Transfer Pricing under UAE Corporate Tax

An Overview of Transfer Pricing

Transfer Pricing refers to the rules and methods for pricing transactions between Related Parties and Connected Persons.(Transactions Covered are listed blew for ref.)

It ensures that such transactions are conducted at an Arm’s Length Price – i.e., the same price that would have been charged between independent parties under similar circumstances.

Why Transfer Pricing Matters:

Transfer Pricing helps prevent profit shifting and base erosion, ensuring that taxable income is fairly allocated within the UAE. It also maintains compliance with international best practices, such as OECD Guidelines, and increases transparency in intra-group and shareholder-linked transactions.

Scope of Transfer Pricing:

Scope of Transfer pricing can be broadly classified into Two,

• Transactions Covered: Any transaction between Related Parties or Connected Persons must comply with the Arm’s Length Principle, including

  • Sale or purchase of goods and services.

  • Financing transactions (loans, guarantees, interest charges).

  • Use or transfer of Intellectual Property (IP) (royalties, licensing fees).

  • Cost-sharing arrangements or management fees.

  • Business restructurings within a group.

• Geographical Scope

  • Domestic Transactions: Even UAE-to-UAE transactions between Related Parties / Connected Persons must follow Transfer Pricing rules.

  • Cross-Border Transactions: International dealings with Related Parties also fall under scope.

Key Principles

• Arm’s Length Principle (ALP): All Related Party and Connected Person transactions must be at market value. Transactions include, all intra-group and shareholder-linked transactions.

• Transfer Pricing Methods: The UAE adopts OECD-recognized methods:

  • Comparable Uncontrolled Price (CUP)

  • Resale Price Method

  • Cost Plus Method

  • Transactional Net Margin Method (TNMM)

  • Profit Split Method

Disclosure & Documentation Requirements:

The purpose of TP documentation is to provide the FTA with a clear and comprehensive understanding of the taxpayer’s TP policies and their application to test the TP outcome. All transactions between Related Parties must comply with the arm’s length principle, regardless of their inclusion in the DF. Payments or benefits granted by a Taxable Person to its CP are only deductible if they align with the Market Value (MV) of the received service or benefit.

• Transfer Pricing Disclosure Form:

  • Disclosure is required if total Related Party transactions exceed AED 40 million. If this threshold is crossed, individual categories above AED 4 million must also be reported.

  • The CP schedule is required if transactions with a Connected Person exceed AED 500,000. Any payment or benefit over AED 500,000 per CP (including related parties) must then be disclosed.

• Master File & Local File: Required to be maintained only if,

  • The UAE entity’s revenue ≥ AED 200 million, or

  • The MNE group’s consolidated revenue ≥ AED 3.15 billion.

Taxpayer Responsibilities, Transfer Pricing Audit and Risk Assessment:

Under UAE Corporate Tax, the burden of proof is on the taxpayer to apply arm’s length pricing when preparing the CT return. Taxpayers should monitor controlled transactions, make necessary adjustments before year-end, and maintain documentation to demonstrate compliance. Any non-arm’s length adjustments reducing taxable income must be reported to and approved by the FTA. Even without Master or Local Files, taxpayers must have contemporaneous TP records. Per Article 50, the FTA can adjust transactions lacking a valid commercial purpose.

Role of Advisors & Auditors:

We at Accutx UAE support our esteemed clients in complying with the Transfer Pricing requirements as mandated by the Federal Tax Authority (FTA).

Our services cover the following areas:

• Identify Related Party and Connected Person transactions.

• Check Arm’s Length Compliance

  • Assess whether prices, fees, or interest rates charged in intra-group transactions comply with the Arm’s Length Principle (ALP).

  • Verify the appropriateness of the transfer pricing method applied.

• Evaluate Supporting Documentation (Master File, Local File)

• Apply the correct Transfer Pricing method.

• Prepare disclosure form preparation

  • Help to prepare the Related Party and Connected Party disclosure schedules for the Corporate Tax Return. 

  • Verify thresholds and transaction values for proper reporting.

• Ensure compliance with both UAE Corporate Tax law and OECD standards and support in case of FTA Audit.