial transactions | Compares the price charged in a related party transaction with the price charged in a comparable uncontrolled transaction. |
| Resale Price Method (RPM) | Distributors | Starts with the resale price to an independent buyer and deducts an appropriate gross margin. |
| Cost Plus Method (CPM) | Manufacturing, contract services | Adds an appropriate mark-up to the costs incurred by the supplier. |
| Transactional Net Margin Method (TNMM) | Most common; suitable for a wide range of transactions | Examines the net profit margin relative to an appropriate base (costs, sales, assets). |
| Profit Split Method (PSM) | Highly integrated operations, intangibles | Allocates profits from a transaction based on the relative value of each party’s contribution. |
Transfer Pricing Documentation
UAE TP documentation follows the three-tier OECD approach: master file, local file, and country-by-country (CbC) report.
| Document | Who Must Prepare | Content Summary | Deadline |
|---|---|---|---|
| Master File | Groups with total consolidated revenue ≥ AED 200 million (and ultimate parent in UAE or requested by FTA) | Group overview, business description, intangible property, financing arrangements, financial positions | 12 months after financial year end |
| Local File | Taxpayers with related party transactions exceeding AED 30 million in the tax period | Detailed analysis of each material related party transaction, functional analysis, benchmarking study | 12 months after financial year end |
| Country-by-Country Report | UAE-parented groups with consolidated revenue ≥ AED 3.15 billion | Aggregate data on revenue, profit, tax paid, employees, and assets per jurisdiction | 12 months after financial year end |
Related Party Transactions
Related party transactions that must be documented include, but are not limited to:
- Sale or purchase of goods.
- Provision or receipt of services (management, technical, administrative).
- Licensing of intellectual property (royalties).
- Financing arrangements (loans, guarantees, cash pooling).
- Asset transfers (tangible and intangible).
- Cost-sharing arrangements.
- Transactions with branches or permanent establishments.
Disclosure Requirements
All taxpayers with related party transactions must complete the related party disclosure section in the corporate tax return. The disclosure requires:
- Nature and volume of related party transactions.
- Transfer pricing method applied.
- Confirmation of arm’s length compliance.
- Details of any advance pricing arrangements (APAs) or tax rulings.
Failure to disclose related party transactions, or making a false declaration, can trigger an FTA audit and penalties.
Penalties for Non-Compliance
The UAE TP regime carries significant penalties for non-compliance:
- Late filing of TP documentation: AED 15,000–50,000 per document.
- Non-compliant pricing adjustments: Up to 9% on under-reported income, plus late payment penalties of 4% per annum (compounding).
- Failure to maintain records: AED 10,000 per violation.
- False declarations or tax evasion: Up to AED 1,000,000 or double the tax evaded, whichever is higher.
Related Party Transaction Thresholds
The table below summarises the key thresholds that trigger documentation and disclosure obligations.
| Threshold | Obligation |
|---|---|
| Any related party transaction | Disclosure in corporate tax return |
| Related party transactions ≥ AED 30 million | Local File required |
| Group revenue ≥ AED 200 million (and UAE ultimate parent) | Master File required |
| Group revenue ≥ AED 3.15 billion (and UAE ultimate parent) | Country-by-Country Report required |
FAQ
Does transfer pricing apply to transactions between two UAE free zone entities?
Yes. Transfer pricing rules apply to all related party transactions regardless of whether the entities are in a free zone or on the mainland. The QFZP regime does not exempt you from TP compliance.
Can I use internal data instead of a full benchmarking study?
Internal comparable data can be used if the internal transaction is sufficiently similar to the controlled transaction. In practice, most taxpayers rely on external benchmarking databases (such as Orbis or Avention) because internal comparables are rarely available.
What is the deadline for preparing TP documentation?
TP documentation must be prepared within 12 months after the end of the financial year. It does not need to be submitted with the tax return by default but must be provided to the FTA within 30 days of a formal request.
Do I need TP documentation for transactions with a UAE branch?
Yes. A head office and its branch are treated as related parties for TP purposes. Transactions or allocations between the head office and the UAE branch must be arm’s length and documented accordingly.
What happens if I do not prepare TP documentation before the FTA asks for it?
If the FTA requests your TP documentation and you cannot produce it within 30 days, you face penalties for non-compliance. The FTA may also make a TP adjustment to your taxable income, potentially increasing your tax liability.
Can I request an Advance Pricing Agreement (APA) with the FTA?
Yes. The FTA offers bilateral and unilateral APAs. An APA provides certainty on the arm’s length pricing of future related party transactions. The process takes several months and requires submission of extensive supporting information.
How Bitrixme Can Help
Bitrixme’s transfer pricing specialists can help you prepare compliant TP documentation, conduct benchmarking studies, complete the related party disclosure in your tax return, and represent you in FTA audits or APA applications.
