Under the UAE Corporate Tax regime, transactions between related parties or connected persons must follow the arm’s length principle. In other words, the price, terms and conditions should reflect those that independent parties would have agreed in comparable circumstances. The Federal Tax Authority (FTA) refers to the OECD Transfer Pricing Guidelines, so businesses with intercompany dealings need evidence that their pricing is commercially justified.
Why transfer pricing matters
Intercompany transactions are common in domestic groups and multinational structures. They may include management fees, shared services, royalties, loans, transfers of goods and cost allocations. If the terms are not arm’s length, the FTA may adjust taxable income, which can result in additional Corporate Tax, penalties and interest. Sound transfer pricing records help explain how prices were set and why the arrangements make commercial sense.
Documentation requirements
The UAE applies a tiered approach to transfer pricing compliance. The reporting and documentation expected from a business depends on the nature and value of its related-party dealings, its revenue, and whether it belongs to a multinational enterprise (MNE) group.
Transfer Pricing Disclosure Form
A Transfer Pricing Disclosure Form is generally filed with the annual Corporate Tax return when the value of related-party transactions exceeds the applicable thresholds. The PDF source identifies an aggregate threshold of AED 40 million, with lower thresholds applying to certain transaction categories. Businesses should assess the detailed rules for each tax period and keep a clear reconciliation between the disclosure and their accounting records.
Master File and Local File
Formal Master File and Local File documentation is required for a UAE taxable person where either of the following conditions applies in the tax period:
- The UAE taxable person’s revenue is AED 200 million or more.
- The person is part of an MNE group with consolidated group revenue of AED 3.15 billion or more.
The Master File gives a high-level view of the group’s structure, value drivers, intangibles and transfer pricing policies. The Local File focuses on the UAE entity, including its functional analysis, the transfer pricing method selected, comparability analysis and financial information for each material intercompany transaction.
These files are not submitted with the Corporate Tax return, but the FTA can request them. The source article notes that they should be provided within 30 days of a request. Documentation is best prepared as the transactions are arranged, rather than assembled after questions arise.
Practical steps for compliance
Businesses should maintain intercompany agreements that match the arrangements actually carried out, record how prices were determined, and perform regular benchmarking where appropriate. Agreements, invoices, accounting entries and the day-to-day conduct of the parties should tell a consistent story. Where the actual conduct differs from the contract, the transfer pricing analysis may need to reflect that reality.
The arm’s length principle applies even when a business falls below the thresholds for a formal Master File or Local File. Smaller businesses should still identify their related parties, map material transactions, retain support for the pricing and be prepared to explain their position if asked.
Groups operating across free zone and mainland entities should pay particular attention to intercompany pricing, since differences in tax treatment can increase scrutiny. Regular reviews can help support the group’s Corporate Tax positions, including a free zone entity’s qualifying status where relevant.
Build the evidence early
Transfer pricing compliance is part of managing UAE Corporate Tax obligations for businesses with related-party dealings. Identifying transactions early, agreeing clear commercial terms, and keeping contemporaneous records can reduce audit risk and demonstrate that intercompany arrangements are commercially sound.
