Transfer pricing basics for UAE companies
Just researching? Get the free setup planner → · Specific situation? Talk to us →
Transfer pricing basics for UAE companies
The UAE introduced Corporate Tax in June 2023, and with it came a full transfer pricing framework. For founders who have built group structures with entities in multiple jurisdictions, which is common among the people who set up here, this is one of the areas most worth understanding early.
What is transfer pricing and why does it matter in the UAE?
Transfer pricing refers to the prices set on transactions between companies within the same group. Those transactions might be management fees, intercompany loans, royalties, the supply of goods, or shared services. Left unregulated, related parties could set prices that shift profits to low-tax jurisdictions. Tax authorities everywhere, including the FTA, have rules to prevent that.
The UAE’s Corporate Tax Law (Federal Decree-Law No. 47 of 2022) requires that all transactions between related parties be conducted at arm’s length. It adopts the OECD Transfer Pricing Guidelines directly, which means the framework will be familiar to anyone who has dealt with transfer pricing in Europe, India, or elsewhere.
Who does this apply to?
All UAE taxpayers who transact with related parties, not just large multinationals. A Dubai-based trading company paying a licence fee to its Cayman holding structure, a DMCC entity charging a management fee to a sister company in Singapore, a founder lending capital from a personal holding vehicle to their UAE LLC: all of these are within scope.
The documentation obligations scale with size, but the arm’s length requirement itself does not.
The arm’s length principle in practice
The core test is straightforward in principle: would an independent third party agree to this price on these terms? In practice, demonstrating that takes work.
The OECD framework sets out five main methods for establishing an arm’s length price:
| Method | What it compares |
|---|---|
| Comparable Uncontrolled Price (CUP) | The actual price to an unrelated party in a comparable transaction |
| Resale Price Method | Gross margin earned by a reseller from an unrelated buyer |
| Cost Plus Method | Costs incurred plus an appropriate markup |
| Transactional Net Margin Method (TNMM) | Net profit margin relative to an appropriate base (costs, sales, assets) |
| Profit Split Method | How combined profits would be split between independent parties |
TNMM is the most widely used in practice for services and distribution arrangements. The right method depends on the nature of the transaction and the availability of comparable data.
What documentation is required?
The UAE follows the OECD three-tier structure. For most UAE-based businesses, the relevant pieces are the Master File and the Local File.
The Master File describes the group at a high level: its structure, the nature of intercompany dealings, intangibles held, financing arrangements, and the group’s overall transfer pricing policies. The Local File goes deeper on the UAE entity specifically, listing each material related-party transaction, the method used to price it, and the benchmarking analysis that supports the arm’s length conclusion.
Country-by-Country Reporting applies to multinational groups above a consolidated revenue threshold (broadly, AED 3.15 billion, consistent with the OECD standard of EUR 750 million). Most founder-led UAE setups will sit below that threshold, but the Master File and Local File requirements can still apply at lower levels depending on local transaction values.
Documentation must be prepared before the tax return is filed, not assembled afterwards. That distinction matters in an audit.
Common mistakes founders make
The most frequent issue is treating intercompany arrangements as informal. A management fee written on a handshake, an intercompany loan with no interest rate or repayment schedule, a royalty set at whatever figure was convenient, these are precisely what the FTA’s transfer pricing review will flag.
The second issue is applying OECD concepts loosely rather than precisely. The arm’s length test requires benchmarking: actual comparable data, documented methodology, a reasoned conclusion. “We looked it up and it seemed reasonable” is not a transfer pricing study.
For freezone entities, there is an additional consideration. Maintaining Qualifying Free Zone Person status depends partly on adequate substance and the correct treatment of transactions between the qualifying and non-qualifying parts of the business. Transfer pricing and the freezone regime interact, and getting one wrong can affect the other.
When should you get transfer pricing advice?
Before your first related-party transaction is lodged in the accounts, not after. The founders we work with who have the cleanest position are the ones who designed their intercompany agreements upfront, fee structures, loan terms, IP licences, with the arm’s length test in mind.
If your UAE entity already has related-party transactions running and no documentation in place, a gap analysis is the starting point. UAE corporate tax is still young; the enforcement cycle is only beginning, and the FTA has signalled clearly that transfer pricing is a priority area.
For a broader view of how corporate tax applies to your UAE structure, the guide on UAE corporate tax for freezone companies covers the qualifying conditions and the 0% regime in detail.