Corporate Tax & Transfer Pricing in the UAE: Essential Insights for UAE Businesses

Many businesses in the UAE frequently deal with cross-border transactions with related parties. If these transactions are not priced correctly, they can impact taxable income and result in profit shifting to low-tax jurisdictions. To address this, the UAE introduced transfer pricing regulations under the UAE Corporate Tax Law, ensuring that all related-party dealings follow the arm’s length principle.

For companies operating in the UAE, understanding and complying with the UAE corporate tax transfer pricing rules is essential. Proper documentation and accurate reporting not only safeguard businesses from costly penalties by the UAE Federal Tax Authority (FTA) but also build trust and transparency in their financial practices.

Partnering with the UAE FTA tax agent and the leading corporate tax consultant in the UAE helps businesses navigate transfer pricing in the UAE with confidence, ensuring accurate implementation and penalty-free compliance.

Let’s explore the aspect of UAE transfer pricing regulation, focusing on definitions, documentation requirements, and the compliance standards that UAE businesses need to follow.

Transfer Pricing in the UAE

A core element of the UAE Corporate Tax Law is Transfer Pricing, which requires that transactions between related parties or connected entities, such as a parent company and its subsidiary, are conducted in line with the Arm’s Length Principle. This means that goods, services, or resources exchanged within the same business group must be priced as if they were between independent third parties.

With the introduction of UAE Corporate Tax with effect from June 01, 2023, robust transfer pricing regulations ensure that intercompany transactions are carried out at fair market value. The aim is to prevent profit shifting, enhance transparency, and align the UAE tax framework with OECD guidelines.

To remain compliant, businesses in the UAE must maintain accurate transfer pricing documentation and demonstrate that all related-party transactions follow the Arm’s Length Principle. Adhering to UAE corporate tax transfer pricing rules not only mitigates compliance risks but also strengthens credibility with the UAE Federal Tax Authority (FTA) and helps businesses avoid costly penalties.

Scope of UAE Transfer Pricing Rules

The UAE transfer pricing framework applies to:

• Cross-border transactions involving related parties outside the UAE
• Domestic transactions between related entities within the UAE, including free zone companies
• Dealings between UAE-based companies that are connected or fall under related-party definitions

Arm’s Length Principle: Foundation of UAE Transfer Pricing

The arm’s length principle is the core foundation of the UAE transfer pricing rules. It mandates that transactions between related entities, like a parent company and its subsidiary, are conducted as if the parties were independent businesses.

Key Aspects of the Arm’s Length Principle:

• Fair pricing: Transactions between related parties, such as a parent company and a subsidiary, must be conducted on the same terms and prices as those for transactions between unrelated businesses.
• Economic value: Requires that the taxable income reported reflect the true economic value of the transacted business.
• Preventing Tax Avoidance: Transfer pricing rules under the UAE Corporate Tax Law prevent profit shifting to low-tax jurisdictions.
• Mandatory Compliance: All related-party transactions must adhere to UAE corporate tax transfer pricing regulations to remain compliant.
• FTA regulatory oversight: The UAE FTA has the authority to adjust taxable income if intercompany transactions do not meet the arm’s length standard.
• Fostering trust: Ensures fair dealings and builds confidence in UAE corporate tax compliance.

Transactions Subject to UAE Transfer Pricing Rules

Transfer pricing rules in the UAE cover many types of related-party transactions, such as:

• Intercompany Sales and Purchases: Covers buying and selling of goods and services among group companies, domestically and internationally.
• Intra-Group Financial Transactions: Refers to loans, advances, or other credit facilities exchanged between related entities.
• Intra-Group Financing: Covers loans, credit, and interest-free advances extended between related companies.
• Intra-Group Fees and Royalties: Covers administrative, technical, and professional service payments, along with Intellectual Property or trademark usage fees among related companies.

UAE Transfer Pricing Documentation Structure

The transfer pricing documentation system in the UAE is guided by OECD BEPS Action 13, and comprises three main elements, each serving its distinct purpose.

1. UAE  Transfer Pricing Disclosure Form: Businesses must complete this form with their UAE Corporate Tax Return. It provides a snapshot of all related party transactions and their respective values.
2. Master File: This document gives an overall picture of the multinational group to the UAE FTA, detailing its organizational group structure, business operation, transfer pricing policies, intangible assets, and intercompany financing activities.
3. Local File: This document is specific to the UAE entity within the MNE group. It provides a detailed review of the UAE’s entity-related party transactions. It serves as evidence that these transactions are conducted as per the arm’s length principle.

Impact of Non-compliance in UAE Transfer Pricing

Non-compliance with UAE transfer pricing documentation as per the UAE Corporate tax law may expose your business to risk and penalties by the UAE FTA. Such consequences are as follows:-

• Financial penalties: Missing or inaccurate documentation may result in penalties as per UAE corporate tax law.
• Revised tax liability: Missing or insufficient documentation may allow the UAE FTA to recalculate taxable income, leading to higher corporate tax liabilities.
• Compliance check: Weak or incomplete transfer pricing records can trigger increased scrutiny from the UAE FTA, resulting in costly audits and business disruptions.

Companies must keep transfer pricing documents and keep them available for the UAE FTA’s inspections. Staying up-to-date is essential, so consulting a UAE transfer pricing consultant is highly recommended.

Wrap Up!

Transfer pricing in the UAE is not just about meeting documentation requirements — it’s about demonstrating that your business aligns with international standards and earns stakeholder trust.

Jaxa Chartered Accountants, a leading auditing and accounting firm and a certified UAE FTA tax agent, provides clients with the guidance and support needed to stay compliant with UAE Corporate Tax and Transfer Pricing regulations while safeguarding businesses from costly penalties.

Our transfer pricing specialists and corporate tax consultants in the UAE ensure that all related-party transactions are properly documented, audit-ready, and compliant,  allowing you to focus on growing your business with confidence and peace of mind.

Make transfer pricing simple, transparent, and hassle-free with Jaxa Auditors.