Since the introduction of UAE Corporate Tax, “Transfer Pricing UAE” has moved from a niche international tax topic to a everyday compliance concern for ordinary UAE businesses. Any company that buys from, sells to, lends to, or shares costs with a related entity—whether that entity sits in Dubai, Singapore, or London—now needs to think about how those transactions are priced.
This shift matters because UAE Corporate Tax is built around related-party transactions being priced the way independent businesses would price them. That standard, known as the arm’s length principle, sits at the centre of the UAE’s transfer pricing framework. For multinational groups with UAE operations, and increasingly for large domestic groups too, transfer pricing compliance is no longer optional paperwork—it directly affects how much Corporate Tax is owed and how confidently a business can defend its numbers if the Federal Tax Authority (FTA) comes asking.
This guide walks through what transfer pricing means in the UAE context, how the rules work, what documentation is actually required (and for whom), and how to get your business audit-ready.
Transfer pricing refers to the pricing of transactions between related or connected parties—businesses that are linked by ownership, control, or family relationships rather than dealing with each other as strangers in the open market.
In practice, this covers a wide range of everyday commercial activity, including:
None of these transactions are prohibited. The question transfer pricing asks is simply: would two unrelated businesses have agreed to the same price, on the same terms, in the same circumstances? If the answer is no, the FTA may look more closely.
Transfer pricing has become a compliance priority for several connected reasons.
It underpins Corporate Tax accuracy. Since Corporate Tax is calculated on taxable income, and related-party pricing directly affects how much profit sits in the UAE versus abroad, mispriced transactions can distort the tax base.
It prevents profit shifting. Without arm’s length pricing, profits could be artificially moved to lower-tax jurisdictions through inflated management fees, understated sale prices, or excessive interest charges. Transfer pricing rules close that gap.
It supports tax transparency. Clear, well-documented related-party dealings make it easier for both the business and the FTA to understand what happened and why.
It aligns the UAE with international standards. The UAE has built its framework around the OECD Transfer Pricing Guidelines, the global benchmark used by tax authorities worldwide. This alignment matters for multinational groups that already prepare transfer pricing documentation elsewhere.
It protects commercially defensible pricing. Even businesses with no intention of shifting profit can face scrutiny if their intercompany pricing simply isn’t supportable. Good documentation is as much about proving good faith as it is about avoiding penalties.
The UAE’s transfer pricing regime is embedded within the Corporate Tax Law (Federal Decree-Law No. 47 of 2022) and supplemented by Ministerial Decision No. 97 of 2023, which sets out documentation requirements, and the FTA’s Transfer Pricing Guide (CTGTP1), which provides interpretive guidance.
Under Article 34 of the Corporate Tax Law, all transactions and arrangements between Related Parties and Connected Persons must be conducted on an arm’s length basis. If you’re still finalising your broader Corporate Tax compliance services approach, transfer pricing should be built into that process from the start rather than treated separately. This applies regardless of whether the transaction is:
Related Parties generally include entities connected through ownership or control—typically a 50% or greater common ownership or control threshold, along with certain family relationships for individuals.
Connected Persons typically covers owners, directors, officers, and their relatives, where payments or benefits flow between them and the taxable person.
Controlled transactions are any dealings between these related or connected parties that fall within scope of the arm’s length requirement, whether the transaction is priced in cash, goods, services, or financing.
The arm’s length principle is the foundation of transfer pricing. It requires that the terms of a transaction between related parties reflect what independent parties, dealing with each other under comparable conditions, would have agreed.
A practical example: Suppose a UAE trading company buys electronics from its parent company in another country. If unrelated distributors typically pay their suppliers a price that reflects a 15% gross margin for similar products, but the UAE company is charged in a way that leaves it with only a 3% margin, that pricing may not reflect what an independent distributor would have accepted. The FTA could question whether the intercompany price was set to shift profit out of the UAE, and the business would need evidence—such as a benchmarking study—to show the pricing was commercially justified.
The arm’s length principle doesn’t mean every transaction needs an identical external comparison. It means the business needs to be able to explain and evidence why its pricing is reasonable under the circumstances.
The UAE recognises the five internationally accepted OECD transfer pricing methods. The right method depends on the nature of the transaction, the data available, and the level of comparability with independent transactions.
1. Comparable Uncontrolled Price (CUP) Method Compares the price charged in a related-party transaction to the price charged in a comparable transaction between independent parties. Most appropriate when a genuinely comparable product or service is traded on the open market, such as commodities. Example: a UAE company selling raw materials to a related entity can compare its price to the prevailing market price for the same commodity.
2. Resale Price Method (RPM) Starts with the price at which a product is resold to an independent customer, then subtracts an appropriate gross margin to arrive at the arm’s length purchase price. Common for distribution businesses. Example: a UAE distributor buying finished goods from a related manufacturer and reselling them locally without significant modification.
3. Cost Plus Method (CPM) Adds an appropriate profit markup to the costs incurred by the supplier of goods or services. Often used for manufacturing or intercompany service arrangements. Example: a UAE entity manufacturing components for a related party would price the transaction based on production costs plus a reasonable markup.
4. Transactional Net Margin Method (TNMM) Examines the net profit margin earned on a controlled transaction relative to an appropriate base (such as costs, sales, or assets), compared against margins earned by independent companies performing similar functions. This is the most commonly used method in practice, particularly where exact product-level comparables aren’t available. Example: benchmarking a UAE service company’s operating margin against independent service providers with similar functions and risk profiles.
5. Profit Split Method (PSM) Allocates combined profits from a transaction between related parties based on the relative value each party contributes. Typically used for highly integrated transactions involving unique or valuable intangibles, where no single party can be reliably tested in isolation. Example: a joint product development arrangement where both the UAE entity and its related party contribute significant intellectual property.
There’s no single “correct” method for every situation. The selection depends on the facts, the functions performed, the assets used, and the risks assumed by each party (known as functional analysis).
Not every UAE business is required to prepare the same level of documentation. The framework operates on a tiered, threshold-based approach, and it’s important not to assume every taxable person automatically needs a Local File or Master File.
The main documentation layers are:
Under Ministerial Decision No. 97 of 2023, Master File and Local File obligations generally apply where a taxable person’s own revenue in the relevant tax period reaches AED 200 million or more, or where the taxable person is part of a multinational enterprise group with total consolidated group revenue of AED 3.15 billion or more. Businesses below these thresholds are still required to price transactions at arm’s length and disclose related-party dealings, but are not automatically required to maintain a formal Local File or Master File.
Separately, the disclosure form uses its own materiality thresholds—generally an aggregate threshold of related-party transactions before category-level disclosure is triggered—so a business can have a disclosure obligation without meeting the higher documentation thresholds. This sits alongside your other tax obligations, including VAT services compliance, so it’s worth reviewing related-party disclosures for VAT and Corporate Tax purposes together rather than in isolation.
The Local File is entity-specific. It focuses on the UAE taxable person’s own related-party transactions rather than the wider group. A properly prepared Local File typically includes:
The Local File is the document most likely to be requested first if the FTA opens an enquiry, since it speaks directly to the UAE entity’s own tax position.
The Master File provides the bigger picture—a group-level overview rather than an entity-level one. It typically covers:
Because the Master File is prepared at group level, it’s generally the parent entity or a central group function that produces it, with the UAE entity maintaining a copy for FTA purposes when required.
Country-by-Country Reporting is a separate, higher-tier obligation aimed only at large multinational groups. CbCR requires a UAE-headquartered MNE group to report, on a country-by-country basis, key financial data such as revenue, profit before tax, tax paid, capital, employees, and tangible assets for every jurisdiction in which the group operates.
CbCR generally applies to UAE-headquartered multinational groups with total consolidated group revenue of AED 3.15 billion or more in the relevant fiscal year—the same threshold used for the higher Master File trigger. This is a considerably higher bar than the Local File/Master File revenue threshold, so most UAE businesses, including many mid-sized groups, will not fall within CbCR scope even if they do have Local File or Master File obligations.
The purpose of CbCR is to give tax authorities worldwide, including the FTA, a high-level view of where a group’s profit, tax, and economic activity actually sit—supporting broader risk assessment rather than replacing the detailed analysis found in the Local File.
In short: the Local File explains one entity’s transactions in detail, the Master File explains the group’s overall structure and policies, and CbCR gives a jurisdiction-by-jurisdiction financial snapshot of the entire group.
Many UAE businesses—particularly those newer to formal transfer pricing compliance—run into similar issues:
Most of these issues are avoidable with earlier planning and consistent record-keeping, rather than requiring complex restructuring. Businesses that already keep clean books through professional accounting services generally find transfer pricing documentation far easier to compile, since much of the underlying data is already organised.
Benchmarking is the process of testing whether a related-party price or margin falls within a reasonable range of what independent companies achieve in comparable circumstances.
A benchmarking study typically involves:
Functional analysis is central to reliable benchmarking—without a clear understanding of what functions the UAE entity performs, what assets it uses, and what risks it bears, it’s difficult to select truly comparable companies. Equally, the quality of the benchmarking depends heavily on the reliability and availability of financial data, which is why professional databases and a defensible search methodology matter.
Where the FTA determines that a related-party transaction was not conducted at arm’s length, it may adjust the taxable income of the UAE entity to reflect what the arm’s length outcome would have been. This can increase the taxable profit reported and, in turn, the Corporate Tax liability.
The precise mechanics and any related consequences depend on the specific facts of each case, including how significant the deviation from arm’s length pricing is and whether adequate documentation exists to support the taxpayer’s position. Businesses should not assume that every pricing difference automatically triggers an adjustment, nor should they assume documentation alone guarantees no adjustment will occur—robust, contemporaneous evidence is simply what gives a business the best position to defend its pricing if questioned.
A structured approach makes transfer pricing compliance far more manageable:
Fandeez Business Solutions supports UAE businesses through every stage of transfer pricing compliance, from initial risk assessment to full documentation and audit support.
Our services include:
Every business’s related-party footprint is different, so we work from your actual transactions and group structure rather than applying a one-size-fits-all template. We don’t promise specific outcomes from FTA reviews—our role is to make sure your pricing, policies, and documentation are as well-supported as they can be. If transfer pricing is just one part of a wider restructuring or expansion decision, our business advisory team can help you think through the commercial side alongside the compliance side.
What is transfer pricing in the UAE? Transfer pricing is the pricing of transactions between related parties or connected persons, such as intercompany sales, services, royalties, and financing, evaluated against the arm’s length principle under UAE Corporate Tax Law.
Is transfer pricing mandatory in the UAE? Pricing related-party transactions at arm’s length is a legal requirement for all taxable persons under the Corporate Tax Law. Formal documentation obligations, however, depend on revenue and group thresholds.
Who is subject to UAE transfer pricing rules? Any UAE taxable person—mainland or Free Zone—that transacts with related parties or connected persons, whether domestically or across borders, falls within the arm’s length requirement.
What is the arm’s length principle? It’s the requirement that related-party transactions be priced as if the parties were independent, dealing with each other under comparable market conditions.
When is a Local File required in the UAE? Generally where the taxable person’s own revenue reaches AED 200 million or more in the relevant tax period, or where the person is part of a multinational group meeting the higher consolidated revenue threshold.
When is a Master File required in the UAE? Generally where the taxable person is part of a multinational enterprise group meeting the applicable consolidated group revenue threshold, alongside the same revenue-based triggers as the Local File.
What is CbCR in the UAE? Country-by-Country Reporting applies to UAE-headquartered multinational groups above a significantly higher consolidated revenue threshold, requiring jurisdiction-level financial reporting across the group.
Which transfer pricing methods are accepted in the UAE? The UAE recognises the five OECD methods: Comparable Uncontrolled Price, Resale Price, Cost Plus, Transactional Net Margin, and Profit Split.
Transfer Pricing UAE compliance is now a core part of doing business under the UAE Corporate Tax regime—not a specialist concern reserved for large multinationals alone. Any business with related-party transactions needs to understand the arm’s length principle, know which documentation thresholds apply to it, and keep records that can withstand scrutiny.
Getting the fundamentals right—identifying related parties, selecting defensible pricing methods, benchmarking properly, and maintaining clear documentation—puts your business in a far stronger position, whether or not you ever face an FTA review.
If your business needs help assessing its transfer pricing exposure, preparing Local File or Master File documentation, or navigating UAE Corporate Tax compliance more broadly, contact Fandeez Business Solutions for tailored advisory support.
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