Transfer pricing: what it means in UAE tax.

What transfer pricing means

Also called: TP, Related party pricing.

Transfer pricing is the set of Corporate Tax rules that controls the prices a business charges or pays when it deals with people and companies it is linked to. In the UAE these rules sit in Chapter Ten of the Corporate Tax Law, together with the documentation duties in Article 55.

The rules matter because a price set inside a family or group can move profit from one pocket to another. A mainland company that overpays a sister company abroad, or undercharges a free zone affiliate, lowers its own Taxable Income. The Federal Tax Authority can adjust the figure back to what independent parties would have agreed.

For an SME, transfer pricing is less about thick reports and more about three habits: knowing who your Related Parties and Connected Persons are, pricing those dealings on a defensible basis, and keeping evidence. Large groups have extra filing duties, but every Taxable Person with related dealings is inside the rules. The pricing test itself is explained on the arm's length principle page.

How it works

• Transactions between Related Parties must meet the arm's length standard when Taxable Income is worked out (Article 34).
• Payments to Connected Persons, such as owners and directors, are deductible only up to market value (Article 36).
• The Federal Tax Authority may require a disclosure of related party and connected person dealings with the Tax Return (Article 55(1)).
• A master file and a local file are required where the business's Revenue is AED 200,000,000 or more, or it belongs to a multinational group with consolidated Revenue of AED 3,150,000,000 or more (Ministerial Decision No. 97 of 2023, Article 2).
• Supporting information must be provided within 30 days of a request from the Authority, unless it allows a later date (Article 55(3) and (4)).

Worked example

A Dubai mainland trading company pays a yearly management fee to its parent company abroad. A benchmarking study shows that independent firms charge about AED 600,000 for the same services. The company already has Taxable Income above AED 375,000, so the whole adjustment is taxed at 9%.

Management fee charged by the parent	AED 900,000
Arm's length fee from benchmarking	AED 600,000
Upward adjustment to Taxable Income	AED 300,000
Extra Corporate Tax at 9%	AED 27,000

An overpayment to a related company does not reduce tax: the excess is added back and taxed.

Common mistakes

• Assuming transfer pricing only applies to multinationals. Two UAE companies owned by the same family can be Related Parties.
• Pricing intra-group services with no written agreement or basis, then trying to justify the figure after the Authority asks.
• Forgetting that a downward correction needs the Authority's agreement, while an upward correction can simply be made in the return.

The law

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Articles 34, 35 and 36
• Federal Decree-Law No. 47 of 2022, Article 55 (Transfer Pricing Documentation)
• Ministerial Decision No. 97 of 2023 on Requirements for Maintaining Transfer Pricing Documentation, Article 2

Frequently asked questions

Does a small UAE company need a master file and a local file?

Only if its Revenue in the Tax Period is AED 200,000,000 or more, or it is part of a multinational group with consolidated Revenue of AED 3,150,000,000 or more. Smaller businesses still need to price related dealings at arm's length and keep evidence.

What does the Corporate Tax return ask about related parties?

The FTA return guide (November 2024) says a Related Party schedule is needed when all Related Party transactions together exceed AED 40 million, and a Connected Person schedule when dealings with a Connected Person exceed AED 500,000. Check the current return form, as these limits are set by the Authority.

Related terms

Arm's length principle · Related party · Connected person · Taxable income · Corporate Tax group. See every term in the UAE tax glossary.

For the full picture, read our guide: Transfer Pricing Basics for UAE SMEs That Deal With Their Own Owners.

Need help with Corporate Tax filing? See our Corporate Tax filing service.