In this changing environment of UAE taxation laws, the transfer pricing regulations constitute key mechanisms to ensure that related businesses operate on an arm’s length basis and result in fair and transparent transactions. Enacted as part of the UAE Corporate Tax regime, which became effective on 1 June 2023, these rules are intended to counteract profit shifting and bring it in line with international norms. In this blog, we break down the details of transfer pricing rules UAE by discussing how they fit in corporate tax and why businesses cannot ignore it.
What is Transfer Pricing?
Transfer pricing is the price of goods, services, intangibles, or financial transactions between related persons or connected persons in a multinational enterprise (MNE) group. The core principle governing these rules stands against the arm’s length principle according to which transactions should be priced as if they were negotiated between independent parties uncontrolled by one another in similar conditions. This means that the profit share should be properly distributed according to the economic value added by each of the parties involved, taking into account: functions, assets used and risks taken.
In the United Arab Emirates (UAE), transfer pricing in UAE refers to both domestic and cross-border controlled transactions, including permanent establishments (PE). Payments and services within the group, intangible assets and business restructurings are specifically addressed with references to the OECD guidelines.
Transfer Pricing in UAE Corporate Tax
The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) introduces transfer pricing in the context of UAE Corporate Tax on the basis of Article 34, which requires that transactions between related parties and connected persons are at arm’s length. Related parties are defined as organizations with common ownership or control of 50% or more, and connected persons refer to owners, directors, and their immediate family members.
Enforcement is under the purview of FTA, which can re-determine the taxable income when it finds that transactions are not carried out based on arm’s length principle. This incorporation will allow for UAE Corporate Tax transfer pricing to contribute to the overarching requirement of taxing profits where value is added and bring the UAE into line with international standards.
Some of the principal methods to determine the arm’s length price are:
- Comparable Uncontrolled Price (CUP) Method:Compares prices in controlled transactions with shaft commissioning service to those in uncontrolled ones.
- Resale Price Method (RPM): Representatives deduct a gross margin from the resale price to unrelated parties.
- Cost Plus Method (CPM):Apply an arm’s length mark-up on the costs.
- Transactional Net Margin Method (TNMM):Compares net profit margins to an appropriate base.
- Profit Split Method (PSM): Divides total profits in proportion to contributions.
Taxpayers may rely on other approaches, at arm’s length results, that are supported.
UAE Transfer Pricing Threshold
Compliance obligation changes depending on the specific UAE transfer pricing thresholds. Regarding master file and local file documentation:
- They shall be prepared by a taxpayer in case the revenue for the tax period exceeds AED 200 million or where it forms part of an MNE group with consolidated global revenues exceeding AED 3.15 billion.
Country-by-Country Reporting (CbCR) is mandatory for MNE groups with annual revenues of more than AED 3.15 billion, and it should be submitted within a year from the end of the fiscal year.
The UAE’s threshold for transfer pricing-related party transactions, mainly for disclosures in the corporate income tax return, is an amount of AED 40M (based on financial statements or market value). Individual transaction categories over AED 4 million also need to be broken down when exceeded. Where related persons are involved, the limit is AED 500,000 per (Related) person.
The thresholds (as of November 2024) do not differ substantially from those found in any current guide and they are still valid for 2025.
Transfer Pricing Disclosure Form
UAE transfer pricing disclosure form is an integral part of the corporate tax return, filed in nine months since the end of tax period. It needs information on transactions between related parties and their values, arm length adjustments, and the methods applied.
In case the total of all related party cross-border transactions exceeds AED 40 million, taxpayers should specify types like goods, services, intangibles, and financials if they exceed AED 4 million each. Non-arm length pricing adjustments are disclosed, with positive adjustments added to taxable income. For connected parties, the disclosures exceed AED 500,000, and any value over and above this is automatically disallowed.
The form assists the FTA in risk assessment and must be substantiated with contemporary documentation. The lack of compliance may result in fines from AED 10,000 to AED 1,000,000.
Documentation Requirements
In addition to the disclosure form, there must be strong documentation. The master file offers a summary of the MNE group’s global business and transfer pricing policies, and the local file describes UAE specific transactions, functional analysis, and benchmarking.
Below the thresholds, not withstanding taxpayers still should maintain records in line with arm length, and such records will be producible within 30 days of an FTA request. These include studies of functions, comparability, and economic justification.
The Role of Transfer Pricing Services
Professional transfer pricing services are often necessary to negotiate these complexities. These services range from risk assessments and policy development to benchmarking studies and compliance automation, facilitated by tools such as ERP systems and data analytics.
For logistics, technology and manufacturing sectors, specialist transfer pricing services help with best structuring options, dispute resolution via Advance Pricing Agreements (APAs—applications available from Q4 2025), and penalty mitigation. Using experts can reduce audit risks and is consistent with global tax plans, so it’s a must-have for MNEs doing business in the UAE.
How CBM Consultants Can Help:
CBM Consultants assist you in complying with UAE Transfer Pricing regulations by preparing Master File and Local File documentation, benchmarking studies, and ensuring all related party transactions are at arm length. We support transfer pricing disclosure forms, Country-by-Country Reporting (CbCR) demands, and offer advisory services in order to minimize tax exposures while ensuring full FTA compliances.
Conclusion
UAE Corporate Tax Transfer Pricing rules are introduced to promote a fair tax environment and at the same time growth of business. Businesses can achieve compliance and mitigate risk by having a grasp of the arm’s length principle, by following UAE transfer pricing thresholds and by using the transfer pricing disclosure to form UAE effectively. Since the regime will be fully developed by 2025, closely following official FTA guidance and strong professional transfer pricing services is essential. Regardless of whether you are a multi-national company or local one, ahead of time planning regarding transfer pricing rules in UAE will help protect your business in this ever-changing market.
