Transfer Pricing in the UAE

UAE Corporate Tax requires every transaction between related parties and connected persons to be priced at arm’s length, the price that independent parties would have agreed. This applies to management fees between group companies, loans from a shareholder, goods bought from a sister company abroad, rent paid to a director’s property, and salaries paid to owners. Dawn Consultancy prepares the transfer pricing disclosure that accompanies the Corporate Tax return, the local file and master file where thresholds are met, and the benchmarking that supports the prices used.

Who is affected

Any taxable person with related-party transactions, regardless of size. Smaller businesses are not exempt from the arm’s-length principle; they are exempt only from some of the documentation requirements. The parties in scope are:

• Related parties: companies under common ownership or control of 50% or more, parent and subsidiary, a person and their relatives to the fourth degree, partners in the same partnership, and a person and its permanent establishment
• Connected persons: owners of the business, directors and officers, and their related parties. Payments to connected persons (salaries, fees, rent) are deductible only to the extent they correspond to the market value of the service or benefit

Documentation requirements

Requirement	Threshold	Timing
Transfer pricing disclosure form	Related-party transactions above AED 40 million in aggregate in the tax period, and per-category disclosure above AED 4 million; connected-person payments above AED 500,000 per person	Filed with the Corporate Tax return
Local file and master file	Revenue of AED 200 million or more in the tax period, or membership of a multinational group with consolidated revenue of AED 3.15 billion or more	Prepared by the return deadline; provided to the FTA within 30 days of request
Country-by-country report	UAE-headquartered groups with consolidated revenue of AED 3.15 billion or more	Within 12 months of the group year end
Arm’s-length evidence	All taxable persons	Must be available to support the return on FTA request

Our transfer pricing services

• Identification of related parties and connected persons across the group and the owners’ interests
• Functional analysis of intercompany arrangements: who performs which functions, uses which assets and bears which risks
• Selection of the transfer pricing method (CUP, resale price, cost plus, TNMM or profit split) and benchmarking against comparable data
• Preparation of the transfer pricing disclosure form with the return
• Local file and master file in the FTA’s prescribed format
• Intercompany agreements drafted or reviewed to match the pricing actually applied
• Connected-person reviews: owner salaries, director fees and related-party rent tested against market rates
• Free zone groups: pricing of headquarter, treasury and financing services to keep them within qualifying activities

Common problems we find

• Management fees charged at round numbers with no service agreement or evidence of services rendered
• Interest-free shareholder loans, or loans at rates with no reference to market
• Group purchases invoiced at cost with no margin, leaving the UAE entity with a loss and the foreign entity with the profit
• Owner salaries set by reference to cash needs rather than market value, then fully deducted
• Free zone companies recharging services to mainland affiliates at prices that shift profit out of the 9% entity

Each of these creates an adjustment risk on an FTA audit, with penalties and interest on the resulting tax. Correcting them before the return is filed is considerably cheaper.

Frequently asked questions

My group is small and has no foreign entities. Does transfer pricing still apply?
Yes. Transactions between two UAE companies under common ownership, and payments to owners and directors, are all within scope of the arm’s-length requirement.

Do I need a local file if my related-party transactions are under AED 40 million?
The local file is triggered by revenue (AED 200 million) or group size, not by the transaction total. Below those thresholds you must still keep evidence that prices are arm’s length, but not in the prescribed local-file format.

What if the arm’s-length price gives a range rather than a single figure?
The FTA accepts a price within the arm’s-length range. If the actual price falls outside the range, the FTA adjusts to the median unless the taxpayer demonstrates another point is appropriate.

Can transfer pricing adjustments affect VAT?
Corporate Tax adjustments do not automatically change VAT, but a price adjustment agreed between related parties may require a VAT credit or debit note. We review both taxes together.

Get a transfer pricing review

Email a list of your group companies and intercompany transactions to info@dawnconsultancy.com, call +971 55 441 1036, or request a call back. Related: Corporate Tax services and return filing.