When the UAE introduced corporate tax in June 2023, transfer pricing came with it — and it is not optional. Any business in the UAE that transacts with a related party — a parent company, a subsidiary, a fellow group entity, or even a major shareholder — is now required to ensure that those transactions are priced on arm’s length terms and properly documented.

For multinational corporations that already operate global transfer pricing frameworks, the UAE requirements fit into an existing structure. For smaller businesses and UAE-based subsidiaries that have never had to think about intercompany pricing before, this can be entirely new territory. Either way, the FTA’s expectations are clear — and the consequences of getting it wrong are significant.

Why Transfer Pricing Matters Under UAE Corporate Tax Law

Article 34 of the UAE Corporate Tax Law establishes the arm’s length standard as the basis for all transactions between related parties and connected persons. If two related entities transact — whether for goods, services, loans, royalties, or anything else — the price they use must be what two independent, unrelated parties would have agreed in the same circumstances.

If the FTA determines that a related party transaction was not priced on arm’s length terms, it can adjust the taxable income of the UAE entity — which means more tax due, plus penalties and interest. The adjustment is not just theoretical; the FTA has the legal authority to restate income and expenses based on what it considers an arm’s length outcome.

What Transfer Pricing Documentation Is Required in UAE

The UAE’s transfer pricing documentation requirements are aligned with the OECD’s three-tier documentation framework:

Master File

The Master File provides a high-level overview of the multinational group — its business model, global value chain, intercompany financing, and IP ownership. It is required if the UAE entity belongs to a group with consolidated global revenue of AED 3.15 billion or more. The Master File must be filed with the FTA alongside the corporate tax return.

Local File

The Local File documents the specific intercompany transactions of the UAE entity — what transactions took place, who the counterparties are, how the prices were determined, and what benchmarking supports the pricing. It is required if the value of related party transactions in the relevant tax period exceeds AED 40 million. The Local File must be prepared and available for FTA review, though it is not automatically filed unless requested.

Country-by-Country Report (CbCR)

The CbCR provides jurisdiction-level data on revenue, profit, tax paid, employees, and assets for each country where the multinational group operates. It is required if the group’s consolidated global revenue exceeds AED 3.15 billion. The CbCR must be filed with the UAE Ministry of Finance and is shared with tax authorities in other countries through automatic exchange agreements.

All UAE businesses — even those below the thresholds for Master File and Local File — must disclose their related party transactions in the corporate tax return. This is a separate requirement that applies to everyone.

The Arm's Length Principle — What It Means in Practice

The arm’s length principle sounds simple: charge what an unrelated party would pay. In practice, applying it requires a structured methodology.

The OECD Transfer Pricing Guidelines (2022) — which the UAE follows — set out five transfer pricing methods:

  • Comparable Uncontrolled Price (CUP) — compares the controlled transaction price directly to prices in comparable uncontrolled transactions. The most direct method, but requires closely comparable comparables.
  • Cost Plus — adds an appropriate markup to the costs incurred by the supplier in a controlled transaction. Common for manufacturing and service transactions.
  • Resale Price Method — starts with the price at which a product is resold to an independent buyer and works back to determine an arm’s length purchase price. Common for distribution arrangements.
  • Transactional Net Margin Method (TNMM) — compares the net profit margin earned on a controlled transaction to the margins earned by comparable independent companies. The most widely used method in practice because it is more flexible.
  • Profit Split — splits the combined profits from a controlled transaction between the related parties based on their respective contributions. Used where both parties make unique and significant contributions.

Selecting the right method — and then applying it correctly — is where transfer pricing becomes technical. The wrong method, or a poorly executed benchmarking study, can leave your documentation vulnerable to FTA challenge.

High-Risk Intercompany Transactions in UAE

Not all intercompany transactions carry the same audit risk. In our experience working with UAE-based businesses and multinationals, these are the transactions that draw the most FTA scrutiny:

IP Licensing and Royalties

Royalties paid by a UAE entity to a parent or related entity for the use of IP (software, brand, patents) are a common audit trigger. The FTA will want to see a benchmarking study that supports the royalty rate, evidence of how the IP value was determined, and substance analysis showing the IP owner actually developed, enhanced, or maintained the IP.

Management and Service Fees

Payments from a UAE subsidiary to a parent or regional hub for management services, shared services, or support functions must be arm’s length and must relate to real services that provide genuine benefit. Fees that cannot be tied to actual services — or that look like profit extraction — are vulnerable to disallowance.

Intragroup Loans

Interest rates on intragroup loans must reflect what a third-party lender would charge, taking into account the credit risk of the borrower, the currency, the term, and prevailing market rates. The UAE’s interest limitation rules (under Article 30 of the CT Law) also cap the amount of interest deductible at 30% of EBITDA, so loan structures need to be evaluated from both a TP and a deductibility angle.

Intercompany Goods Transactions

Where a UAE entity buys from or sells to related parties — common in trading, manufacturing, and distribution groups — the transfer price determines how profit is allocated between jurisdictions. The FTA will benchmark the gross margin or net margin against comparable independent companies.

What a Benchmarking Study Involves

A benchmarking study is the core of most transfer pricing documentation. It involves:

  1. Database search — using commercial databases (Bureau van Dijk Orbis, TP Catalyst, or similar), we search for comparable independent companies that perform similar functions, bear similar risks, and use similar assets.
  2. Comparability analysis — each potential comparable is screened for functional similarity, geographic relevance, and data quality. Comparables that do not meet the criteria are rejected with clear reasoning.
  3. Interquartile range — the arm’s length range is typically set as the interquartile range (25th to 75th percentile) of the profit indicators of the accepted comparables.
  4. Testing and conclusion — the actual margin or price of the tested party is compared against the arm’s length range. If it falls within the range, the transaction is arm’s length. If not, an adjustment or explanation is required.

How Fincirc Supports MNCs on Transfer Pricing

  • Transfer pricing policy design — we help you establish a clear intercompany pricing policy that covers all transaction types, sets appropriate pricing methodologies, and is defensible under FTA scrutiny
  • Local File preparation — we prepare comprehensive Local Files covering functional analysis, economic analysis, benchmarking studies, and supporting documentation
  • Master File preparation — for groups required to file a Master File, we coordinate with your global TP team or prepare it independently
  • CbCR filing — we prepare and submit Country-by-Country Reports to the UAE Ministry of Finance within required deadlines
  • Related party transaction disclosure — we prepare the intercompany transaction disclosures required in the corporate tax return
  • FTA audit support — if the FTA challenges a transfer price, we prepare the technical defence and manage all correspondence
  • Annual documentation updates — transfer pricing documentation must be updated annually. We maintain your files so they are always current

Frequently Asked Questions

  1. Is transfer pricing documentation mandatory in UAE?

Yes, for businesses that meet the thresholds. A Master File is required if consolidated group revenue exceeds AED 3.15 billion. A Local File is required if related party transactions exceed AED 40 million in the tax period. All businesses must disclose related party transactions in their corporate tax return, regardless of size.

2. What is the penalty for transfer pricing non-compliance in UAE?

The FTA can adjust the taxable income of a UAE entity if related party transactions are not arm’s length — resulting in additional tax at 9%. On top of the tax adjustment, penalties apply for incorrect returns (up to 50% of the understated tax) and for failure to maintain documentation. Interest also accrues on unpaid tax from the original due date.

3. What is an arm’s length transaction?

An arm’s length transaction is one where the terms and price are the same as what two independent, unrelated parties would have agreed in the same circumstances. The arm’s length principle requires that related party transactions be conducted as if the parties were not related — so that profit is allocated to the jurisdiction where value is genuinely created.

4. When must CbCR be filed in the UAE?

Country-by-Country Reports must be filed within 12 months of the end of the reporting fiscal year of the multinational group. The UAE MNE group or the surrogate parent entity is responsible for filing with the UAE Ministry of Finance. The threshold is consolidated global revenue of AED 3.15 billion or more.