Transfer Pricing Rules Under UAE Corporate Tax: What to Expect

As businesses in the UAE prepare for the full operation of the new corporate tax regime, understanding the transfer pricing rules is becoming essential. If your organisation is seeking corporate tax compliance services, This article outlines the key provisions of the Federal Decree‑Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “CT Law”), the associated guidance from the Federal Tax Authority (FTA), and what you should expect in terms of obligations, risk areas and practical next steps.

1. Scope & Key Principles

The UAE transfer pricing regime is rooted in the arm’s length principle (ALP). Under Article 34 of the CT Law, any transaction or arrangement between a “Related Party” must be consistent with the results that would have been achieved between independent parties dealing at arm’s length.

Significantly, the TP rules in the UAE apply not only to cross-border related-party transactions but also to domestic arrangements between connected persons, and even between free-zone entities and other group entities.

For UAE businesses the message is clear: intra-group financing, provision of services, purchase of goods, inter-company royalties, management charges, and other related-party dealings must be priced and documented as if they were between independent parties.

From a compliance viewpoint this means that your business should examine existing related-party arrangements, validate whether the pricing reflects market conditions and be ready to demonstrate this through solid documentation. This is where professional corporate tax compliance services come into play — helping you identify, benchmark, document and maintain the required records.

2. Defining Related Parties and Connected Persons

Under the UAE TP rules, “Related Parties” are defined in Article 35 of the CT Law. This includes:

Natural persons and legal entities linked via up to fourth-degree kinship or affiliation.
A natural person (or their related parties) who owns or controls (directly or indirectly) at least 50% of the shares or voting rights of another entity.
Legal entities with common ownership or control (50%+) across them. BDO

“Connected Persons” (Article 36) broadens the scope to include directors/officers of the taxable person, individuals related to the owner or director/officer, unincorporated partnerships, and other arrangements.

These definitions matter because once an entity-relationship is established, the ALP applies and non-arm’s length payments or benefits to connected persons may be denied a corporate tax deduction under the CT Law.

If your company is operating with intra-group transactions, whether within UAE or across borders, it must check whether those counterparties fall into the “related/connected” definitions and apply the necessary pricing and documentation protocols.

3. Documentation & Disclosure Obligations

A core feature of the UAE TP regime is the documentation and disclosure framework. Taxable persons must prepare and retain contemporaneous transfer pricing documentation that supports the pricing of controlled transactions.

The documentation framework comprises:

A “Local File” for UAE taxable persons engaged in controlled transactions.
A “Master File” for multinational groups meeting certain thresholds (e.g., worldwide consolidated revenue above AED 3.15 billion) or UAE headquartered groups with overseas operations.
A “Country by Country Reporting” (CbCR) obligation for large multinational groups headquartered in the UAE or subject to UAE tax.

On the disclosure side, the FTA now requires a related-party schedule as part of the corporate tax return if certain thresholds are met. For example, transactions with related parties exceeding AED 40 million in aggregate or individual categories exceeding AED 4 million trigger disclosure.

In practice this means businesses in the UAE need robust internal processes to identify, categorise and monitor related-party/connected-person transactions — and ensure they are priced at arm’s length and backed by documentation. Specialist corporate tax compliance services can support this process by helping businesses map their inter-company flows, benchmark pricing, prepare documentation and ensure timely disclosure.

4. Methods and Benchmarking

The UAE TP Guide (issued October 2023) provides guidance on how taxpayers should apply TP methods.

The accepted methods (aligned with the Organisation for Economic Co‑operation and Development (OECD) approach) include: Comparable Uncontrolled Price (CUP) Method, Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), and the Profit Split Method.

Importantly, the UAE Guide emphasises the need for a comparability analysis (functions, assets, risks), selection of a tested party, adjustments for differences, and selecting the most appropriate priced method for each controlled transaction.

In some instances, the FTA allows alternative methods (for example discounted cash flow) if standard methods cannot reasonably be applied — provided fully explained.
For businesses in the UAE this means that:

Pricing should be supported by benchmarking studies or comparable data.
Any significant deviation from the inter-quartile range must be explained.
The choice of method and assumptions must be documented contemporaneously.

If your group has complex inter-company activities (e.g., intangibles, financing, cost-sharing), you may wish to engage professional corporate tax compliance services to ensure the benchmarking and method selection stand up to scrutiny.

5. Special Considerations: Free Zones & Tax Groups

There are a number of UAE-specific nuances that taxpayers should be aware of.

Free Zone Persons (FZP)

The CT Law provides for a 0% corporate tax rate for Qualifying Free Zone Persons (QFZP) on qualifying income. However, one of the conditions of free-zone benefits is compliance with the ALP for transactions with related parties.

Failure to adhere to TP obligations (pricing, documentation) may jeopardise free-zone status and tax incentives.

Tax Groups & Qualifying Groups

Under Article 42 of the CT Law, UAE-resident juridical persons may form a “Tax Group” if the parent holds at least 95% of share-capital and voting rights in subsidiaries. The group is treated as a single taxable person for tax, and intra-group transactions are consolidated so TP rules do not apply within the group.

However, transactions between a tax-group member and an external related party remain in scope.

Transfers within a Qualifying Group

Under Article 26, asset or liability transfers within a qualifying group (subject to the election) may be at net-book value rather than arm’s length sale. But if the conditions are not met, normal TP rules apply.

When planning restructuring, intragroup transfers, or free-zone elections, businesses should ensure compliance with TP rules and apply appropriate corporate tax compliance services to evaluate such implications in advance.

6. Penalties & Audit Risk

The TP regime in the UAE comes with heightened audit risk and potential adjustments. Under Article 34, the FTA may adjust the taxable person’s income if transactions do not meet the ALP.

If a foreign tax authority makes a TP adjustment (e.g., in another jurisdiction), the taxpayer may request a corresponding adjustment in the UAE via the Mutual Agreement Procedure (MAP).

In addition, not maintaining contemporaneous documentation may trigger administrative penalties, and may increase the risk of a TP audit by the FTA.

For UAE-based businesses this means that a lack of proper documentation or unsupported inter-company pricing could lead not only to contested tax adjustments but also reputational risk. Engaging dedicated corporate tax compliance services to perform a TP health-check and implement robust documentation is strongly recommended.

7. Practical Steps for UAE Businesses

Here are some actionable steps for companies to take:

Map intra-group transactions: Identify all flows of goods, services, loans, royalties, management charges and other controlled transactions with related/connected parties.
Check thresholds: Determine if you exceed the disclosure thresholds (e.g., AED 40 million in aggregate related-party transactions).
Benchmark pricing: For each category of controlled transaction, assess whether the pricing reflects arm’s length conditions—conduct comparability analysis, select reasonable method, document assumptions.
Prepare documentation: Ensure Local File, Master File (where applicable), TP policy, and contemporaneous support are ready and stored.
Review free zone status and tax-group elections: If your entity is in a free zone or part of a tax group, confirm that TP obligations are fully met to safeguard reliefs.
Implement internal controls: Put in place processes for monitoring, reporting and reviewing related-party transactions, including periodic reviews of TP policy.
Engage external expertise: Given the complexity and evolving nature of TP rules in UAE, external professional corporate tax compliance services can help guide benchmarking, documentation, disclosures and risk management.

By now, UAE businesses should recognise that the transfer pricing rules under the corporate tax regime are no longer a future consideration but a current operational reality. Structural inter-company arrangements, pricing policies and documentation frameworks all require careful review and action.

Also Read: Corporate Tax Planning Strategies for SMEs in the UAE