Transfer pricing is the rule that prices between related businesses must match what independent parties would have agreed, known as the arm's length principle. Under UAE corporate tax, related-party dealings and certain payments to connected persons are tested against it, and the Federal Tax Authority (FTA) can adjust taxable income when they are not. Documentation duties depend on thresholds in Ministerial Decision No. 97 of 2023.
Key takeaways
- Related-party transactions must be priced at arm's length, whether the other party is a foreign group company or a UAE one.
- Payments to connected persons, such as owners and directors, are also tested against market value.
- The FTA's Transfer Pricing Guide follows the OECD approach and lists five methods; none is mandatory in every case.
- Master file, local file and disclosure form duties depend on thresholds in Ministerial Decision No. 97 of 2023.
- Small business relief removes the documentation duty for a period, not the arm's length principle.
On this page 9 sections
What transfer pricing is
Transfer pricing covers the price, or other terms, of a transaction between parties that are not independent of each other: goods sold between group companies, a management fee charged by a parent, a loan from a shareholder, rent paid to an owner. When the parties control the terms, they could in theory move profit to wherever tax is lowest. The UAE rules stop that by requiring the terms to be the ones independent parties would have set.
The rules sit in the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, with detail in Ministerial Decision No. 97 of 2023 and the FTA's Transfer Pricing Guide. They apply on top of the ordinary calculation of taxable income, so a business first works out its accounting profit and then checks that related-party items are at arm's length. How the tax is then charged is explained in the 0% and 9% corporate tax rates.
Related parties and connected persons
Two groups of counterparties are tested, and they are not the same thing.
| Term | Broad meaning | What the law tests |
|---|---|---|
| Related party | Persons linked by ownership, control or family ties, such as companies in the same group, a company and its owners, or a business and its permanent establishment | That transactions are at arm's length |
| Connected person | Owners, directors, officers and their relatives, in the way the Corporate Tax Law defines them | That payments to them are deductible only up to the market value of what was provided |
The definitions are in the Corporate Tax Law; check its current text for the exact tests, including the ownership percentages used.
The FTA has published separate clarifications on connected-person rules, for example on who counts as a director or officer, so businesses that pay owners or managers should read the current guidance rather than rely on a summary. A payment that is not at market value is not necessarily lost: the part that exceeds it is the part that can be disallowed.
The arm's length principle
A transaction meets the principle when its results are consistent with what unrelated parties would have achieved in comparable circumstances. In practice the test has four steps:
- Identify the transaction and the real commercial terms, including who performs which functions, owns which assets and bears which risks.
- Choose a method that suits those facts (see the next section).
- Find comparables: prices or margins from independent dealings in similar circumstances.
- Compare and, if needed, adjust. If the price falls outside what comparables support, the taxable income is restated to the arm's length result.
The same standard applies to domestic dealings. A UAE company charging its UAE sister company a below-market rate is inside the rules, even though no foreign tax is involved.
Pricing methods
The FTA's guide follows the OECD Transfer Pricing Guidelines, which describe five accepted methods. The aim is to choose the one that gives the most reliable result for the facts, not to run all five.
| Method | Compares | Typical fit |
|---|---|---|
| Comparable uncontrolled price | The price in the related-party deal with the price in a similar independent deal | Commodities, loans, licences with close comparables |
| Resale price | The gross margin a distributor earns on resale | Distribution of goods bought from a related party |
| Cost plus | The mark-up on costs earned by a supplier or service provider | Contract manufacturing and routine services |
| Transactional net margin | The operating profit margin earned on a transaction | Where only one party's profit can be tested reliably |
| Profit split | How combined profit is divided against each party's contribution | Highly integrated operations with unique contributions |
Method descriptions follow the OECD approach adopted in the FTA Transfer Pricing Guide.
Whichever method is chosen, record why it was chosen and why the others were rejected. That reasoning is what the FTA will ask to see.
Documentation and disclosure
The UAE uses a three-tier approach: the country-by-country report for the largest multinational groups under Cabinet Resolution No. 44 of 2020, a master file, and a local file. Ministerial Decision No. 97 of 2023 sets who must prepare the master file and local file, and a transfer pricing disclosure form accompanies the corporate tax return where the decision's thresholds are met.
| Document | What it contains | Who must prepare it |
|---|---|---|
| Master file | A group-level overview: structure, business, intangibles, financing | Taxable persons that meet the decision's tests |
| Local file | Detail of the taxable person's own related-party transactions and the analysis supporting the prices | Taxable persons that meet the decision's tests |
| Disclosure form | A summary of related-party transactions and connected-person payments, filed with the return | Taxable persons above the decision's thresholds |
Thresholds are set in Ministerial Decision No. 97 of 2023. They are not repeated here, so read the decision's current text for the period concerned.
Records that support the return, including pricing evidence, must be kept for seven years after the end of the tax period. Missing or late filings can attract the penalties in the corporate tax penalty table. The return itself is covered in filing the corporate tax return.
Small business relief and free zones
Two groups often ask whether the rules reach them.
- Small business relief. For a tax period in which the relief is elected, no taxable income is worked out and transfer pricing documentation is not required, but the arm's length principle still applies to related-party dealings. See small business relief for the conditions.
- Free zone persons. The FTA's free zone guidance says a free zone person must prepare the master file, local file and disclosure form where the thresholds are met. Related-party pricing also decides how much of a qualifying free zone person's income is qualifying income, so it matters for the 0% rate. See qualifying free zone person and corporate tax in free zones.
Practical steps
- List every related party and connected person and the dealings with each during the tax period.
- Check the thresholds in Ministerial Decision No. 97 of 2023 to see whether a master file, local file or disclosure form is needed.
- Write down the terms: put intra-group services, loans and licences into agreements that match how the parties really behave.
- Test the prices with a method suited to the facts and keep the comparables and reasoning.
- Register and file on time, since the disclosure goes with the return. Registration is covered in how to register for corporate tax.
Check the thresholds before relying on this page
This page describes the framework and does not reproduce the numeric thresholds or article numbers. Those can change, so confirm them in the Ministry of Finance decision and the FTA guide listed under Sources.
The rest of the corporate tax rules are collected in the corporate tax guides, and the about page explains how this reference is produced.
Frequently asked questions
What is transfer pricing in the UAE?
It is the pricing of transactions between related parties, and certain payments to connected persons, for corporate tax. The Corporate Tax Law requires those transactions to follow the arm's length principle: the terms and prices must match what independent parties would have agreed in comparable circumstances. If they do not, the FTA can adjust taxable income.
Does transfer pricing apply to a company with no foreign group?
It can. The rules are not limited to multinationals. A UAE company that deals with its owners, directors, sister companies or other related parties, including domestic ones, must still price those dealings at arm's length. What differs is the documentation, which depends on thresholds set in Ministerial Decision No. 97 of 2023.
What documents does transfer pricing require?
Depending on the thresholds in Ministerial Decision No. 97 of 2023, a taxable person may have to prepare a master file and a local file, and file a transfer pricing disclosure form with its corporate tax return. Every taxable person should keep records that show how related-party prices were set.
Which method should be used to test a price?
The FTA's Transfer Pricing Guide follows the OECD approach, in which the most appropriate method for the facts is chosen: comparable uncontrolled price, resale price, cost plus, transactional net margin or profit split. There is no single mandatory method; the choice and the reasons for it should be recorded.
Does small business relief remove transfer pricing duties?
Only in part. For a period in which the relief is elected, the FTA's guidance says transfer pricing documentation is not required, but the arm's length principle still applies to related-party dealings. A business that is unsure of its position should check the FTA guide for the period concerned.
What happens if a related-party price is not at arm's length?
The FTA can adjust the taxable income to the arm's length result, which may increase the tax due. Late or wrong filings and unpaid tax can also attract the administrative penalties described in the FTA's penalty rules, so pricing evidence should be prepared before the return is filed.
Sources
Official sources for this page, with the date we last opened each one. We located these documents on the official sites; we did not read every provision in full for this page, which is why it describes the framework and points to the documents for thresholds.
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments (consolidated, unofficial translation, v13.1.26)
- Ministerial Decision No. 97 of 2023 for the Purposes of Federal Decree-Law No. 47 of 2022
- Transfer Pricing Guide, Corporate Tax Guide (October 2023)
- Cabinet Resolution No. 44 of 2020 Organising Reports Submitted by Multinational Companies
- Free Zone Persons Corporate Tax Guide (May 2024)
- Small Business Relief Corporate Tax Guide (CTGSBR1, August 2023)