Transfer Pricing in the UAE: What Every Business Should Know
If your business works with group companies, whether inside or outside the UAE, you need to know about transfer pricing. The days of informal pricing between related parties are over. Under the UAE Corporate Tax law, those transactions must now follow clear, fair-market rules.
That means using proper pricing methods, preparing documentation, and filing the right forms. This guide covers everything you need to know: who’s affected, what the rules say, and how to avoid penalties.
What Is Transfer Pricing?
Transfer pricing is about how companies set prices for transactions between related parties. Think of it like this: if your company pays rent, interest, royalties, or buys goods or services from another company that shares the same owner, those prices must be fair as if you were dealing with an outside party.
That’s called using the arm’s length principle. And under the UAE’s Corporate Tax law, you’re now expected to follow it, document it, and report it. This principle protects against tax avoidance by ensuring that taxable income is not artificially shifted between group companies.
In short, if your business deals with any group companies, you must now consider how you price those transactions and whether the FTA would agree that the terms are fair.
Who Needs to Follow Transfer Pricing Rules?
These rules apply to:
- Businesses that trade with related parties inside or outside the UAE
- Free Zone or mainland entities that are part of a larger corporate group
- Any UAE-based company earning over AED 200 million in revenue
So if your business sends payments to a sister company, receives services from a parent entity abroad, or sells products to a related firm, you fall under these rules. Even companies that don’t meet the revenue threshold are still expected to apply the arm’s length principle to related-party dealings.
Transfer pricing is not only a compliance issue. It affects your financial planning, group strategy, and how the FTA views your business operations. That’s why taking it seriously can save you money and protect you from future disputes.
What You’re Required to Do
1. Keep Clear Documentation
You must prepare and maintain two key files:
- Master File: An overview of the global group structure, operations, and pricing policies.
- Local File: Detailed support showing your UAE company’s related-party transactions and how the prices were set.
Even if the FTA doesn’t ask for these immediately, they must be available within 30 days if requested. Don’t wait for a notice—have them ready.
2. Submit a Disclosure Form
Every business that meets the threshold must submit a Transfer Pricing Disclosure Form along with the Corporate Tax return. This form outlines the nature of your transactions and the related parties involved. It helps the FTA assess risk and decide whether to look deeper.
3. Use Accepted Pricing Methods
The UAE accepts the five methods recommended by the OECD. These include:
- Comparable Uncontrolled Price (CUP)
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
You don’t have to use all five, just the one that best matches your transaction type and available data. But you need to explain why you chose it. Each method has different strengths. For example, CUP works well for goods; TNMM is better for services or intangible assets.
4. Benchmark Your Transactions
The prices you use in your intercompany transactions must be supported by real data. This usually means researching what independent companies charge in similar situations. That’s called a benchmarking analysis. Benchmarking is essential—it’s the proof the FTA will expect if they decide to review your files.
5. Ensure Consistency Across Returns
What you disclose in your Transfer Pricing Form must match what appears in your tax return and financial statements. If your corporate tax form lists AED 3 million in related-party purchases, but your Transfer Pricing Form says AED 1.5 million, that’s a red flag.
6. Align with Economic Substance Rules
Transfer pricing is linked to how much substance your business has in the UAE. If your profits are high but your UAE team is minimal, the FTA might investigate. Make sure your pricing reflects where the real activity happens.
What Counts as a Related Party Transaction?
These include:
- Loans or financing from shareholders
- Royalties or management fees paid to parent companies
- Services exchanged with sister companies
- Sales or purchases with subsidiaries
- Cross-border charges between group entities
Even if no money changes hands, if there’s an agreement or internal allocation of resources, that counts. And it doesn’t matter if the related party is in the UAE or abroad. Domestic transactions can be reviewed, too.
Common Mistakes to Avoid
1. Skipping the Documentation
Some businesses wait until the FTA asks for files. That’s too late. You must have them ready when you file your return.
2. Using Guesswork Instead of Market Data
If you pick a price based on what feels fair, but can’t prove it, you’re at risk. You need data that shows comparable transactions.
3. Overlooking Connected Persons
Connected Persons aren’t always shareholders or owners. They can include directors, spouses, or relatives involved in the business. Their dealings must be included.
4. Not Explaining Why You Chose a Method
If you use TNMM instead of CUP, explain it. The FTA wants to know your logic. If you don’t justify it, your return could be challenged.
5. Forgetting to Reconcile With Financials
If you disclose AED 2 million in intercompany services, make sure that amount shows up in your income or expenses. Numbers should match.
6. Treating Group Entities as One Business
Just because you control both companies doesn’t mean you can skip pricing or documentation. Each business must stand on its own for tax purposes.
7. Failing to Update Prices Year After Year
Your benchmarking and methods need to be refreshed regularly. A pricing model from three years ago may no longer reflect current market trends.
Penalties for Non-Compliance
The FTA can issue steep penalties if you:
- Don’t submit the disclosure form
- Fail to maintain a Master or Local File
- Use non-arm’s length pricing
- Can’t explain or support your transaction values
Besides financial penalties, the FTA may also reassess your taxable income and apply additional taxes based on their own valuation.
You could also lose access to tax reliefs or group benefits if your intercompany pricing doesn’t hold up under review.
Final Notes for UAE Businesses
Transfer pricing is not just a concern for giant corporations anymore. With UAE Corporate Tax now fully in effect, even small and mid-sized businesses that deal with related entities must take it seriously.
- If you’re part of a family group with multiple licenses
- If you have service arrangements with foreign affiliates
- If your business borrows from or lends to its shareholders
...then you probably have reportable transactions.
Start your documentation now, even if you’re not yet over the AED 200 million mark. Early preparation helps you avoid trouble and stay audit-ready.
Tax Star can help simplify this process by organizing your related party data, generating the disclosure form, and reminding you about future documentation deadlines.
Frequently Asked Questions
What is the Transfer Pricing Disclosure Form?
It’s a mandatory summary of all related party transactions. It must be submitted with your corporate tax return.
Do I need to file if my revenue is under AED 200M?
You may not need to submit full files, but you still must apply the arm’s length principle and document pricing.
What if I only deal with related parties in the UAE?
Domestic transactions still count. Transfer pricing rules apply regardless of location.
Can I use in-house estimates instead of market data?
No. You must use actual benchmarking data to justify your prices.
How often should I update my files?
At least once a year, or whenever major changes occur in your business or pricing.
Will the FTA ask for the Master File or Local File right away?
Not always—but they can request it within 30 days. Have it ready in case they do.
Can Tax Star help with Transfer Pricing?
Yes. Tax Star offers tools to track intercompany transactions, assist with pricing analysis, and keep you in compliance.
