If your business buys from, sells to, or pays a company or person linked to you, UAE corporate tax has rules for how those deals are priced. These are the transfer pricing rules. They make sure profit is not moved around just to pay less tax.
The rules are in Articles 34 to 36 and Article 55 of Federal Decree-Law No. 47 of 2022 on Corporate Tax.
What Is Transfer Pricing?
Transfer pricing is the price set for deals between related businesses or people. For example, a Dubai company paying a management fee to its parent company abroad, or renting an office from its owner.
UAE law says these deals must follow the arm's length principle. The price must be the same as what two unrelated parties would agree in the same situation.
Who Are Related Parties?
Under Article 35, related parties include:
- Individuals related up to the fourth degree of kinship, such as parents, children, siblings and cousins.
- An individual and a company where the individual (alone or with relatives) owns 50% or more, or controls it.
- Two companies where one owns 50% or more of the other, or both are controlled by the same person.
- A business and its branch or permanent establishment.
Who Are Connected Persons?
Connected persons are the owners, directors and officers of your business, and their related parties. Under Article 36, a payment to a connected person is deductible only if it matches market value and is made wholly for the business.
Example: if you pay a director a salary much higher than the market rate, the extra amount may not be deductible.
Transfer Pricing Methods
The law (Article 34) allows five methods to test if a price is at arm's length:
- Comparable Uncontrolled Price (CUP) method
- Resale Price method
- Cost Plus method
- Transactional Net Margin Method (TNMM)
- Transactional Profit Split method
You can use another method if you can show none of these fits your deal.
Who Needs a Master File and Local File?
Ministerial Decision No. 97 of 2023 says you must keep both a master file and a local file if:
| Condition | Threshold |
|---|---|
| Your business revenue in the tax period | AED 200 million or more |
| You are part of a multinational group with total group revenue | AED 3.15 billion or more |
If the FTA asks for these files, you must submit them within 30 days (Article 55).
The Transfer Pricing Disclosure Form
Even small and mid-size businesses may need to fill this form with the corporate tax return. Based on the FTA's Corporate Tax Return Guide:
- Related party deals: disclose if the total value of all related party transactions is more than AED 40 million. Then each category of transactions above AED 4 million must be listed.
- Connected person payments: disclose if payments or benefits to a connected person are more than AED 500,000.
Penalties
Not keeping the required records can lead to a penalty of AED 10,000 for each violation, and AED 20,000 if repeated within 24 months (Cabinet Decision No. 75 of 2023). If the FTA adjusts your prices, you may also pay extra tax. See our guide on corporate tax penalties.
If you find a transfer pricing error in a return you already filed, you may need to file a voluntary disclosure.
Practical Tips
- List all deals with owners, directors, group companies and family members.
- Put every related party deal in a written agreement.
- Keep proof that your prices match the market, such as quotes or benchmarking.
- Check the thresholds every tax period.
- Match your figures with your audited financial statements.
Frequently Asked Questions
Does transfer pricing apply to small businesses in the UAE?
Yes. The arm's length rule applies to all taxable persons. But the master file and local file are only needed above AED 200 million revenue or AED 3.15 billion group revenue.
Is paying my own salary as owner a connected person payment?
Yes. It must be at market value to be deductible.
Do free zone companies need to follow transfer pricing?
Yes. Free zone companies, including Qualifying Free Zone Persons, must follow the arm's length principle and keep transfer pricing documentation if required.
How long do I have to give the FTA my transfer pricing files?
30 days from the FTA's request.
Official Sources
- Federal Decree-Law No. 47 of 2022 on Corporate Tax and its amendments
- Ministry of Finance: Transfer pricing documentation decision
- Cabinet Decision No. 75 of 2023 (Corporate tax penalties)
Note: This article provides general information only and is not tax advice. Confirm the current requirements with the Federal Tax Authority or a qualified tax professional.