UAE Transfer Pricing Documentation Guide

What is transfer pricing in the UAE?

Transfer pricing in the UAE refers to the rules governing how related parties — companies under common ownership or control — price transactions between each other for UAE Corporate Tax purposes. Under Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 97 of 2023, all transactions and arrangements between related parties and connected persons must comply with the arm's length principle: the price charged must be the same as what unrelated parties would agree to under comparable circumstances. The Federal Tax Authority (FTA) can adjust a taxpayer's taxable income if related-party transactions are not at arm's length. Documentation requirements depend on revenue thresholds — businesses with revenue above AED 200 million must maintain a master file and local file, while all businesses with related-party transactions must file a transfer pricing disclosure form with their Corporate Tax return. TruAccountants prepares transfer pricing documentation and disclosure forms as part of the Growth, Scale, and Fractional CFO tiers, starting from AED 3,500 per month.

Who needs transfer pricing documentation?

Requirement	Who must comply	Threshold
Arm's length principle	All UAE taxable persons with related-party or connected-person transactions	No threshold — applies to all
Disclosure Form	All UAE taxable persons with related-party or connected-person transactions	No threshold — filed with Corporate Tax return
Master File	Members of a multinational group with UAE operations	Consolidated group revenue ≥ AED 3.15 billion
Local File	UAE taxable persons with material related-party transactions	Revenue ≥ AED 200 million, or at FTA request

The disclosure form applies to everyone. Even if your business is well below the AED 200 million threshold, you must still disclose related-party transactions on the transfer pricing disclosure form filed with your Corporate Tax return. This is the most commonly overlooked transfer pricing obligation for UAE SMEs.

What counts as a related party?

Under the UAE Corporate Tax Law, a related party includes:

Ownership: An individual or entity that directly or indirectly holds 50% or more of the shares, voting rights, or capital of the taxpayer
Control: An individual or entity that has effective control over the taxpayer's decisions, even without 50% ownership
Common ownership: Two entities where the same person or entity holds 50% or more in both
Directors and officers: A director or officer of the taxpayer, or of a related party, is a connected person
Family members: Relatives up to the fourth degree of kinship of a natural person who controls the taxpayer

Free zone + mainland = related parties. If the same owner holds a free zone company and a mainland LLC, transactions between them — management fees, intercompany sales, service charges, loans — are related-party transactions subject to the arm's length principle. This is the most common transfer pricing scenario in the UAE. Getting this wrong can also jeopardise the free zone entity's QFZP status.

What transactions must be documented?

Intercompany sales of goods — products sold between related entities
Service fees — management fees, shared service charges, IT support, accounting services
Financing — intercompany loans, guarantees, cash pooling arrangements
Use of intangibles — royalties, licence fees, brand usage fees
Cost sharing — shared costs allocated between group entities
Capital transactions — asset transfers, business restructurings
Any other arrangement — lease of property, secondment of employees, procurement on behalf of another entity

What is the arm's length standard?

The arm's length principle requires that related-party transactions be priced as if the parties were independent and dealing at arm's length. The UAE follows the OECD Transfer Pricing Guidelines, which prescribe five methods for determining arm's length pricing:

Method	How it works	Best for
Comparable Uncontrolled Price (CUP)	Compares the price charged in a related-party transaction to the price charged in a comparable transaction between unrelated parties	Commodity sales, standardised products, intercompany loans (using market interest rates)
Resale Price Method (RPM)	Starts with the resale price to an unrelated party and subtracts an appropriate gross margin	Distribution entities that add limited value before reselling
Cost Plus Method (C+)	Adds an appropriate markup to the costs incurred by the supplier in the related-party transaction	Intercompany services, contract manufacturing, shared service centres
Transactional Net Margin Method (TNMM)	Compares the net profit margin from a related-party transaction to the margin earned by comparable independent entities	Complex transactions where gross margin data is unavailable; most commonly used method globally
Profit Split Method	Splits the combined profit from a related-party transaction between the parties based on each party's contribution	Highly integrated operations, joint use of unique intangibles

How to prepare transfer pricing documentation

Step 1: Identify all related-party transactions

Map every transaction between your entity and its related parties or connected persons for the financial year. Include the nature, value, and counterparty for each transaction. Don't forget management fees, intercompany loans (including interest-free loans — these must be imputed at a market rate), and cost allocations.

Step 2: Perform a functional analysis

For each entity in the transaction, document the functions performed (sales, manufacturing, R&D, management), assets employed (IP, inventory, equipment), and risks assumed (market risk, credit risk, inventory risk). The party that performs more functions, uses more assets, and bears more risk should earn more profit — that's the economic logic of transfer pricing.

Step 3: Select the transfer pricing method

Choose the most appropriate method from the five OECD-prescribed methods. The CUP method is preferred where reliable comparable data exists. For intercompany services in the UAE, Cost Plus is often the most practical. For distribution entities, TNMM is commonly used. Document why the selected method is the most appropriate.

Step 4: Find comparable data

Identify comparable uncontrolled transactions or comparable companies. Use commercial databases (Bureau van Dijk, S&P Capital IQ) or publicly available data to find independent companies performing similar functions in similar markets. The comparable search should produce an arm's length range — an interquartile range of results from comparable entities.

Step 5: Test and adjust

Compare your actual related-party pricing or margins against the arm's length range. If your results fall within the interquartile range, the pricing is defensible. If outside the range, consider whether an adjustment is needed. Document the analysis and conclusion.

Step 6: Prepare the disclosure form

Complete the transfer pricing disclosure form with details of all related-party transactions, the methods used, and the arm's length outcome. This form is filed with the Corporate Tax return through the EmaraTax portal.

What are the penalties for non-compliance?

Failure to maintain transfer pricing documentation: AED 500,000 penalty
Failure to submit the disclosure form: penalties under general Corporate Tax non-compliance provisions
Transfer pricing adjustment by FTA: the FTA can adjust your taxable income to reflect arm's length pricing, resulting in additional tax plus penalties and interest
QFZP disqualification: non-arm's length transactions can result in loss of the 0% qualifying free zone rate for the entire tax period

AED 500,000 is not a typo. The penalty for failure to maintain transfer pricing documentation is one of the highest fixed penalties in the UAE Corporate Tax regime. Even if your actual transfer pricing is at arm's length, failing to document it properly can trigger this penalty on audit.

Common transfer pricing scenarios in the UAE

Management fees between free zone and mainland entities

The mainland entity provides management services to the free zone entity (or vice versa) and charges a fee. The fee must be supported by evidence that the services were actually provided, that they provide a benefit to the recipient, and that the amount is at arm's length. A cost-plus markup of 5%–10% on actual costs is commonly used for routine management services.

Intercompany loans

A loan from a parent company or a related entity to a UAE subsidiary must carry an arm's length interest rate. Interest-free loans must be imputed at a market rate for transfer pricing purposes. Use publicly available benchmark rates (Emirates Interbank Offered Rate, or comparable bank lending rates) as the starting point, adjusted for the borrower's credit risk.

Shared service allocations

Group costs (IT infrastructure, HR, finance) allocated to a UAE entity must be allocated using a reasonable allocation key (revenue, headcount, or transaction volume) and marked up appropriately. The allocation must reflect actual usage and provide a demonstrable benefit to the UAE entity.

What TruAccountants does here

Identify and map all related-party transactions across your group structure
Prepare the functional analysis for each entity
Select and apply the appropriate transfer pricing method
Benchmark intercompany pricing using comparable data
Prepare the transfer pricing disclosure form for Corporate Tax filing
Draft the local file documentation where required
Review existing intercompany agreements for arm's length compliance

Related-party transactions in your group?

Send us your group structure and intercompany agreements. We'll assess your transfer pricing risk and prepare the documentation before your next Corporate Tax filing.

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