Understanding Transfer Pricing Regulations in the UAE: A Comprehensive Guide for Businesses
Understanding Transfer Pricing Regulations in the UAE: A Comprehensive Guide for Businesses
Transfer pricing is no longer just a multinational issue, it’s a business-critical topic for companies operating in the UAE. With the introduction of corporate tax and new compliance frameworks, understanding how related-party transactions are priced and reported has become essential for businesses of all sizes.
What Is Transfer Pricing?
Transfer pricing refers to the pricing of transactions between related entities—such as subsidiaries, parent companies, or companies under common ownership.
These transactions can include:
- Sale of goods
- Provision of services
- Licensing of intellectual property
- Intercompany financing
- Management fees
Why does it matter? Because incorrect or manipulated pricing can shift profits unfairly and trigger regulatory penalties.
Transfer Pricing Regulations in the UAE
With the rollout of Federal Decree-Law No. 47 of 2022 on Corporate Tax, the UAE formally adopted OECD-aligned transfer pricing regulations. These rules aim to ensure that profits are allocated based on real economic substance.
Key provisions include:
Arm’s Length Principle: Related-party transactions must be priced as if they were between unrelated parties.
Documentation Requirements: Businesses must maintain Master File and Local File if they meet certain thresholds.
Disclosure Requirements: Related-party transactions and transfer pricing disclosures are required in annual corporate tax returns.
Country-by-Country Reporting (CbCR): Applicable to UAE-headquartered multinational groups with consolidated revenue above AED 3.15 billion.
Who Needs to Comply?
Transfer pricing applies to all UAE-resident businesses that engage in transactions with:
-Related parties (as defined in the law)
-Connected persons (like directors, shareholders, or family-owned entities)
Key Documentation Requirements
✔️Master File (Group-wide transfer pricing policies and structure)
✔️Local File (Entity-specific transaction analysis with benchmarking )
✔️Disclosure Form ( Basic info about related party transactions )
Understanding the Arm’s Length Principle
The cornerstone of UAE transfer pricing is the Arm’s Length Principle, which asks, “Would independent parties price this transaction the same way?”
Businesses must use acceptable pricing methods like:
- Comparable Uncontrolled Price (CUP)
- Cost Plus
- Resale Price
- Transactional Net Margin
- Profit Split
Common Pitfalls to Avoid
How to Stay Compliant
1. Conduct a transfer pricing risk assessment
2. Map all related party transactions annually
3. Benchmark using reliable databases and economic comparables
4. Update documentation annually before filing tax returns
5. Work with licensed tax advisors or audit firms familiar with UAE regulations
Transfer pricing is more than just a financial concept, it’s a legal obligation in the UAE’s evolving tax regime. Ensuring that your related-party transactions meet arm’s length standards protects your business from tax disputes, penalties, and audit issues. Proactive compliance is the best defense.