Transfer Pricing Basics for UAE SMEs That Deal With Their Own Owners.

Transfer pricing sounds like a problem for global groups. Under UAE Corporate Tax it also covers the salary a company pays its owner, the rent it pays a director for a warehouse, and the invoices it swaps with a sister company owned by the same family.

None of these deals is wrong. The law simply asks that they are priced fairly, and that you can show it.

The arm's length principle

The Corporate Tax Law says transactions and arrangements between Related Parties must meet the arm's length standard. A deal meets it if its result matches what unrelated parties would have agreed in similar circumstances.

The law names five testing methods, such as comparable uncontrolled price and cost-plus. For most small businesses the practical question is simpler: what would an outsider have charged, or paid?

If a result falls outside the arm's length range, the FTA can adjust your taxable income. The FTA Tax Returns guide adds that a downward adjustment is allowed only after a successful application to the FTA.

Related Parties

Related Parties include, among others:

• Family members. Individuals related within the fourth degree of kinship or affiliation, including by adoption or guardianship.
• An individual and a company. Where the individual, alone or with their Related Parties, owns 50% or more of the company or controls it.
• Two companies. Where one owns 50% or more of, or controls, the other, or where the same person owns 50% or more of, or controls, both. Sister companies owned by the same person are Related Parties.

Control is wider than ownership. It includes controlling half the votes or the board, receiving half the profits, or exercising significant influence over the business.

Connected Persons, including owners and directors

A Connected Person of your company is:

• An owner. Any individual who directly or indirectly owns an interest in the company, or controls it. There is no minimum percentage.
• A director or officer of the company.
• A Related Party of either of these, such as a close relative of the owner or a company the owner controls.

A payment or benefit to a Connected Person is deductible only to the extent it corresponds with the market value of what they provide, and is incurred wholly and exclusively for the business. A salary to an owner who works in the business is deductible, but only up to what the role is worth. Listed companies and businesses under the regulatory oversight of a UAE competent authority are outside this restriction.

The disclosure filed with the return

The law lets the FTA require a disclosure of these transactions with the Corporate Tax return. The current return uses questions and two schedules:

• Related Party transactions schedule. Completed where the total value of all transactions with all Related Parties exceeds AED 40 million. Once over that, each transaction category above AED 4 million must be reported. Dividends are left out of both thresholds.
• Connected Persons schedule. Completed for each Connected Person where payments or benefits to that person, together with their Related Parties, exceed AED 500,000.

Most SMEs will not reach the Related Party threshold, but many owner-managed companies pass AED 500,000 with a Connected Person once salary, rent and benefits are added together.

A worked example

"I own 100% of a Dubai trading company. It pays me a salary of AED 480,000 as managing director and AED 200,000 a year to rent a warehouse I own personally. It also pays my logistics company, which I also own, AED 600,000 a year for deliveries."

• Connected Persons. Salary and rent to the owner total AED 680,000, which is over AED 500,000, so the Connected Persons schedule applies. Each payment must match market value. If a comparable warehouse rents for AED 150,000, AED 50,000 of the rent is not deductible.
• Related Parties. The trading company and the logistics company are Related Parties. The AED 600,000 is well under AED 40 million, so no Related Party schedule is needed, but the price must still be at arm's length. If independent carriers would charge AED 450,000, the FTA can increase the trading company's taxable income by AED 150,000.

If the company's profit is already above AED 375,000, those two adjustments add AED 200,000 of taxable income and AED 18,000 of tax at 9%.

When you need a master file and a local file

As at 28 September 2026, Ministerial Decision No. 97 of 2023 is still the decision that sets these thresholds. A taxable person must keep both a master file and a local file only where either:

• its revenue in the tax period is AED 200 million or more, or
• it is part of a multinational group with total consolidated group revenue of AED 3.15 billion or more.

They are not submitted with the return, but must be provided within 30 days of an FTA request. Very few SMEs will reach either threshold.

Practical record keeping for a small business

Without a master or local file, you still need evidence that each owner or sister company deal is fair:

• A register of Related Parties and Connected Persons. Owners, directors, their close family, and every company any of them controls. Update it when ownership changes.
• Written agreements. A signed lease for the owner's property, an employment contract for the owner's salary, and a service agreement with sister companies.
• Market evidence. Rental listings for similar space, salary surveys or job adverts for similar roles, and quotes from independent suppliers. Date and save them.
• Separate ledger codes. Book Related Party and Connected Person transactions to their own accounts so the totals for the return are ready.
• Keep it for seven years. The Corporate Tax Law requires records to be kept for seven years after the end of the tax period they relate to.

If you elect Small Business Relief, which now applies to tax periods ending on or before 31 December 2029, the FTA guide says you still need to meet the arm's length principle but do not have to prepare transfer pricing documentation.

How we help

As part of our Corporate Tax filing service, we keep your Related Party and Connected Person register, code those transactions separately in your books, and total them against the return thresholds. Our management accounts and CFO support reports owner and sister company balances each month, so nothing surprises you at year end.

Frequently asked questions

Does transfer pricing apply to a small UAE company?

Yes. The arm's length principle applies to any taxable person that deals with Related Parties or Connected Persons. The FTA guide says even businesses that elect Small Business Relief must meet it, although they do not have to prepare transfer pricing documentation.

Can my company deduct the salary it pays me as owner and director?

Yes, but only to the extent the payment matches the market value of the work you do and is incurred wholly and exclusively for the business. Any excess is not deductible.

Do I need a master file and a local file?

Only if your revenue in the tax period is AED 200 million or more, or you belong to a multinational group with consolidated revenue of AED 3.15 billion or more, under Ministerial Decision No. 97 of 2023.

When do I fill in the Related Party schedule in the return?

The FTA Tax Returns guide says it applies when the total value of all Related Party transactions exceeds AED 40 million. Within that, each transaction category above AED 4 million must be disclosed.