Transfer Pricing
Most UAE businesses discover Transfer Pricing the moment they are asked to justify a management fee they set years ago on instinct. The arm's length principle applies to every business with related-party dealings, regardless of size, and in a market built on family groups and sister companies that is almost everyone. We build the pricing, the evidence, and the file that holds when it is questioned.
What the rules actually require
Transactions with Related Parties and Connected Persons must be priced as they would be between independent parties dealing at market terms, and the burden of showing it sits with the taxpayer, not the FTA. Three obligations follow from that, at different levels.
| Obligation | Who it applies to |
|---|---|
| Arm's length pricing | Every business with related-party or connected-person transactions. No threshold, no exemption for small groups. |
| Transfer Pricing disclosure form | Filed with the Corporate Tax return where related-party transaction values exceed the ministerial thresholds. |
| Master File and Local File | Constituent entities of large multinational groups, and businesses with revenue of AED 200 million or more in the tax period. |
The gap most businesses fall into is the first row. They are below every documentation threshold, conclude that Transfer Pricing is a multinational problem, and have nothing on file when the FTA asks how a figure was arrived at.
Where it bites in practice
- Management and service fees charged between sister companies with no basis for the amount
- Interest-free or soft loans between group entities, where the absence of interest is itself the pricing question
- Owner and director remuneration, deductible only to the extent it matches the market value of the service actually provided
- Shared staff, premises and licences used across entities with no recharge agreement
- Goods and services moving between a mainland entity and a free zone affiliate, which shifts profit directly between a 9% rate and a possible 0% one
That last one draws the most scrutiny, and for an obvious reason: it is the transaction type where mispricing produces the largest tax saving. Free zone entities must comply with Transfer Pricing rules as a standing condition of Qualifying Free Zone Person status, so a pricing failure there does not merely adjust one number, it can cost the 0% rate itself.
What we do
- Related-party transaction mapping across the group, including the dealings nobody documented
- Benchmarking and arm's length range analysis, with the method chosen and justified
- Transfer Pricing disclosure form preparation alongside the Corporate Tax return
- Master File and Local File where thresholds are met
- Intercompany agreements drafted to match what actually happens commercially
- Owner and director remuneration reviews against market value
- Year-end adjustments where book pricing needs correcting in the return
- Defence of related-party positions during an FTA audit
The economics of doing it early
Transfer Pricing is one of the few tax exercises that gets cheaper the sooner it happens. Setting a defensible management fee today is a pricing memo and a benchmarking exercise. Defending an arbitrary one three years into an audit is a negotiation about adjustments, penalties and the credibility of everything else in your file. The work is the same work; only the leverage changes.
Our commentary on Transfer Pricing for UAE SMEs sets out the practical minimum for a business below the documentation thresholds, and why the arm's length principle still reaches it.
Common questions
We are a small family group. Does this really apply to us?
Yes, and family groups are where we find the most exposure, because the transactions are frequent, informal, and rarely documented. The arm's length principle has no size threshold. What scales with size is the formal documentation, not the underlying obligation.
Our books were not at arm's length. Is it too late?
Not necessarily. Where an appropriate Transfer Pricing adjustment is made in the Corporate Tax return, a free zone entity is not disqualified from Qualifying Free Zone Person status for that period on account of the accounting treatment. It is a safety net rather than a strategy, and it works best when someone competent prepares the adjustment.
Can you work from our existing group Transfer Pricing policy?
Usually yes, and it is the sensible starting point. Group policies written for other jurisdictions often need a UAE overlay: the Connected Person rules, the free zone conditions, and the local documentation thresholds do not map neatly onto an OECD-style global policy.
The positions on this page were last reviewed against published legislation and official guidance on .
- Federal Tax Authority — Corporate Tax legislation, decisions and guidance
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended (PDF)
UAE tax law changes, and guidance is amended between reviews. This page is general information, not advice on your own position, and the official sources above prevail over anything stated here. Check the current position before acting, or ask us.
Do your intercompany charges have paper behind them?
A related-party review lists every exposure in the group and what it takes to close each one, in writing.
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